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Hi David, I wonder if Cash Flow and Market value CDOs are only limited to arbitrage CDOs. or can also be Balance Sheet CDOs? Also if static CDO is Balance Sheet CDO and managed CDO is arbitrage CDO and vice versa? thanks.

Hi David, Thank you so much for the detailed explainations! that makes more sense now.. why does CLN issuer need to put the received cash in a high quality asset as collateral? to fund the yield spread when there is no downgrade/default? is the collateral mandatory? Thanks.

Hi David, could you explain how structured finance can reduce agency cost ? thanks.

Hi David, I wonder why high default correlation can make 1st to default basket less risky? will the 1st default's possibility decrease with high correlation? thanks.

Hi David, If bond does not default, CLN issuer pays higher coupon. If bond default, it passes the recovery rate to the buyer. if downgrade, it pays lower rate.. It seems CLN issuer is betting that the bond will be downgraded but will not default? Why does the CLN issuer want to issue CLN...

Hi David, "-Max(F - S,0) + Max[Min(S,V)- F,0]" I wonder if the 2nd part of this formula should be Max[Min(V, S - F),0] instead? If the risky counterparty defaults in this swap, is its liability S-F or S? Thanks.

Hi David, I have found the following AIMs are difficult to grasp.. "Compare and contrast different applications of credit portfolio approaches including Moody’s KMV Portfolio Manager, CreditMetrics, CreditRisk+, the McKinsy/Wilson Model, Kamakura’s Portfolio Manager and Altman’s...

Hi David, Could you explain how to use Merton model calculate firm value volatility? (it is part of an AIM) thanks.

Hi David, “Interest rate changes impact the price of debt in two ways: 1） An increase (decrease) in rates reduces (increases) the present value of debt. 2） Less directly, interest rates tend to be inversely correlated with a firm’s value and its stock price.” (I wonder if this should be...

Hi David, According to the formula of credit spread, it seems when time to maturity increases, the spread will decrease.. I feel it does not makse sense... Also, could you explain intuitively why the spread will decrease when interest rate increases? Thanks.

Thanks David.. below is how Schweser defined them: EC = EV -P(c) EL = FV-EV UL= deviation of EL FV: fwd portfolio value with promised return EV: expected portfolio value with expected return P(c): portfolio value in the worst case at (1-c) confidence level so it does not seem to be...

Hi David, I've figured it out. pls ignore it.. Thanks.

Hi David, it seems to me for risk neutral mean loss rate the market value of a bond only reflects default risk. it does not reflect time value of the money, current interest rate or any other risks. for example, how to determine the risk neutral mean loss rate for a premium bond...

Hi David, in your example, "Assume this valuation already includes an effective market value of 2 for the default risk to Party A". I wonder how to define/measure the 'effective market value for the default risk to Party A"? thanks.

Hi David, Many thanks for the detailed explanations! so which of the credit portfolio approaches are reduced formed and which are structural? thanks.

Hi David, Is V(B) or V(A) the counterparty exposure? BTW Is counterparty exposure a market value (than FV)? what is the different between counterparty exposure and current counterparty exposure? I am asking also because it seems some "exposures" are FV and some are MV. for example it...

Hi David, which of the credit portfolio approaches are endogenous? is it true using factors like industry, sector, country means the model should be endogenous, while using Macroeconomic factor means exogenous ? is conditional equavalent to exogenous? Thanks.

Hi David, Could you define Reduced form? is it multifactor analysis? which of the credit portfolio approaches are Reduced form models? Is KMV a structural model since it uses option based Merton model approach? If so is CreditMetrics a structural model since you said that KMV is "simple...

Hi David, I wonder if Economic Capital = Unexpected Loss? Also is the denominator of RAROC the Unexpected Loss? or how it it related since it say that the capital "allocation is based on Unexpected Loss"? Thanks.

Hi David, Is ROA always greater (or smaller) than RORAA? For a risky asset, should it be risk-adjusted up or down? Can I assume a risk free asset should not need to be adjusted? Thanks.