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Any chance you can let us know what the book said? (I suppose I could look too!). Glad you found it. Thanks.

I did not think data problems led to different VaR measures. As historical just looks at history and the others have built in assumptions, I thought it was obvious that it was differences in assumptions that led to different VaRs. I'm not sure why others thought it was data problems.

Also, when calculating VaR for options, do we treat deep in the money calls the same as the actual stock but exclude out of the money calls completely?

On the Madoff, I thought it was obvious that the consistency of returns was a red flag. However, others have written other things here.

I still have not found a convincing answer on the Q-Q plot of a normal vs. an empirical distribution, or something like that. For some reason, I was thinking of empirical as being a lognormal distribution, but thinking about it now, couldn't it be any distribution. I couldn't logically figure...

The question did not say average, otherwise it would have been very easy. The reason I did not take the average is because it does not make sense to me. Now, the sum does not either. However, if one were only liquidating one at a time, the answer could be the sum. I think the numbers were as...

On the Liquidity Duration Question. Given a position in one security with an average daily volume as well as a position, it was easy to solve for the liquidity duration of each. However, in the answers, I might've chosen the maximum of the two. For instance, if one position takes 4 days to...

re: the OTM and ITM call. Clearly, from the graph, an OTM put and an ITM call have the same vol. Because of this, and logic pointed out in another post, I think the answer was OTM call. It's a poorly written question because it really is not testing the concept. I can guarantee that most...

On the other option question with the 4 barrier options. This was relatively easy if you realized an up and out barrier option plus an up and in barrier option is equal to the option itself. So, up and out plus up and in call is equivalent to a call option Down and out plus down and in put is...

Options question - the wording was confusing. There was a graph of strike vs. IV, with the normal equity frown - meaning the IV of lower strikes was higher than that of higher strikes. It asked something to the effect of, which are over/undervalued relative to the ATM option. For simplicity...

Thanks for the replies. I appreciate it.

In Fabozzi, Introduction to Mortgage and MBS Markets, page 18. It says prepayments occur because of refinancing. It then goes on to say a driver of cash-out refinancing is home price appreciation. Does taking out a home equity loan or an additional loan on a house count as refinancing and...

I understand that as interest rates go down, homeowners are likely to prepay and thus, holding an MBS is worse than holding a regular treasury bond. However, I am trying to understand why it is worse to hold an MBS than a regular treasury bond when interest rates rise. In my mind, an MBS...