September 25, 2005
The Greenspan Put
Tightening aimed (indirectly, of course!) at asset bubbles will be
reversed, big time, if and when those bubbles pop.
This is the Greenspan Put !
-- Paul McCulley.
As explained at Pimco:
Put more technically, the value of the Greenspan Put will rise
exponentially if the curve inverts, while the cost of "buying"
that Put will actually become negative: in an inverted curve,
a duration-equal barbell of cash and long bonds yields more than
a bulleted portfolio. Such is the weirdness of an inverted curve:
the less volatile, convex barbell structure actually yields more
than the more volatile, less convex bullet. Rather than paying
for insurance, you get paid for taking it!
Posted by omor at 12:07 PM | Comments (0)
September 01, 2005
LIBOR rate history
LIBOR (London Inter-Bank Offered Rate) is based on rates that
contributor banks in London offer each other for inter-bank
deposits.
From a bank's perspective, deposits are simply funds that are
loaned to them. So in effect, a LIBOR is a rate at which a
fellow London bank can borrow money from other banks. Rate
calculations incorporate variables such as time, maturity
and currency rates. There are hundreds of LIBOR rates reported
each month in numerous currencies.
Examples: the 1 Year LIBOR as published monthly by Fannie
Mae: rate history.
Posted by omor at 11:59 AM | Comments (0)
August 26, 2005
Macroeconomic determinants of the yield curve
Macroeconomic variables besides inflation and real activity drive the
yield curve in the framework of no-arbitrage affine term structure
models. We construct model-based projection of all the latent factors
onto the observable macro factors, which are real activity and
inflation.
As a result, the factors are decomposed into the “macro” part: a
linear function of the macro variables and their lags; and the truly
novel part which is orthogonal to the entire history of the macro
variables. We are able to relate the unexplained part of the short
rate to such measures of liquidity as the AAA credit spread and MZM
growth rate. The unexplained part of the slope is highly correlated
with the budget deficit.
NO-ARBITRAGE MACROECONOMIC DETERMINANTS OF THE YIELD CURVE
Session Term Structure Models
Field Finance
Session Chair Ricardo Brito, Ibmec São Paulo
Presenter(s) Ruslan Bikbov, Columbia Business School
Co-Author(s) Mikhail Chernov, Columbia Business School
Topics Asset Pricing, Empirical Finance, Financial Econometrics and
State Space and Factor Models
Keywords Affine models, Credit Spread, dynamic no-arbitrage
models, Liquidity, Monetary policy, MZM money, Public debt, Taylor
Rules, Term Structure of Interest rates and Vector Auto Regression
JEL Codes E43, E44, G12
Posted by omor at 06:12 PM | Comments (0)
August 15, 2005
Financial Rounds: Academics argue gently
Financial Rounds on how to argue gently *.
See also Suzette Haden Elgin ...
FR visits the FMA and finds another golden oldie: NotN.
The Gentle Art of Verbal Self-Defense at Work (Paperback)
Posted by omor at 11:22 PM | Comments (0)
August 08, 2005
edhec-risk hedge fund research
Buy a fund of funds or a hedge fund index ?
Measure risk with more than Sharpe ratio and multi-factor models.
edhec-risk reports research on investment alternatives.
Indexes and benchmarking
Multi-style multi-class risk allocation
Style and Performance analysis.
With very Germanic style:
Unique Access to all Information
Edhec-risk.com offers a unique access to all information appearing in
the different sections and archives. The information is accessed using
a search engine which generates both the key words and the content of
available documents. All the information available on the site is
accessible in relation to the key themes that correspond to the
Centre’s research programmes.
[via Mahobolis]
Posted by omor at 08:50 PM | Comments (0)
July 26, 2005
Moodys KMV 2005 Credit Risk Research
Posted by omor at 12:52 PM | Comments (0)
May 27, 2005
Hedge fund history
Conceived in 1949 by Alfred Winslow Jones, then an editor at Fortune
magazine, a hedge fund hedged its bets by taking "long" positions on
undervalued stock and "short" positions on overvalued stocks. The idea
was to be smart and nimble and bold, and to make oversized returns.
