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As I remember there is one Over collaterization, A is about cash reserve，B is tranch,C is interest coverage, D is colleteraization, and then ABS exceeds the asset in the pool。What do you think?

Hi, everybody is there any feedback?

Yes, that makes sense. Thanks!

Hi, everybody A rise in interest rates will reduce the prepayment and therefore increase duration of a MBS. How to understand this? My thought is that if the rates are low this statement is true since the negative convexity of MBS is becoming less significant with less prepayment...

Wallace, an emerging market bond trader, is holding a 5-year USD Malaysian corporatebond in his book. He is concerned about the risk of his position. Which of the followingstatements concerning the risk of his position is incorrect? A the corporate bond could be upgraded so that it would have a...

Thanks for your reply! "The long-short strategy provides desirability for losing stocks by having short position in them and a slightly tilted long position in winners increases their inventory." I thought longing winners will accelerate its increase while shorting losers will exacerbate them to...

Hi, everybody, Does anyone know if duration-based hedging requires constant interest rate volatility? Thanks!

In general, a long-short strategy does not stay market neutral but invests on both the long ans short sides of the market. Which of the following is false? I. To implement this strategy the manager invests on both the long and short sides of the market II. this strategy builds on the momentum...

What about a, what if it's a asset or nothing? The profit of that can be unlimited. Or there is only fixed payment for American style digital option.

200m portfolio, one-year probability of default is 4%, recovery is 60%, defaults are uncorrelated over years. What is the cumulative expected credit loss on the portfolio? I've seen two versions of solution: 1. year 1: 200*4%*(1-60%)=3.2 year 2: (200-3.2)*4%*(1-60%)=3.15 total is...

Hi everyone, For a Total return swap, if the underlying is a bond, is the swap payer required to pay the coupon of the bond as well besides the price change of the bond? Thanks!

Hi David and everyone, 1. I had trouble to understanding one sentence when talking about hedging bank's liability side(EASA) of CVA formula(CVA=EASA-EBSB) "the bank-specific or idiosyncratic risk is more difficult to hedge and would require that the bank to sell credit protection on itself"...

http://www.garpdigitallibrary.org/display/cp_display.asp?cpid=888 The books I was referring to are listed in the official website

Thanks for your star! Those two questions are both from 2012 FRM study note of part II of book 1(Market risk). They are listed as practice exam of the materials on market risk (book1)

1. A zero-coupon bond with a maturity of 10 years has an annual effective yield of 10%. what is its modified duration? A 9 B 10 C100 Shouldn't we use D/(1+y/2)? The explanation just use D/(1+y). There must be a difference between periodic yield and effective yield. 2. Which type of option...

Hi everybody, I am confused about a concept in chapter 7 of Jorion. In study notes (topic 52, 2012 edition), there is a sentence "both a correlation of zero and one will place a lower and upper bound on the portfolio total VaR". I can understand one will act as upper bound. How about -1...

Hi everyone, There is one paragraph under the formula of total cost of liquidity in Topic 35 of 2012 study notes (chapter 18 of Carrel Philippe's funding risk). The author says: "typically, when central bank rates decline, inter-bank market rates fall by a greater proportion. However, it...

Hi David, Could you please explain a little bit about why the CTD system will favor low coupon and long maturity bond when the yield is greater than 6%? Thanks a lot!

Hi, David, Thanks for your previous reply! I have a question about Duration: Suppose I have a FRN starting at reset date, then it will have a duration of zero, which I can understand since the price of it will not be affected by changing of the rates. However, when I tried to calculate the...

Thank ahansen and David! Your explanation helps a lot! I have a further question: Step 4, why do we need to standardize it by dividing CF? What is the price after dividing CF? Should that price be the theoretical future price quoted from exchange or bloomberg or other data source? Thanks!