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Re the image, where would i put that? to what end? Two reasons: (1) alpha-numeric symbols are hard to read and understand; and (2) to do the *mental translation* of computing VaR under a *continuous* distribution in Jorian Eq (23.10) [page 533] to a *discrete* distribution. I think that...

Oops, one more (should be a trivial) thing. Could you create a PICT (and you agreed that you could do this by pasting it into EditGrid) of the symbolic math of Jorian Eq (23.10) [page 533] for the discrete Bernoulli distribution: aka CRITINBOM(1 Trial, 0.17% probability of sucess, 99.9% alpha) ?

Wow, your response was totally *awesome*! :-) I sort of understand what you are saying but per Jorian's example could you give a heuristic (rule of thumb) on "VaR falls awkwardly on the entire amount of or on zero? At this stage of cramming the last thing I need is to memorize the Bernoulli...

Could you flesh out a bit more how Jorian found the Worst Case Loss (WCL) at the 99.9% confidence level in FRM Handbook Example 23.5 (p. 534)? Obviously because I don't really understand the "physics" (or "economics") but in computing Credit VAR or Unexpected Loss for the 99.9% confidence...

David, I am going through Jorian FRM Handbook Example 21.19 (p. 495) and am having difficutly seeing the "physics" (or "economics") of his answer (p. 499). Specifically I thought that margin requirements were to *decrease* credit exposure--but here in this example he *added* it to the daily...

E[ab]=P[ab]*(1)(1). That's it--thanks! :) Glad I'm going though Jorian's FRM Handbook. There are so many subtleties from these elementary building block concepts.

Sorry David but it didn't answer my question. For example, where did you get E(ab)=3%? If I read Jorian correctly (p. 425), E(AB)=Prob(A and B) = 0.15%. Note that your answer of 0.083 is not one choices for answering Jorian's question (p. 420).

David, I am going through Example 18.8 in Jorian's FRM Handbook (p. 420). I know that for a Bernoulli random variable E[X] = p Var[X] = p (1-p) Why is E[XY] = Prob[X and Y]? Apologies that I don't have Gujarati but could you refresh my memory of probability theory on how I...

How do you get math symbols into EditGrid? Please do tell? Maybe I'm wrong but haven't I seen that in your screencasts when you pasted a graphic image into the spreadsheet? In any case with McDonald I'm okay. Once again, thanks!

Hmm... now looking at McDonald's Derivative Markets (1st edition) and on Table 13.6 (and Figure 13.4) in the section "Gamma-Neutrality" I believe that he presents the calculations that I am looking for. [hooray!] Unless I have trouble with McDonald I think that I'm okay so you can ignore the...

Thanks again for the fast reply but I still don't see it. For example in "Gamma trade:" what happened to the second partial d^2C/dS^2? Would it help to peek in Carol Alexander's book using Amazon's "Look Inside"? If so, what page is it? Whereabouts in Hull's book does he give the two...

David, thanks for the quick reply and I have now read Hull's example many times over. I know that there is something awfully trival going on here but I am still confused. I follow the math but not the "physics" behind it. I am getting hungup on the *definition* of delta = dC/dS...

By definition: delta = change_call / change_stock. Rewriting change_stock = change_call / delta. In the example we are given delta = 0.62 and found change_call = 41,667 calls. To find change_stock why did you *multiply* instead of *divide* change_call by delta?

David, I have been working through Hull and have more questions. (I am using an ancient edition so hopefully he has retained the same example and notation.) Specifically, he said that the forward rate agreement is an agreement to the following cash flows: Time T1: -100 Time T2: +100...

David, In your screencast you calculated the value of a 3x9 FRA that locked in LIBOR@ F=3%. Three months later the prevailing 6-month spot rate was ST=4%. To calculate the amount to be settled in cash you discounted the net value H33 by 4% over 6 months PV = 1/(1+ 4% x 0.5) Jorian FRM...

David, I know that the "clean price" of a bond is its quoted price, and hence the "dirty price" (invoice price, full price = clean price + accrued interest) is what the buyer pays the seller of the bond. (The picture I like is the sawtooth visual from Bodie, Kane & Marcus' Investments...

David, I am using an ancient Hull text and am hoping that he kept the same example on currency swaps. Specifically he has the following table Dollars Sterling Company A 8.0% 11.6% Company B 10.0% 12.0% Hull says that "company...

David, Unfortunately I am using an ancient edition of Hull and thus do not have his chapter on volatility smile. From slide 48 I know that implied volatility can be determined through "goal seeking." I listened carefully to slide 67 but didn't understand what the second line means...

On slide QUANT A slide 21 the time series to calculate daily VaR was assumed to have an expected return of zero. Question: Given that under CAPM the expected return E[r] is nonzero (= riskfree rate + beta x market risk premium), how do I reconcile the two?

Is the BIS Asymptotic Single Risk Factor (ASRF) model a credit portfolio model (e.g., KMV Portfolio Manager, CreditMetrics, CreditPortfolioView, Credit+)? If so is the difference that ASRF only assumes systemic risk as expressed as a single systemic risk *correlation* factor in the IRB risk...