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Hi David, How should we understand "original maturity"? If we have 2 subordinated bonds both of which will mature in next month, one is 5 year bond and the other is 2 year bond and all else are equal. should they be treated differently? Also the bank is the issuer of the bond (ie debt on...

Hi David, Can we have the following rule of thumb in the exam without having specific statement of "include" or "exclude" in the question? 1. Op risk VAR includes EL 2. Market or Credit risk VAR excludes EL Also for delta-normal approach to calculating VAR, is it true that...

Hi David, "Full E1.09. Suppose the rate on Company A’s one-year zero-coupon bond is 10.0% and the one-year T-bill rate is 8.0%. Assume the T-bill is riskless and the probability of default of Company A’s bond is 10%. What is the LGD of Company A’s bond? a. 18.18% b. 81.82% c. 20.01% d...

Hi David, BTW does smirk mean decreasing monotonically? i am asking because it does not seem from here : http://forum.bionicturtle.com/viewthread/1673/ (the implied vol of ATM is still the lowest like smile) Thanks.

Hi David, "Capital structure leverage: as a company’s equity value decreases, its leverage (i.e., debt-to-equity or debt-to-total capital ratio) increases. Higher leverage implies higher volatility." I am confused because I think volatility smirk chart assumes equity value is constant and...

Hi David, Thank you! I personally feel FRM is more difficult than CFA since there are many "uncertainties" (if you know what i mean too). :) The question is 2007 practice exam q85 “Since equal weight correlation would provide a longer view of the correlation, this estimate would be...

Hi David, I wonder why margin is low (not efficient) while cost:income ratio is low (efficient) as well? Thanks.

Hi David, I read we must use the same weighing scheme for estimating both volatility and correlation.. But the question below does not. could you clarify? thanks. =============== Company B makes a bid for Company A at € 15 per share. Although the bid may or may not ultimately be...

Hi David, Could you explain how risk reduction benefiting a large shareholder may decrease firm value as mentioned in this AIM? thanks. Describe those circumstances when risk reduction benefiting a large shareholder may increase or decrease firm value A large shareholder can engage...

Hi David, How should I understand the daily VAR here? is it just calculated daily? I think 10-day trading horizon means I need to scale the "daily" VAR (using one day volatitlty) with 10 days to get the VAR which is called the daily VAR here? so it is actually 2-week VAR right? Thanks.

Hi David, this really makes me VERY concerned.. I feel one may be disadvantaged to certain degree in FRM exam if he/she has a true understanding (compared with others with less clear understanding)... :( Apparently GARP has not realized this error or flaw yet and continues publishing it as a...

Hi David, Could you take a look of this question for me? Why is IV correct? In the reading, it says a long period of prepayment will exhaust companion bond and shrink PAC band...

Hi David, Could you take a look? I think answer B is consistent with the Stulz's empirical finding (the "credit spread"), but it is not from Merton model.. could you clarify? thanks. In Merton’s model, the marginal probability of default _________ with maturity for companies with a...

Hi David, Is key risk indicator required? Can it predict op risk? the following 2 questions look contradicting with each other, although they are on the same year exam! thanks. 53. You have been asked to help communicate to business unit managers some practical considerations in...

Sorry.. Are you saying for SRR, "no autocorrelation" is on return; while for regression, the "no autocorrelation" is on residuals? Thanks,

Hi David, Practically thinking, I feel it makes senese. If A and B's correlation is 1, that means they must happen at the same time so have the same prob.. Just my 2 cents.. Thanks..

Hi David, Thank you so much! Actually, maybe I did not put it very clear, and I am not sure if it makes any difference. When I was asking these 3 questions, I was thinking about regression. I am not sure thinking about GARCH here is more general or more specific? So talking about...

Hi David, Sorry for keep getting confused.. :) 1. is the residual term same as variance? 2. The autocorrelation means that returns correlate to each other, or residual terms correlate to each other? Or you mean the term of 'autocorrelation' can apply to both return and error term? I am...

Hi David, So investor actually needs to be concerned about the B/S synthetic CDO's originator's credit cencentration, right? BTW, for arbitrage CDO, there is not a specific originator, right? Thanks.

Hi David, for this question, is the asset-backed securitization issue cash securitization or synthetic securitization? Or as itsyourz suggested, is there a distinction between underlying originator / asset originator? For this graph, it seems the "asset" originator still owns the assets...