In the last decade, however, hedge fund companies have started to
resemble mutual fund companies: big, plodding institutions for
pensioners. Fewer and fewer hedge funds are now making impressive
returns for their investors. In the 10 years through April 1995,
according to the HFRI Fund Weighted Composite Index, the typical
hedge fund has only just managed to beat the S.& P. 500 Index, with
an average annual return of 11.97 percent compared with 10.26 percent
for the S.& P. 500. In other words, the Wild West has become a
suburban community, where managers ride golf carts instead of bucking
broncos.
What happened? For one thing, the amount of money invested in hedge
funds has doubled in the last five years, to $1 trillion. It's hard to
find creative places to park that much money. Besides, no special
skills are needed to create a hedge fund - that's why everyone and his
uncle know somebody who's starting one. Investors are partly to blame.
They love the glamour of investing in hedge funds, but, at the same
time, they can't tolerate risk. Most investors can't tolerate even a
month of losses.
The real problem with hedge funds may be the managers themselves:
they're earning too much money. It's almost vulgar. In the past, hedge
funds were paid 1 percent of assets under management, plus 20 percent
of that year's return. Recently, even as their performance has sagged,
more and more hedge funds have increased their fees to 2 percent of
assets under management - plus 20 percent of returns. To make big
money for themselves, hedge fund managers don't have to make big
returns; they just need to hold on to their pool of clients.
[via Nina Munk]
Posted by omor at 01:26 AM | Comments (0)
May 10, 2005
Risk Glossary by Glyn Holton
Glyn Holton's Risk Glossary explains common terms such as capital asset
pricing model (CAPM).
Posted by omor at 02:48 PM | Comments (0)
April 21, 2005
VIX: trade implied volatility
One of the most interesting ways to trade implied volatility (long)
is to buy forward starting out of the money calls on S&P500. At some
shops you can get decent pricing and better deal than the vol swap
market offers.
Since the option is forward starting it does not have any time decay
until the strike is set at a "strike date". At strike date the option
turns into a regular european call, which you can sell or dynamically
manage.
This strategy works like a call on volatility in the sense that vega
is convex. The skew and liquidity is a risk factor so I wouldn't got
that far out of the money.
Marketwatch quotes the VIX.
Posted by omor at 10:06 PM | Comments (0)
April 18, 2005
Trade the VIX
Can you trade the VIX ?
Chart: VIX vs SPY ?
CBOE micro site on the vix.
CBOE Volatility Index® (VIX®) is a key measure of market expectations
of near-term volatility conveyed by S&P 500 stock index option prices.
Since its introduction in 1993, VIX has been considered by many to be
the world's premier barometer of investor sentiment and market
volatility.
Posted by omor at 06:59 PM | Comments (0)
March 28, 2005
Hedge funds bubble ?
In a way, hedge funds are to mutual funds what Evel Knievel was to
weekend motorcyclists. Unlike mutual funds, which are restricted in the
ways they can invest, hedge funds can use leverage, trade derivatives
and bet that stocks will fall, a technique called shorting. And unlike
mutual funds, which generally try to beat a market average, hedge funds
seek positive returns, even in down markets.
In 2003, the 25 highest-paid hedge fund managers earned more than $200
million, on average, according to a survey by Institutional Investor
magazine. The top-ranked manager, George Soros, took home $750 million
that year. At No. 2 was David Tepper, manager of the $3 billion
Appaloosa funds, who earned $510 million, according to the magazine.
[NYT]
Posted by omor at 11:16 PM | Comments (0)
March 27, 2005
Riskmetrics journals
Riskmetrics journals and old (1999-2002) Working Papers.
Posted by omor at 04:34 AM | Comments (0)
March 26, 2005
Torto Wheaton Research (TWR)
Torto Wheaton Research (TWR) studies commercial real estate.
Their Debt Risk Management has a nice list of features. See also
Portfolio strategy and misc research desk.
Related: Center for Real Estate.
Posted by omor at 07:02 PM | Comments (0)
March 24, 2005
PRMIA guide
PRMIA guide [PDF] prepares you for the Professional Risk Manager (PRM) exam.
Posted by omor at 10:56 PM | Comments (0)
March 23, 2005
Hedge Week
Hedge Week newsletter. See also Hedgefund News.
