Multi -Factor Risk metrics/hedges and Key rates - testability and level1 relevance

[Maiyaa]

How relevant are these topis for level 1? Is it testable? if yes what should we focus on. I am asking because in the practice question these appear to be part of level 2. Thanks.

 

[tosuhn]

Hi @David Harper CFA FRM CIPM, riding on the topic that was created back in Apr 2014, I would just like to check on one of the AIMs for Tuckman Chapter 5. In the notes, PT.T4 Valuation & Risk Models Reading 20, page 60 - AIM: Construct an appropriate hedge for a position across its entire range of forward bucket exposures. It is noted that this AIM will be updated in version 2.0 of these notes. Is this relevant for the Nov 14 exam?
Hope to hear from you soon!
Thanks.

 

[Nicole Seaman]

@tosuhn,

Yes, the AIM that you have mentioned is still relevant for the 2014 exam. It is listed in the 2014 GARP curriculum.

Thank you,

Nicole

 

[tosuhn]

Hi @Nicole Manley, thanks for your reply. However, as mentioned in my previous thread, there is no notes found under PT.T4 Valuation & Risk Models Reading 20, page 60. Will an update be done soon?

Hope to hear from you soon

 

[David Harper CFA FRM]

Hi @tosuhn That section will not be updated before the exam next month (low testability)

 

[Srilakshmi]

Hi David, I am trying to solve a problem that has portfolio which has 3 spread risk factors. I am having these two questions:

1) To calculate the Value at risk in a corporate bond- I would just take the historical spread wrt duration matched treasury bond and find the standard deviation and calculate- -1.65*duration* std dev(spread)*PV(Portfolio). Is this correct?

2) To calculate the Var due to all the 2 spreads- do I need to find the mean and standard deviations of the spread themselves or the changes in the spreads- i.e do I take the mean and std dev os (r1-r2) or the mean and std dev of yearly changes in (r1-r2) [r1(1)-r2(1) -(r1(0)-r2(0))],[r1(2)-r2(2)- (r1(1)-r2(1))]...

Thanks,
Sri

 

[Nicole Seaman]

Hi David, I am trying to solve a problem that has portfolio which has 3 spread risk factors. I am having these two questions:

1) To calculate the Value at risk in a corporate bond- I would just take the historical spread wrt duration matched treasury bond and find the standard deviation and calculate- -1.65*duration* std dev(spread)*PV(Portfolio). Is this correct?

2) To calculate the Var due to all the 2 spreads- do I need to find the mean and standard deviations of the spread themselves or the changes in the spreads- i.e do I take the mean and std dev os (r1-r2) or the mean and std dev of yearly changes in (r1-r2) [r1(1)-r2(1) -(r1(0)-r2(0))],[r1(2)-r2(2)- (r1(1)-r2(1))]...

Thanks,
Sri

Hello @Srilakshmi

Can you please let us know if these questions are from a specific practice question or from our study notes? This will better help us to move this question to a more appropriate thread where your question can be answered. There are many threads in the forum where your questions may have already been answered.

Thank you,

Nicole

 

[David Harper CFA FRM]

@Srilakshmi (cc @Nicole) agreed, and if not from an exam paper, providing the spreadsheet XLS itself is usually helpful. Thanks,