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    Good luck and New Website Coming Soon!

    Congrats David and team for the website's cool new look !! ...keep up the great work that you're doing :)
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    Calculating vega for IRS

    Per my understanding, measure of Vega is applicable only for portfolio which would contain swaptions and not for IRS. Here, implied volatility is derived from option value on interest rate swaps. However, IRS would have delta and gamma (convexity) measures for any type.
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    Duration Weighted Spread ??

    Duration-weighted spread (DWS) provides an estimation of a portfolio’s credit risk. The DWS represents the maximum possible gain if credit spreads drops to 0, or conversely the maximum loss should the spread doubles. the DWS of a security is a product of weight in amount, Duration (in this case...
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    How long do we have to wait for employment verification?

    Hello David and Suzanne, Glad to share that I finally received experience verification email from GARP. I could not thank you enough for all the wonderful support you both extended... Aaditya
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    November 17, 2012 Exam Results released - January 2, 2013

    Cleared Level II with 3,1,1,1,3....no surprises for 3rd quartile in the 'Current Issues' as I did not even finish reading it but 3rd quartile in 'Market Risk' is a bit of a disappointment for me. But, I wish to thank David and Suzanne for excellent quality practice questions and their fantastic...
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    Basket CDS

    @ shakti, my logic was more from the "all defaulting" condition. It seems logical. So, essentially we are agreeing on that 1) risk of default of all 20 assets (in a basket of 20) is more in a high correlation compared to all defaulting in a low correlation; and 2) risk of 1 defaulting in a...
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    Basket CDS

    Hi Shakti, The logic seems to be counterintuitive. Shouldn't it be risk premium for high correlation basket>risk premium for low correlation basket? If we compare the probabilities of all defaulting in the condition that correlation = 1, it will be equal to p(A) for all in the basket ,while for...
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    Expected shortfall

    Hi, You might find the below thread relevant... http://forum.bionicturtle.com/threads/credit-var-calculating-wcl-jorian-frm-handbook-example-23-5.813/ Thanks, Aaditya
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    Credit Risk: General Questions, question 213.1

    Hi Chris, It's nothing but the bond values weighted by binomial probability of default in the 3 bond portfolio to calculate EL, nCr * (prob. of default)^r* (prob. of no default)^n-r. here is the calculation for clarity -> (1-0.003396)^3*(0 mn.)+3*(0.003396)*(1-0.003396)^2 *...
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    Handbook example 24.4

    I think the second method is accurate as it uses the cumulative default probability for two years. I visualize it as follows - Expected value of cash flows in two years = X0*p+X1*p(1-p), where X0, X1 are cash flows in year one and two and p is the default probability. X0=Face value of...
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    Put price when maturity tends to infinity

    Presuming question is for an European put option. As European options can only be exercised at the expiration date and the maximum it can fetch is only K, the strike price at maturity. Hence the the maximum payoff that can happen, when discounted at present time, will be K*exp(-rT). as...
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    Dowd - Extreme Value Theory Questions

    As z= (x-mu)/sigma, In the generalized expression for the Extreme value distribution as we take the limit as ξ - > 0, the expression inside the bracket will reduce to exp(-z) and hence the whole expression for GEV will become exp {-exp(-z) } (limit of an exponential) . So, Gumbel distribution...
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    Test at the α = 0.05 level of significance

    Its a typical test of goodness of fit where we are required to establish whether or not an observed frequency distribution differs from a theoretical distribution. so chi-square test is suggested. The null hypothesis here would be H0: pA(Florida) = p(Iowa) = p(Missouri) we have similar null...
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    FRM Fun 15. P2 (mortgage loan term)

    If I understood question correctly, it is quite straightforward – Monthly payment of a mortgage is given by, E1 = P x r x (1+r)^n1/ (1+r)^n1-1 If we increase the monthly payment to E2 the payment term changes to n2 , i.e. E2 = P x r x (1+r)^n2/ (1+r)^n2-1 Rearranging the above expression...
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    FRM Fun 11. Do we really need all three durations? let's settle this now!

    As above posts adequately explained in mathematical terms.. would like to just add in more 'qualitative' terms.. The type of duration measure used is dependent upon the type of investments being analyzed (e.g., bullet securities versus bonds with embedded options) among many others.and hence...
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    FRM Fun 10 (Mon): JPMorgan's VaR Model

    It is highly unlikely on firm's part, being the one that helped pioneer risk management as we know it today,to have relied upon "a single" VAR model and probably would have used a hybrid approach, so agree with Alek on that point. Also as rightly pointed out some of the complex exposures with...
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    FRM Fun 10 (Mon): JPMorgan's VaR Model

    Would add my perspective. JP Morgan based its VAR calculations for its market exposures on historical simulation approach.The new model probably didn't take into account the apparent change (increase) in the correlations among the risk factors due to large outsized trades that JPM was making in...
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    FRM Fun 8 (Wed)

    I'll approach the question in following way... Given Liner regression model Yi = C+B*Xi +ei then estimated Ŷi = Cˆ+Bˆ*Xi +eiˆ Where Cˆ, Bˆ and eiˆ are estimates of C, B and ei respectively Under the normality assumption Cˆ, Bˆ and eiˆare normally and independently distributed. As a result Ŷi is...
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    Did you win? Check here for winners for the week ending July 6th

    Thanks Suzanne and David. That's quite encouraging for a starter like me who's just joined this lively forum...I would let my winning accumulate and shall look forward to more such interesting questions..
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    Fun facts

    Hi Alek, My ans would be Onion Futures, the only commodity for which future trading is banned by law (Onion Futures act of August 1958) and it still remains in effect to this day. This came into being due to a reported price manipulation attempted by two traders at CME. Subsequently, onion...
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