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Makes complete sense. Thanks! Shannon

Hello, What does it mean when it says that stub equity holders "do not participate in carry"? Does this just mean that the managers of the fund do not get the 20-30% performance fee? Thanks! Shannon

Hello, There is a lot of vocabulary about the market risk charges but I have not seen a formula that incorporates all of it. One is the max of yesterdays VaR or the ave VaR *K plus a specific risk factor. (p 86) This was original Basel II. Another (from the revision to Basel II) is the...

I am not sure if your explanation about Cat bond is correct. Cat bonds are priced at a discount because of the high amount of credit risk. If an earthquake already happened, that is the trigger that allows the seller of the bond not to repay the loan or to only repay a portion of the loan...

Hello, In the notes it says that for AMA a firm will not have to hold capital against unexpected losses if they are provisioned for correctly. In one of the problems in that section it says that the "default" is EL+UL and then only for UL if the firm can show that expected losses are properly...

I think its a bit different than that, because a cat bond is almost like a credit linked note in that the protection is funded. Of course you would have to sell it at a discount. Maybe I a missing (or implying) a cause/effect relationship that does not exist. I was reading this as saying...

Hello, In the reading it says that the floor price for a convertible bond is always the investment value but that the max depends on whether or not the bond is at maturity. It states that the option price is the max before maturity and the conversion price is the max at maturity. This may be...

Thank you, that makes complete sense except for one thing: the part about the tranche being priced below value if there is significant systemtic risk. If there is significant risk, wouldn't the cat bond be more expensive because the liklihood of a payoff is higher? Thanks! Shannon

THanks for the advice. THis was another line from Schweser. Your system is so much better. Thanks again, Shannon

Thanks! Shannon

Hello, THis may sound like a strange question, but I have a cover sheet for Litterman Ch 17 and all of the questions are the exact same as from the Bodie Chapter. Is there are Litterman set on this site anywhere? Thanks! Shannon

Have not done it yet. Hopefully will do it this weekend. WIll let you know how it goes.

Hello, The chapter says something very strange that seems contradictory to what I have read in other chapters. It says that the RMU should be independent (which makes sense) but then it goes on to say that it should NOT report to senior management. I may be missing something subtle here, but...

Perfect. Thanks! Shannon

Agreed on all counts, I just wanted to make sure that his use of the the .78 correlation was a little too convenient. On one hand, it is a way to set a maximum level of correlation betweent the two traders. I just think it would have been more realistic if ANY other correlation was used and...

Awesome! Thanks! Shannon

I think this is starting to make sense. So SAA is more along the lines of a goal for an information ratio or Shaprpe ratio, TAA is the "asset allocation" (% equities, % fixed income, etc), then we have sectors choices within our TAA and the actual securities chosen are the final step. How is...

What you said makes perfect sense, but what I am saying is that the correlation of 0.78 just happens to make everything work out nicely. It was not taken into account at all when the allocation decision was being made. No matter what the correlation between them was they still would have been...

Thanks. That makes perfect sense, but it still does not get to the heart of exactly how the author is using these terms. Take my second example from above: "Active risk is the amount by which the actual assets could underperform its TAA." How can the actual perfomance of the assets...

Hello, The jargon in the risk budgeting for pension risk section is very strange. The author uses the terms strategic asset allocation and tactical asset allocation in a way that does not match up with any definitions I have seen. From what I understand, SAA is more along the lines of passive...