Posted by omor at 09:41 PM | Comments (0)
March 21, 2005
IAFE: International Association of Financial Engineers
IAFE: International Association of Financial Engineers
The IAFE is the professional society dedicated to fostering the
profession of quantitative finance by providing platforms for the
discussion of cutting-edge and pivotal issues in the field. Founded in
1992, the IAFE is composed of individual academics and practitioners
from banks, broker dealers, hedge funds, pension funds, asset
management firms, technology firms, regulatory bodies, accounting,
consulting and law firms, and universities across the globe. Through
frank discussions of current policy issues, hosting programs to
educate the finance community, and recognizing the outstanding
achievements in the field, the IAFE acts as a beacon for the
development of quantitative finance.
Throughout its history, the IAFE's pre-eminent leadership has
positioned us to respond with savvy to the evolving needs of the
financial engineering community. The IAFE's programs – from our
area-specific committees to our evening forums to the Financial
Engineer of the Year Award – are designed to provide our membership
with uniquely valuable activities to enhance their work in the field.
Posted by omor at 03:37 PM | Comments (0)
March 16, 2005
What is Financial Engineering ?
What is Financial Engineering ?
Financial engineering involves the development and creative
application of financial theory and financial instruments to structure
solutions to complex financial problems and to exploit financial
opportunities. Financial engineering is not a tool. It is a profession
that uses tools, of which derivatives are one. Importantly, financial
engineering differs from financial analysis. The term “analysis” means
to “decompose in order to understand.” The term “engineering” means to
“build.”
Posted by omor at 06:43 PM | Comments (0)
March 14, 2005
Financial Engineering (Today)
Financial Engineering Today newletter.
Posted by omor at 09:42 PM | Comments (0)
Money words
Money words investing and finance glossary.
Example: Bulge Bracket
Posted by omor at 12:56 AM | Comments (0)
March 11, 2005
Validating Default Probabilities on Short Time Series
Two approaches to examine the accuracy of default probability forecasts
for different rating grades and in particular, the respective
advantages and disadvantages of the two methods. Also, the effect of
independence assumptions is taken into account by modelling latent
variables like the asset correlation and dependency in time. Both
tests, the Extended Traffic Light Approach as well as an ad hoc normal
test work on time-varying default probability forecasts. They are
considered with respect to their practical use and potential
application in validating default forecasts in credit institutions.
Keywords:
Basel II, Internal Ratings Based Approach, Validation, Default Probabilities
Stefan Blochwitz of Deutsche Bundesbank,
Stefan Hohl of the Bank for International Settlements,
Dirk Tasche of Deutsche Bundesbank, and
Carsten When of Deutsche Bundesbank
Posted by omor at 07:21 PM | Comments (0)
March 09, 2005
Credit Risk Modeling and Valuation: An Introduction
Credit risk is the distribution of financial losses due to unexpected
changes in the credit quality of a counterparty in a financial
agreement. Structural, reduced form and incomplete information
estimate joint default probabilities and prices of credit sensitive
securities.
Kay Giesecke, Cornell University.
Posted by omor at 07:57 PM | Comments (0)
March 05, 2005
Economic and Regulatory Capital What is the Difference ?
The determinants of regulatory capital (the minimum required by
regulation) and economic capital (the capital that shareholders would
choose in absence of regulation) in the context of the single risk
factor model that underlies the New Basel Capital Accord (Basel II)
do not depend on the same set of variables and do not react in the
same way to changes in their common determinants.
For plausible parameter values, they are both increasing in the
loans’ probability of default and loss given default, but variables
that affect economic but not regulatory capital, such as the
intermediation margin and the cost of capital, can move them
significantly apart. The results also show that market discipline,
proxied by the coverage of deposit insurance, increases economic
capital, although the effect is generally small.
Abel Elizalde of CEMFI and UPNA, and
Rafael Repullo of CEMFI and CEPR
Posted by omor at 08:08 PM | Comments (0)
March 02, 2005
Interest rate modelling, Brigo, Mercurio, Pelsser.
| Interest rate modelling for practical implication: Interest Rate Models by Damiano Brigo and Fabio Mercurio. |
 |
For a clear and conicse treatment we also suggest you Antoon Pelsser's Efficient Methods for Valuing Interest Rate Derivatives which is extremely interesting. |  |
Posted by omor at 09:07 PM | Comments (0)
March 01, 2005
Institutional Investor
Institutional Investor tracks Real Estate Finance and Investment.
Posted by omor at 11:33 PM | Comments (0)
January 31, 2005
Basel default
Probability of Default (PD)
- the probability that a specific customer will default
within the next 12 months.
