Search results

Sorry, I just watched the video before I wrote this so by "you" I meant I heard your voice saying it, even though it is from Canabarro. So A's right way risk would end up lowering E(a)s(a), because this would mean a lower loss rate as exposure rises (or less exposure as loss rate increases)...

Hello, This is very helpful but it just misses the question Chad and I were talking about yesterday. The formula we were looking at was the more simplified version of DD, which is: (Expected return - Default point)/volatility of returns, which is on the Merton sheet (you use this formula for...

Hello, You said that the cross gamma term for the other counterparty represented wrong way risk. What does your own cross gamma term represent? Since the counterparty's cross gamma term is -1 and our own term is +1 does this somehow mean that it represents right way risk? Its a bit far...

Hello, Is it just me or are there MANY iterations of this formula? I have seen the first term in the numerator written as Expected return on assets, expected value of equity and expected value of the assets. What is the proper formula? Thanks! Shannon

Hello, I appologize for the really bad question, but I cannot find a strict definition of what a "structural model" actually is. The term is used all over this curriculum, but I cannot find what differentiates a structural from a non-structural model. Thanks in advance and sorry again for the...

Makes perfect sense. Thanks! Shannon

Hello, I found the problem I was referring to when I initially asked this question. It is 68.1 in the market risk section. The question asks about the present value of P/L, it is from Ch 3 in Dowd. I guess my question is: would we ever use this concept unless we were explicitly asked for the...

Sorry about that. I print all of the questions and then make a list of things that I either didnt understand or did not sound correct. Next time I wil reference the question. Thanks! Shannon

question 28.2. Thanks! Shannon

Hello, In one of the questions, you say that the duration of zero coupon bonds in not monotonically increasing with time. The graphs in the chapter show this for "deep discount" bonds, but shouldn't the duration always be increasing for a zero coupon bond? Dmac is just the maturity, and Dmod is...

I am in NY but I am not on Linkedin.

Hello, I have read a few times that guarantee fees can be "bought down" or capitalized but I have no idea what this actually means. Is there an example that will help me understand this concept? Thanks! Shannon

The duration of both of these make perfect sense, although it still seems like a REALLY high increase in yields would give the IOs a positive duration (assume zero refinancing at that point and high discout rates, I would think this could decrease their value), but that may be beyond our scope...

Hello, Do IOs ever have positive convexity? I have seen the P/Y graph for POs, but really cannot find one for IOs. POs have pos convexity at higher yields and neg convex at low yields but I am not sure at all what the P/Y graph for an IO looks like. Also, this may be a very dumb question, but...

Agreed that it is interesting and useful, but calling eta "elasticity of demand" when the common formula for "elasticity of demand" is its reciporical is just a bit on the confusing side. Thanks again for all of the help! Shannon

Hello, Am I crazy or does Dowd define the elasticity of demand incorrectly? Everywhere I look, elasticity of demand is the % change in demand due to a change in price. He defines it as the % change in price due to the change in demand. Yet another consistency issue we have to deal with. Garp...

Interesting. Thanks! Shannon

Hello, What exactly is meant by an "out of the money tranche on CDX and iTraxx indcies"? I know what the two indicies are, I know what a tranche is and I know what out-of-the-money means, but an "out of the money tranche on a CDS index" does not make much intuitive sense. Then you say that if...

Hello, What exactly is a collateralized loan? It is mentioned as a source of funding for Icelandic banks and I was wondering what the difference was between a secured loan vs a collateralized loan. Thanks! Shannon

Hello, Why would the Forex trading desk be under the treasury department? If the goal was ALM in foreign currencies I could understand that, but it seems like this was supposed to be an arbitrage desk. It just does not seem like it would (or should) have been under the "treasury" blanket...