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Hello, There is another example in Jorion where he seems to pull something out of thin air. If you look at the risk budgeting problem on p 444, there is something fishy going on. The particular step I am talking about it where he says the $525 million is split evenly betweent the two...

Sorry, nevermind. I found what I was looking for. Shnnon

That makes perfect sense. Jorion's explanation sounded like he used optimization to come up with the formula instead of using optimization within the formula. Thanks! Shannon

Hello, I was looking at one of the equations in Jorion and it looks there is some circular referencing and I was hoping you could clear it up for me. Equation 17.7 seems is supposed to help determin how much capital to give to different managers. However, at least one of the variables is a...

Hi everyone. This is a great thread. My understanding of this stuff seems like it is on the same level with Hend and ibrehim. Certain things just tend to somewhat contradict others: If it is a true sale, then the bank no longer owns the assets, but if it does then that amount must be...

Hello, In the study notes and the video, you mention that options risk should also be counted in the larket risk charge along with currency, commodities, equities and interest rates. I assume it is in the trading book, but that is never really stated. Also, are there general and specific...

Thanks! Shannon

That makes sense. Thanks! Shannon

Thank you. I know. I tend to over use the royal "you". Sorry about that. Now for the real question: So if we are only supposed to update our data set every month (in normative times) does this mean that we have the same VaR for this whole period? Same question goes for stressed VaR. In...

Hello, On p 93 of the op/integrated risk notes you say that one of the changes in treatment of tier 1 acpital is "minority interest" but you never really explain it. What do you mean by this? Thanks! Shannon

Hello, When you say "monthly updating" for market risk VaR, does this mean we only have to calulate this every month or does this have something to do with adjusting our model (data, etc) every month? Thanks! Shannon

Perfect. Thanks! Shannon

This is a little out of left field, but CPR is an annual rate, correct? So the 0.2% in month 1 means that if nothing changed (prepayment rate stayed constant) then 0.2% of the total loan pool would be paid off at the end of the first year, correct? Thanks! Shannon

Hello, I know this may be splitting hairs, but certain readings refer to type I errors (Neymon Pearson rule) as excepting a bad model and other readings refer to type II errors (VaR backtesting) as excepting a bad model. I know it all depends on what the null hypothesis is, but is there a...

Hello, I understand the idea of Hull's concept of netting: if a counterpaty defaults on one obligation it defaults on all obligations with that counterparty, but couldnt this concept be used to its advantage in a immoral way? For instance, lets say there are 10 contracts outstanding between...

Hello, In the notes (and video) you state that if there is no correlation between assets then the addition of that asset will lead to zero risk contribution. I do not think this is correct, at least from a simple mathematical standpoint. UL(1)=30 and UL(2)=40. UL port if rho=0 is sqrt...

Hello, I have read in a number of different places that equity prices are the main driver in KMV models. This may be an absurd question, but is this the same KMV that we have been talking about all chapter? If so, it seems like the PD depends on lots of things and I am not quite sure why the...

That was very thorough and very instructive. Thank you for taking the time to break this down into a much easier to interpret format than was presented by the readings. Shannon

It does. Now for the $25,000 question (sorry for the old game show reference): if we are not explicitly told which variation to use, which one should be our default? Thanks! Shannon

This absolutely answers 90% of my question. THANK YOU!! The other examples that I saw (and these are from Kaplan and I know that they tend to make lots of mistakes) are in two different forms. One version says "the return on assets is X" and this X (in dollars) is used as the first term in...