Loss Given Default (LGD)
- the percentage of each credit facility that will be lost
if the customer defaults.
Exposure at Default (EAD)
- the expected exposure for each credit facility in the
event of a default.
PD, LGD, and EAD are key measures used by Basel II: Peldec.
Posted by omor at 01:45 PM | Comments (0)
January 30, 2005
401k planning
401k planning contributions and investing for retirement: now.
Posted by omor at 11:02 PM | Comments (0)
January 29, 2005
How Ratings Agencies Achieve Rating Stability
Surveys on the use of agency credit ratings reveal that some
investors believe that rating agencies are relatively slow in
adjusting their ratings. A well-accepted explanation for this
perception on the timeliness of ratings is the "through-the-cycle"
methodology that agencies use. According to Moody's, through-the-cycle
ratings are stable because they are intended to measure the risk of
default risk over long investment horizons, and because they are
changed only when agencies are confident that observed changes in a
company's risk profile are likely to be permanent. To verify this
explanation, we quantify the impact of the long-term default horizon
and the prudent migration policy on rating stability from the
perspective of an investor - with no desire for rating stability. This
is done by benchmarking agency ratings with a financial ratio-based
(credit scoring) agency-rating prediction model and (credit scoring)
default-prediction models of various time horizons. We also examine
rating migration practices. Final result is a better quantitative
understanding of the through-the-cycle methodology.
By varying the time horizon in the estimation of default-prediction
models, we search for a best match with the agency-rating prediction
model. Consistent with the agencies' stated objectives, we conclude
that agency ratings are focused on the long term. In contrast to
one-year default prediction models, agency ratings place less weight
on short-term indicators of credit quality.
We also demonstrate that the focus of agencies on long investment
horizons explains only part of the relative stability of agency
ratings. The other aspect of through-the-cycle rating methodology -
agency rating-migration policy - is an even more important factor
underlying the stability of agency ratings. We find that rating
migrations are triggered when the difference between the actual agency
rating and the model predicted rating exceeds a certain threshold
level. When rating migrations are triggered, agencies adjust their
ratings only partially, consistent with the known serial dependency of
agency rating migrations.
How Ratings Agencies Achieve Rating Stability
by Edward I. Altman of New York University, and
Herbert A. Rijken of Vrije Universiteit Amsterdam
Posted by omor at 01:59 PM | Comments (0)
January 27, 2005
Discount Factor for Estimating Economic LGD
Banks must measure the loss arising from counterparty default in order
to achieve Advanced-IRB compliance under the proposed Basel II minimum
regulatory capital framework. Which discount rate to use on cash
received post-default is a question that is the subject of
considerable disagreement amongst practitioners and banking
supervisors. We review alternative extant proposals and develop a new
method for choosing an appropriate discount rate contingent upon the
risk of the recovery cash flow. An example of how supervisory
determined LGD discount rates could be set is demonstrated.
Empirically, the required rate of return on defaulted corporate bonds
is shown to be similar in magnitude to the yield on BB rated debt. For
defaulted small and medium enterprise (SME) bank loans, the mean
discount rate is found to be similar, on average to the contract rate
pertaining at the time of default.
Choosing the Discount Factor for Estimating Economic LGD
by Ian Maclachlan of Australia and New Zealand Banking Group Ltd.
May 2004
Posted by omor at 01:42 PM | Comments (0)
January 25, 2005
ETF
ETFs are shares of a basket of stocks bought and sold as a single
investment. Investment companies create these stocks by buying the
underlying stocks and issuing ETF shares. Unlike mutual funds whose
price is set once per day, ETFs trade on stock exchanges at
constantly changing market prices. This prevents market timers
getting preferential prices like the recent mutual fund scandals.
Very large investors can issue new shares or redeem their shares for
the underlying stocks. This keeps the ETF price close in price to the
underlying shares. ETFs do not trade at sizable discounts or
surpluses to the underlying stocks like closed end mutual funds. If
the ETFs begin to trade with any significant discount or surplus,
large investors will issue new shares or redeem their shares to
eliminate the discount or surplus.
[Eustis]
Posted by omor at 05:42 PM | Comments (0)
January 20, 2005
Global Forex Trading
Global Forex Trading offers DealBook® FX 2 'powerful online
currency trading' tool that provides you with instant access
to the forex market.
