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Powered by Question2AnswerProbability Quant CFA FRM
http://conceptsnclarity.com/question/222/probability-quant-cfa-frm
<p> The following table summarizes the availability of trucks with air bags and bucket seats at a dealership.</p><table cellspacing="0" cellpadding="0" border="1" style="width:330px"><tbody><tr><td><p></p></td><td><p><em>Bucket seats</em></p></td><td><p><em>No Bucket Seats</em></p></td><td><p><em>Total</em></p></td></tr><tr><td><p> Air Bags</p></td><td><p>75</p></td><td><p>50</p></td><td><p>125</p></td></tr><tr><td><p> No Air Bags</p></td><td><p>35</p></td><td><p>60</p></td><td><p>95</p></td></tr><tr><td><p> Total</p></td><td><p>110</p></td><td><p>110</p></td><td><p>220</p></td></tr></tbody></table><p>What is the probability of randomly selecting a truck with air bags and bucket seats?</p><p>A) 0.34.</p><p>B) 0.16.</p><p>C) 0.28.</p><p>D) 0.57.</p>
http://conceptsnclarity.com/question/222/probability-quant-cfa-frmSun, 16 Dec 2018 01:49:18 +0000Answered: Which Greek value will be same for both long call and long put
http://conceptsnclarity.com/question/96/which-greek-long-call-long-put?show=97#a97
We will use put call parity.This equation is true at every point of option life atleast for european one.<br />
Delta is postive for call and negative for put , so delta is not same<br />
P+S =C +pv(x) <br />
Now if time changes ,then in put call parity right side equation both c (due to theta) and pv(x) changes so to keep the equation valid theta of put must change to nullify effect of call theta as well as change of pv. So theta of put and call can not be same.<br />
Vega and gamma has no effect on Pv as well as stock price. So price change in call and put due to vega and gamma must be same .therefore vega and gamma are samehttp://conceptsnclarity.com/question/96/which-greek-long-call-long-put?show=97#a97Thu, 09 Nov 2017 09:24:39 +0000Answered: We know for any option strategy we can assume 3 senarios to know payoff.Is there any way to know what factos have maximum effect ?.
http://conceptsnclarity.com/question/94/option-strategy-assume-senarios-payoff-factos-maximum-effect?show=95#a95
<p>Hello Meghna<br> Thanx for asking this question.Its true i always say<br>3 Scenario" test for any strategy in the class ,as it is easy to implement for a person who is very new to option. But if you want to design new strategy u have to dig deep.<br>Delta indicates what is the chance that stock will expire in the money<br>for long call option : detla is positive. so if stock goes up long will gain(change in stock price x delta). gamma is positive it means if stock moves away from present value .ur gain will magnify. gamma is extra add on in gain calculated with detla alone . vega is positive - if volatility increases it is good for long . theta is -ve , the more time you hold this option theta will drag the price, its a bad thing for long.stay with long call and visualise and analyize this concept.Do not bring "put" and "short position" into the picture for a moment.<br>now delta for ATM call is 0.5 gamma Vega is positive and maximum while theta is -ve and |maximum| means ATM calls have maximum time value decay.<br> <br>(for long call delta is positve and for short it is negative and delta is more for ATM then OTM. in fact every greek is max for ATM except delta which is 0.5 and for OTM it is between 0 and 0.5 and for ITM its between 0.5 and 1.)<br><br>now with this knowledge we will analyse one strategy called <span style="color:#0000FF"><strong>bear call option strategy</strong></span><br> <br> <strong><span style="color:#0000FF"> Sell 1 ATM call and Buy 1 OTM call</span></strong><br>lets calculate the greek and analyise it. no actual values of greek needed.<br><br>Delta of strategy = Detla of OTM - delta of ATM= 0.3*- 0.5= negative .that's why its a bearish strategy .<br> <br><br><span style="color:#FF0000"><strong>Delta:</strong></span> The net Delta of Bear Call Spread would be negative, which indicates any upside movement would result in to loss. The ATM strike sold has higher Delta as compared to OTM strike bought.<br><br><span style="color:#FF0000"><strong>Vega:</strong></span> Bear Call Spread has a negative Vega. Therefore, one should initiate this strategy when the volatility is high and is expected to fall.<br><br><strong><span style="color:#FF0000">Theta:</span></strong> The net Theta of Bear Call Spread will be positive. Time decay will benefit this strategy.<br><br><strong><span style="color:#FF0000">Gamma: </span></strong>This strategy will have a short Gamma position, so any upside movement in the underline asset will have a negative impact on the strategy.<br><br>As delta is small negative . so it has limited risk .As theta is positive hence carrying overnight position is advisable.</p>
