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Hi Brian, Some thoughts on your "naive observations". It so occurred to me while I was reading Reading 1 of the 2016 GARP FRM Part I, that one could look at "diversification" and "correlation" in the following manner (correct me if I am wrong!) As you rightly point out, a "long" portfolio of...

I can imagine Brian - it is a Basel Committee Working Paper!! Thanks for sharing... Jayanthi

Thanks Brian - it is indeed interesting. Along those lines, what occurred to me (correct me if I am wrong!) is the potential correlation between the collateral and loan portfolio. There could be an interaction between market risk and credit risk in the banking book. Any thoughts on this? Jayanthi

You can download the JP Morgan CreditMetrics Methodology for free from the Internet, if you are interested....Meanwhile, I will most definitely look into the bonds part for integrated market cum credit risk when I get a chance! Thanks Jayanthi

Hi Brian - have you looked at the JP Morgan CreditMetrics Technical Document? Although I have to read it all over again because I have forgotten much, they compute the VAR due to Credit taking into account: Rating migration likelihoods due to changes in credit rating Default recovery rates due...

Hi Kavita and Brian: From an asset allocation perspective, cash could refer to Treasury bills.... Jayanthi

Hi @The Great Khan, As far as I can see, there seems to be no inconsistency as @ami44 has said!

That's a great point @Deepak Chitnis - I now get it. No information regarding population variance is what cuts it:) Thanks!

Hi @Deepak Chitnis and Shakti, At n = 200, I would expect the t distribution to be a normal distribution. And that is why, I think the Z statistic at 95% confidence = 1.96 should be used. Maybe, David can elaborate:) Thanks! Jayanthi

Hi David, In the problem below: Sample mean $22.64 Sample standard deviation $18.14 Sample size (n) 200 Standard error 1.28 Confidence 95% Critical t 1.972 Lower limit $20.11 Upper limit $25.17 I don't understand how you get the critical t value to be 1.972. Critical t at 95% two-tailed turns...

Hi @The Great Khan, I will let David answer the question. Thanks!

Hi @The Great Khan, As far as I know, expected return is not scaled by SQRT(T) where T = no. of days or days expressed as a % of the year, as in the case above. Only the volatility is scaled by SQRT(T) when returns are i.i.d. I think (not 100% sure) that this accounts for the heteroskedastic...

Hi @The Great Khan, As far as I can see, your first method seems to be the right one, because you have adjusted the 15% per annum expected return by a factor of 20/250: $1,000,000*(-15%*(20/250) + 40%*2.33*SQRT(20/250)) = $251,609 In your second method, the adjustment that you have made to...

Hi @taunk, In this problem, n = 16, sample standard deviation s(x) = 9 bps = 0.09%, and sample mean = 40 bps = 0.4%. We use the t-statistic to compute the CI for the "true" population mean (mu) overnight rate. CI = upper limit - lower limit The CI is: Sample mean - critical t value (99%...

Hi David, Yes, totally agree. I don't like the choices either. It is in the 2015 GARP Sample Exam for 'Financial Markets and Products' Thanks:) Jayanthi

That's great @Deepak Chitnis - very clear:) Jayanthi

Hi David, #11 above is as follows: A homeowner has a 30-year, 5% fixed rate mortgage with a current balance of USD 250,000. Mortgage rates have been decreasing. Which of the following is closest to the amount that the homeowner would save in monthly mortgage payments if the existing mortgage...

Thanks a lot Nicole - appreciate it:) You can let the $15 accrue towards the FRM Part II package! Jayanthi

Hi @Shazam023, The feedback from FRM Candidates from the May 2015 Part I Exam was that Stress Testing was tested. Hope that answers your query:) Thanks!

Hi @RiskGuy, It is clearly stated on the Admission ticket that no erasers are allowed. I guess they expect you to get the right answer in one shot:rolleyes: Thanks!