Posted by omor at 11:40 PM | Comments (0)
January 06, 2005
PRMIA's risk news
PRMIA's risk news.
Week In Risk is published every Friday by Risk Communications.
It is (was ?) distributed by PRMIA, the Professional Risk Managers
International Association.
Posted by omor at 01:25 AM | Comments (0)
January 05, 2005
Market-generated forecasts are typically accurate
Prediction Markets
We analyze the extent to which simple markets can be used to aggregate
disperse information into efficient forecasts of uncertain future
events. Drawing together data from a range of prediction contexts, we
show that market-generated forecasts are typically fairly accurate,
and that they outperform most moderately sophisticated benchmarks.
Carefully designed contracts can yield insight into the market's
expectations about probabilities, means and medians, and also
uncertainty about these parameters. Moreover, conditional markets can
effectively reveal the market's beliefs about regression coefficients,
although we still have the usual problem of disentangling correlation
from causation. We discuss a number of market design issues and
highlight domains in which prediction markets are most likely to be
useful.
Justin Wolfers (Stanford University)
[*]
Posted by omor at 03:40 PM | Comments (0)
January 04, 2005
Credit Spread determined by a single common variable
Understanding Credit Spread Markets
I describe results of empirical studies of historical spreads in the
corporate bond market and show how spread changes, regardless of
credit rating, are largely determined by a single common variable. In
addition, I calculate the component of corporate credit spreads due to
default probability and report analyses of the residual spreads as
functions of credit quality and duration.
Analysis of spread changes for other spread markets (e.g.
asset-backeds, emerging markets, etc.) reveal a large, but smaller,
degree of spread co-movement across sectors and indicate that sector
spreads trend and mean revert on roughly similar time scales. That is,
spread changes trend in the short term (under two years) and
mean-revert over longer periods.
That information, along with the CAPM and our strategists' monthly
outlooks, was used to construct a cross-sector asset allocation model
that consistently outperformed a benchmark portfolio in ten years of
out-of-sample testing.
Terry Benzschawel (Citigroup Global Markets)
[*]
Posted by omor at 03:40 PM | Comments (0)
January 03, 2005
FIASI: Fixed Income Analysts Society
Fixed Income Analysts Society (FIASI) director bios.
Posted by omor at 03:28 PM | Comments (0)
January 01, 2005
Credit scoring overdose
As the director of risk analysis for the Office of the Comptroller of
the Currency, Jeffrey Brown spends most of his time reviewing how
banks use credit scoring and other risk-management tools. [1]
Credit scoring has revolutionized lending, but critics worry
institutions are pushing this technology beyond its limits.
Posted by omor at 09:03 PM | Comments (0)
December 30, 2004
ETF exchange traded funds
Probably the biggest eye-catcher is iShares FTSE/Xinhua China 25
Index Fund (FXI) — the first ETF investing solely in China
available to U.S. investors. Launched earlier this month,
the ETF tracks the 25 largest and most liquid Chinese stocks.
Of course, there's increasing talk of China's red-hot economy
cooling, but few expect the growth spigot to be shut entirely.
The China 25 Index Fund's expense ratio of 0.74% is higher
than that of most ETFs, but it's substantially lower than the
average China-region mutual fund's expense ratio of 2.37%,
according to Lipper. ETFs, by nature, carry lower expense ratios
than their mutual-fund counterparts. [1]
Standard and Poors index tracker.