http://conceptsnclarity.com/question/94/option-strategy-assume-senarios-payoff-factos-maximum-effect?show=95#a95Wed, 08 Nov 2017 21:12:36 +0000Answered: Greek of Exotic options
http://conceptsnclarity.com/question/91/greek-exotic-options?show=93#a93
<p><strong>Q1<span style="color:#FF0000">.D.</span> Delta </strong>indicates what is the chance that stock will expire in the money. as barrier is reached at 126 ., this option is not live and delta is zero.</p><p><strong>Q2.<span style="color:#FF0000"> A</span>. gamma </strong>is max at that point where drama is maximum or chance or delta change is highest. below barrier and above barrier delta abnormally changes so gamma is max at barrier</p><p><strong>Q3. <span style="color:#FF0000">A</span> Barrier options </strong>can be replicated by series of calendar spread .but this question can be viewed by assuming stock price at expiry to be far above 120 between 100 and 120 then at far below 100. correct answer seems to be <strong>A</strong>. although with two vanila option we will never get a perfect hedge using static hedging.</p><p><strong>Q4.<span style="color:#FF0000">B</span></strong><strong> </strong><strong> (</strong>its a fact/theory<strong>)</strong></p><p><strong>Q5.<span style="color:#FF0000"> B</span> (I am offering you a best formula which you will not get anywhere even after long tiring google search.) </strong>first we will forget the strike price and work with only trigger price . this option is like a normal vanila option with strike price = X<sub>t</sub> (trigger price) . now at expiry we will decide weather we want to execute or not like a normal option . if S<sub>T </sub>>= X<sub>t </sub>and option is call our payoff will be S<sub>T</sub> - X<sub>t. . </sub>At this point just change X<sub>t </sub>with strike price and calculate the payoff (-ve or positive)</p><p>In our case X<sub>t</sub>= 60 and Stock Price at expiry is 60 . so payoff X<sub> t</sub> - S<sub>T </sub>and after replacing trigger price with strike price payoff = 50 -60 = -10</p><p>In Black Scholes formula N(d2) indicated what is chance that stock will expire in the money so in that formula we will put trigger price in place of X not strike price. because chance is decided by trigger price. while payoff is only decided by strike price.</p><p>thank you.</p><p>Sir please go through this post and correct me if I am wrong..</p><p></p>
http://conceptsnclarity.com/question/91/greek-exotic-options?show=93#a93Tue, 07 Nov 2017 15:36:11 +0000zero coupon bonds , Dirty and Clean price
http://conceptsnclarity.com/question/89/coupon-bonds-dirty-clean-price
<p>Next few questions are based on given information:</p><p>Given four set of bonds, durations and maturities<br>BOND 1: Fixed rate Treasure Bond<br>BOND 2: Zero-Coupon Corporate bonds mature at 5 yrs and 7 yrs<br>BOND 3: Fixed rate Mortgage Passthrough<br>BOND 4: Fixed rate Corporate bonds mature at 7 yrs</p><p>A Liability with duration 5.8 mature at 5 yrs and 7 yrs, there are no internl cash flows.</p><p><span style="font-size:14px"><strong>Q1.</strong></span> Which bond has contingent risk</p><p>A. 2 , 3 and 4. as all there bond can default. B only 3 C 3 and 4</p><p></p><p><strong>Q2. </strong>. Which of bond will be best to fund the liability?</p><p><strong>A. 1 B 2 C 3 D 4</strong></p><p><strong>Q3. </strong>Which of risk will Mortgage Passthrough have when interest rate decline?</p><p>A. negative convexity B. credit risk <strong>C </strong>market Risk D. Extension Risk.</p><p><strong>Q4.</strong> Suppose a bond’s quoted price is 105 7/32 and the accrued interest is $23.54. If the bond has a par value of $1,000, what is the bond’s flat price?</p><p>A) $1,000.00. B) $1,023.54. C) $1,075.73. D) $1,052.19.</p><p><strong>Q5. </strong>The dirty, or full, price of a bond:</p><p>A) applies if an issuer has defaulted. <br> <br>B) is paid when a security trades ex-coupon. <br> <br>C) equals the present value of all cash flows, plus accrued interest. <br> <br>D) is usually less than the clean price.</p><p><strong>Q6. </strong>An investor has a 1-year, 10% semiannual coupon bond with a price of $975. if the 6-month Treasury bill(T-bill) has a holding period yield of 6%, what is the 1-year theoretical spot rate on a bond equivalent basis?</p><p>A.. 6.4% B. 8.7% C. 9,9% D. 12.8%</p><p>NB: the nominal rate attached with compounding Annually is called EAR and nominal rate with Compounding Semi annually is called BEY.</p><p><br> </p>
