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I am not sure about the CLN myself, I devoted quite a while to this one during the exam. Following the CAIA curriculum I have my doubts that the CLN answer with the collateral is correct (even if I chose it in the end). What's for sure: TRS is wrong.

the Total Return Swap answer was for sure nonsense as they mixed up the appreciation/depreciation of buyer/seller. I chose the answer with the Credit-Linked Note.

Enjoy, well deserved!

It was a rough example. I was simply differentiating between idiosyncratic vs. business risk and not talking about any subsets of risks. Business risk is an overarching (all encompassing) term and it can be every sort of risk when the business starts it's operation on day 1.

I am citing C. Diderich 'Positive Alpha Generation' (Wiley) here where he mentions the following with respect to idiosyncratic risk. Idiosyncratic (diversifiable, non-market) risk: the risk specific to asset 'a'. Emphasis mine: The CEO of Coca Cola falls under a bus and dies. This will have...

with regard to CoCo's: this is a term enshrined in the Basel III regulation since many years and everyone who wants to become a FRM should at least know what a CoCo is, irrespective of whether CoCo's are dealt with in great detail in the AIM. I fully agree that the question around (CoCo's effect...

well, the overwhelming fact in favour of Incremental VaR is that it was a NEW trade (Jorion: 'evaluate the total impact of a proposed trade on portfolio p. The before and after comparison is informative. If VaR is decreased, the new trade is risk reducing and vice versa. See Jorion Figure 7-3...

it was definitely Incremental VaR as the position he wanted to add was quite large about ($25M). And Jorion says 'The change in VaR owing to a new position. It differs from marginal VaR in that the amount added/subtracted can be large, in which case VaR changes in a nonlinear fashion'.

well but I appreciate that the level of difficulty is that high, otherwise everyone would take it and the FRM credentials will very soon lose its shine. It should remain an elite certificate for only those who are willing to dig deep. In short, there is nothing wrong increasing the bar from year...

apparently there have been different figures at different exam sites. I think the VaR was about 2.2 and the they wanted to have the LVaR for 10 days. 2.2 x sqrt {(10+1)*(1+2*10)}/6*10 = LVaR ~ . 4.3

Should be a volatility Frown. See foreign currency options in Hull. I agree with the vol. adjustment vor the LVaR: multiply the VaR with sqrt{(1+t)(1+2t)}/6t}. Took CP Risk as well for the question with the pension fund.

exceptionally hard. Many hazard rate questions, CoCo's (it's effect on capital requirements) have been tested in 2 or 3 questions, strange example with Tracking Error and table with different benchmarks. Many questions about Central Counterparties.

I want to contribute to this topic with the following (perhaps to avoid future headaches): Even if the idea how Malz derives this is still not really clear to me, let me share this with you: David gave us an excellent indicator how this works: variance[A(T)] = variance[B*m + SQRT(1-B^2)*e] =...

Hi David, I got a solution to this (but perhaps it is simply a coincidence): 1. I took Jorion's equation 7.35 and divided the total Portfolio VAR ($ 257,738) for each currency (CAD and EUR) by their respective wealth (or call it money invested in each currency) termed 'W' which is (CAD = $ 2M...

Hi David, Hi All, I am referring to Jorion Chapter 7 (Portfolio Risk), 3rd edition: Perhaps this one is straightforward, but I can't solve for the changed weights (final positions) for the CAD and EUR (85.21% and 14.79% respectively). I got the marginal VaR (CAD = 0.0528) and (EUR = 0.1521)...

Hi David, thanks for your immediate reply and your explanation!

Hi All, Can someone please explain where the initial short rate (5.121%) in equation 9.11 (Tuckman,page 264) is coming from? I can't see any derivation nor I can't get to this myself. Equation 9.10 stipulates how to get the long-run value of the short- rate, but the initial short-rate (5.121%)...