Vanguard REIT Vipers VNQ 0.18% 6,200 Vanguard Industrials Vipers VIS 0.28% 1,100 Vanguard Energy Vipers VDE 0.28% 400 Vanguard Telecommunication Services Vipers VOX 0.28% 100 SPDR O-Strip ETF OOO 0.36% 92,000 Vanguard Small-Cap Vipers VB 0.18% 6,400 Vanguard Small-Cap Growth Vipers VBK 0.22% 52,200 Vanguard Consumer Discretionary Vipers VCR 0.28% 1,900 Vanguard Financials Vipers VFH 0.28% 2,400 Vanguard Mid-Cap Vipers VO 0.18% 1,100 Vanguard Health Care Vipers VHT 0.28% 13,400 Vanguard Information Technology Vipers VGT 0.28% 3,800 Vanguard Utilities Vipers VPU 0.28% 2,700 Vanguard Large-Cap Vipers VV 0.12% 13,500 Vanguard Small-Cap Value Vipers VBR 0.22% 9,400 Vanguard Materials Vipers VAW 0.28% 5,300 Vanguard Consumer Staples Vipers VDC 0.28% 200 Vanguard Growth Vipers VUG 0.15% 292,100 Vanguard Value Vipers VTV 0.15% 471,200 iShares S&P 1500 Index Fund ISI 0.20% 26,600 iShares FTSE/Xinhua China 25 Index Fund FXI 0.74% 158,400 iShares Morningstar Large Core Index Fund JKD 0.20% 3,400 iShares Morningstar Large Growth Index Fund JKE 0.25% 11,900 iShares Morningstar Large Value Index Fund JKF 0.25% 1,200 iShares Morningstar Mid Core Index Fund JKG 0.25% 2,300 iShares Morningstar Mid Growth Index Fund JKH 0.30% 4,000 iShares Morningstar Mid Value Index Fund JKI 0.30% 3,900 iShares Morningstar Small Core Index Fund JKJ 0.25% 1,900 iShares Morningstar Small Growth Index Fund JKK 0.30% 1,500 iShares Morningstar Small Value Index Fund JKL 0.30% 2,200 iShares NYSE 100 Index Fund NY 0.20% 5,200 iShares NYSE Composite Index Fund NYC 0.25% 1,000
Posted by omor at 05:50 PM | Comments (0)
December 27, 2004
Foreign Exchange Currency news
FX FXStreet Foreign Exchange Currency news on trading and trends.
Posted by omor at 07:58 PM | Comments (0)
December 26, 2004
VIX Volatility Index
The VIX takes the weighted average of implied volatility for the
Standard and Poor's 100 Index (OEX calls and puts) and measures the
volatility of the market. A low VIX indicates trader confidence. A
high Vix the opposite. Dividing the S&P 500 by the Vix (ratio) gives
the confidence level in relation to the market. The higher the ratio
the higher the confidence.
VIX, the ticker symbol for the Chicago Board Options Exchange (CBOE)
Volatility Index and represents the implied volatility on the S&P 100
(OEX) option. This volatility is meant to be forward looking and is
calculated from both calls and puts that are near-the-money. The VIX
is a popular and widely used measure of market risk.
Investopedia says,
Introduced by the CBOE in 1993, VIX is a weighted measure of the
volatility for eight OEX put and call options. The eight puts and
calls are weighted according to the time remaining and the degree to
which they are in- or out-of-the-money. The result forms a composite
hypothetical option that is at-the-money and has 30 days to
expiration. VIX represents the implied volatility for this
hypothetical at-the-money OEX option. Typically, VIX has an inverse
relationship to the market, which means that a rising stock market is
viewed as less risky and a declining stock market more risky. The
higher the perceived risk is in stocks, the higher the implied
volatility and the more expensive the associated options, especially
puts. Hence, implied volatility is not about the size of the price
swings, but rather the implied risk associated with the stock market.
When the market declines, the demand for puts usually increases.
Increased demand means higher put prices and higher implied
volatilities.
Posted by omor at 09:17 PM | Comments (0)
December 19, 2004
CFA mastery
How much do you need to know to pass the CFA ? Here is some
advice for Chartered Financial Analyst aspirants.
They do not mean - have a general idea or sense of the material
or be able to pick the concept out of a lineup based on your
initial impression or cued recall.
They do mean Very quickly, relative to similar concepts and
formulas, distingush and differentiate the key concepts, recall
the special exceptions or impacts that the concept had on other
concepts, be able to calculate forward and back into or out of
the relevant formula, and finally (the test taking part) be able
to quickly pick out the imbedded error or limiting factor in each
the accompanying 'wrong' answers among the choices presented so
that you can pick that which is least or most likely to conform
to the issue or question presented.
See also CFA, FRM communities.
[via analystforum]
Posted by omor at 12:43 PM | Comments (0)
December 15, 2004
FRM, CFA exam communities
Post exam gossip is taken to a new level when people around the
world share a common exam, and share it on web forums. Let the
CFA candidates second guess until exam results are posted.
Re: Odds of passing FRM with 7 days of studying Author: mustill Date: Tuesday, November 16 @ 8:07 pm
Hi folks!