http://conceptsnclarity.com/question/89/coupon-bonds-dirty-clean-priceFri, 27 Oct 2017 16:28:01 +0000Marginal Mortality Probability
http://conceptsnclarity.com/question/88/marginal-mortality-probability
<p><img alt="" src="http://bbs.frmspace.com/attachments/dvbbs/2009-6/200961314513319770.gif"></p><p>Calculate the marginal mortality rate in year 3 for the above class of issuers.</p><p>A. 3.45%</p><p>B. 6.38%</p><p>C. 6.40%</p><p>D. 8.89%</p>
http://conceptsnclarity.com/question/88/marginal-mortality-probabilityThu, 26 Oct 2017 18:41:45 +0000Answered: CFA or FRM- which is easier
http://conceptsnclarity.com/question/10/cfa-frm-which-easier?show=87#a87
The syllabus and Exam pattern of CFA is more organised and systematic. But it is easier to pass FRM part 1 and 2. In fact for both exam you need some sound understanding of math rather than finance.http://conceptsnclarity.com/question/10/cfa-frm-which-easier?show=87#a87Thu, 26 Oct 2017 18:36:39 +0000As the newly appointed head of operational risk for a large international bank,
http://conceptsnclarity.com/question/78/newly-appointed-operational-risk-large-international-bank
As the newly appointed head of operational risk for a large international bank, you must evaluate the company's current approach to estimating the firm-wide operational loss distribution. The bank's current approach is a bottoms-up process in which for each trading desk the operational loss severity distribution is estimated by fitting historical loss magnitude data to a Weibull distribution and the operational loss frequency distribution is estimated by fitting historical loss timing data to a Poisson distribution. Each trading desk's operational loss distribution is then estimated by aggregating the frequency and severity distributions using convolution. Finally, the firm-wide operational loss distribution is estimated using a copula function generated through Monte Carlo simulation. In evaluating this process, which of the following assumptions implied by the current approach will require further investigation?<br />
<br />
I. The independence of operational loss events of each particular trading desk.<br />
<br />
II. The independence of the frequency of operational loss events and the severity of operational loss events of each particular trading desk.<br />
<br />
III. The independence of operational loss events between trading desks.<br />
<br />
IV. The reliability and sufficiency of historical loss data for each trading desk.<br />
<br />
A. I, II, III and IV<br />
<br />
B. I, II and IV<br />
<br />
C. II, III and IV<br />
<br />
D. I and IIIhttp://conceptsnclarity.com/question/78/newly-appointed-operational-risk-large-international-bankFri, 15 Sep 2017 16:53:10 +0000FRM P2 - operational risk
http://conceptsnclarity.com/question/77/frm-p2-operational-risk
<p><a target="_blank" rel="nofollow" href="http://wheretoobuy.com/instant-clear-cream/"><strong><em> </em></strong></a>As the inexperienced global head of operational risk for DEF Financial Services, you are trying to make a decision about how to quantify your firm's operational risk exposure. You've decided the best combination of methodologies to use would be factor-based models and the capital asset pricing model. Now, 6 months after you've implemented your approach you've identified some major limitations in your decision on the methodologies to use. Which of the following best describes those limitations?</p><p>I. You are unable to reliably predict an operational risk event on a detailed level.</p><p>II. Collecting and aggregating consistent data across the firm is challenging.</p><p>III. You are unable to capture interdependencies between areas of your firm.</p><p>IV. You are unable to reliably forecast general trends in operational risk events.</p><p>A. I and III</p><p>B. II and IV</p><p>C. I, II and III</p><p>D. II, III and IV</p><p></p><p></p>
http://conceptsnclarity.com/question/77/frm-p2-operational-riskThu, 14 Sep 2017 18:07:58 +0000FRM P2 - Basel operational risk
http://conceptsnclarity.com/question/76/frm-p2-basel-operational-risk
According to the Basel Committee which of the options below is NOT a qualitative standard that a bank must meet before it is permitted to use the Advanced Measurement Approach (AMA) for operational risk capital:<br />