This is summarized from some of the questions posted by Student and
other fellow 2003 candidates on the FRM 2003 exam. I do not warrant
the accuracy of these questions as posted. Maybe those who passed 2003
exam may want to provide some inputs?
(a) Which option is very interest path dependent?
Candidates speculated between barrier and binary option.
(b) Which option has an unlimited upside?
Candidates guessed Asian option.
(c) Is it appropriate to sell deep in the money put option?
(d) Geometric Brownian Motion. Which is normally and lognormally
distributed?
(i) S
(ii) ds
(iii) ds/s
(e) If you have a stock and options position with delta neutral and
positive gamma, how do you hedge it?
(f) Company A with netting agreement with Company B. A owes B $1m
after netting. Without netting agreement with Company B, B owes A
$10m. What is A's exposure to B?
(g) Candidates said there is a question on calculating tracking
error.
(h) A company files for bankruptcy. Which bonds trade at higher
price? Bond with higher or lower coupon? Assuming duration is not the
same but same seniority and term. I
(i) Which bond has a "reasonably strong ability" to pay?
The 2 main choices are AA and A.
(j) Say a fund is managed by 2 person only. Which of the following
matter most? Assuming no asset.
(i) Asset under management
(ii) Risk control/ system reporting system
(iii) Investment style
(k) Which of the following is not a derivative?
(i) CBOE weather derivative
(ii) REITS
(l) Firm A has economic capital in addition to regulatory capital
while firm B does not have economic capital. Is A as good as B?
(m) I think there is a question posted by candidates on a Price yield
curve for a callable
bond asking candidate to mark out where convexity is 0.
(n) There is a question asking candidates on SPAN ( Std Portfolio
Analysis Network)?
(o) Which one has more time value premium?
(i)ATM call
(ii) Out of the money call
(iii) ITM call
(p) If Y=ln(x). If Y is normally distributed with mean of 0, what is
the mean of X?
I guess if most of you can answer the above questions, I am sure you
would have no problem this Saturday.
All the best. Remember to have a break after the exam. I am sure most
of you are fellow CFA candidates who are in Level 3 or had just passed
the Level 3 exam. All of you deserve a break after 2 major exams in a
year.
Christmas is coming. HAve fun!
From analystforum.
Posted by omor at 01:53 AM | Comments (0)
December 13, 2004
Hedgefund news.
Hedgefund.net has hedgefund news. See also
Hedge-Fund Manager vs Investment Bankers in the
New York Wiki and Hedge Week.
Posted by omor at 06:46 AM | Comments (0)
December 12, 2004
ROC Dominant Score Cutoff Strategies
Dominant Score Cutoff Strategies
The purpose of this research is to develop new results for
(1) the equivalence of statistical, business and economic
dominance in risk scoring,
(2) dominant risk scoring strategies in the presence of
non-dominant scores, and
(3) the effect of Bayesian score combination on dominant
risk scoring strategies.
One can show that there is ROC dominance if and only if there
is dominance of expected profits or efficient frontiers that
involve different business measures such as profit/volume
tradeoffs. If there is no such dominance, an intersection of
the ROC curves for two different scores nevertheless yields
a dominant strategy for use of the different scorecards and
the cutoffs. Finally, we show that a Bayesian combination of
the two scores leads to a dominant ROC curve with a single
dominant strategy.
*.
Financial Engineering Research Group at UVa
Posted by omor at 05:50 PM | Comments (0)
November 24, 2004
PRMIA Member Survey 2004
Professional Risk Managers International Association (PRMIA)'s Member
Survey 2004.
Posted by omor at 02:26 AM | Comments (0)
November 16, 2004
Mathematica 5.1
Mathematica 5.1 is coming real soon.
ArrayPlot for flexible large-scale array visualization.
Integrates over regions:
* Regions defined by multivariate polynomial inequalities
* Problems over transcendental regions (where solvable)
* Integrable regions involving infinite ranges
* Undefined parameters in the region specification (solutions are
generated for all possible values)
EquationTrekker explores and interacting with the solutions of ordinary
differential equations (ODEs) is included with Mathematica 5.1.
Among other capabilities, it provides an easy way to investigate
dynamical systems properties, phase spaces, and Poincaré sections.
See also comp.soft-sys.math.mathematica Mathematica
newsgroup at googlegroups.
Posted by omor at 09:47 PM | Comments (0)