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A. Internal and/or external regulators must perform regular reviews of the operational risk management processes and measurement systems. This review must include both the activities of the business units and of the independent operational risk function<br />
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B. There must be regular reporting of operational risk exposures and loss experiences to business unit management, senior management and to the board of directors<br />
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C. The bank's internal operational risk measurement system should not be integrated into the day-to-day risk management processes of the bank but should provide a general overview of the operational risks involved in the processes and operations<br />
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D. The bank must have an independent operational risk management function that is responsible for the design and implementation of the bank's operational risk framework.http://conceptsnclarity.com/question/76/frm-p2-basel-operational-riskWed, 13 Sep 2017 18:45:49 +0000FRM P2 - Weakness of Top-down Approach
http://conceptsnclarity.com/question/75/frm-p2-weakness-top-approach
<p>Which of the following is a weakness of the top-down approach to measuring operational risk?</p><p>A. It fails to consider historical information</p><p>B. You cannot use earnings volatility as an indicator of risk potential in this approach</p><p>C. Information on specific sources of risk is not provided</p><p>D. It is based on the specific mapping of business units, and not the overall organization</p><hr>
http://conceptsnclarity.com/question/75/frm-p2-weakness-top-approachFri, 08 Sep 2017 12:02:08 +0000Expected value? Expected time
http://conceptsnclarity.com/question/11/expected-expected-time
You are trapped in a dark cave with three indistinguishable exits on the walls. One of the exits takes<br />
<br />
you 3 hours to travel and takes you outside. One of the other exits takes 1 hour to travel and the other<br />
<br />
takes 2 hours, but both drop you back in the original cave. You have no way of marking which exits<br />
<br />
you have attempted. What is the expected time it takes for you to get outside?http://conceptsnclarity.com/question/11/expected-expected-timeSun, 22 Jan 2017 19:57:16 +0000Answered: Hypotheis Testing of stock return
http://conceptsnclarity.com/question/8/hypotheis-testing-stock-return?show=9#a9
<p> First thing first. This question is related to hypothesis of variance .We will use chi square test to verify this claim</p><p>H<sub>a</sub>: V<sub>o</sub> < (0.2)<sup>2 </sup></p><p>H<sub>0</sub>: V<sub>0</sub>>= (0.2)<sup>2 </sup></p><p>. Its a left side test .at 0.005(.5%) significance level with 29 Degree of Freedom(we will look for value corresponding to 99.5% against 29 , the critical value is around 15</p><p>our test Stats is = (n-1) x S<sup>2</sup> / V<sub>0</sub><sup>2</sup> = 29 x .12x.12/(0.2 x0.2)= 10.44. our test stats is below critical level .so we will reject the null and accept that SD is less than 0.2</p>
http://conceptsnclarity.com/question/8/hypotheis-testing-stock-return?show=9#a9Mon, 01 Feb 2016 11:04:52 +0000Answered: How much it will cost for level1 in rupees??
http://conceptsnclarity.com/question/6/cost-level1-rupees?show=7#a7
Hi ragini.. If you go for EARLY REGISTRATION ..you have to pay 650+450 = 1100 US$ i.e. 73,855/- rs. And if you apply for standard registration ..then you pay 860+450 = 1310 US$ i.e. 87,950/- rs. approx. For late registration..you pay 1280+450 = 1730 US$ i.e. 116,100/- rs. approx. i hope this will help you http://conceptsnclarity.com/question/6/cost-level1-rupees?show=7#a7Sat, 12 Dec 2015 09:44:21 +0000Effective Duration
http://conceptsnclarity.com/question/5/effective-duration
http://conceptsnclarity.com/question/5/effective-durationSat, 12 Dec 2015 07:17:43 +0000A bell-shaped, symmetrical frequency distribution has a mean of 10.
http://conceptsnclarity.com/question/1/bell-shaped-symmetrical-frequency-distribution-10
A bell-shaped, symmetrical frequency distribution has a mean of 10. If 16% of the observations in the distribution are negative, what is the coefficient of variation of X?http://conceptsnclarity.com/question/1/bell-shaped-symmetrical-frequency-distribution-10Thu, 10 Dec 2015 22:47:59 +0000