Hi all,
Question 1 part;
- (ii) So the idea here is that we should know all kinds of possible securities out there that increase almost on a daily basis like the LOC in question? I don't think it's fair to ask like this because if one doesn't know the security then they are doomed, but it doesn't reflect on your strength in the subject?
Does anyone know where I can track the latest new hit securities?
- (iii) the paragraph just above this question says "the customer sell short share" is this the same as short selling?
- (v) Isn't the 30-day VaR = 1-day VaR * sqrt(30), the examiners' report says 30-day VaR = 1-day VaR/sqrt(30)?
(vii) Bullet 3, I was under the impression that the customers buy the bonds and the bank issues them, hence it is the bank that can default, I am not sure why the customers will sell protection to the bank on it's own default?
Also, what is the meaning of;- "fall in the market value of that bond as a result of default''?
(ix) The examiners' report says a structural approach can be used to price a CDS, I see where this comes from as it is the default approach for valuing credit derivatives that is shown in the Core-reading...however, this isn't anywhere near valuing Credit Derivatives and I feel it is equally misplaced in the Core-reading. The purpose of the Structural model is to quantify the risk neutral probability of defaulting on debt...Does this have anything to do with valuing Credit Derivatives?
Also on the notes, Acted correctly points out that a company's equity can be valued using a structural model and I agree, however can someone give me a contextual view of using the reduced form model to value equity? (I am lazy to think)
- (x) I has included attaching equity warrants to the bonds...anyone to point out if I was wrong?
Question 2 part;
- (i) (a) what part of the core-reading is being tested here because section 2.1 of the Core-reading says the governments macroeconomic framework is designed to maintain long-term economic stability?
(b) I also have a feeling that this part is looking for core-reading but I can't relate based on the examiners' solution?
(ii) Also on the roles of the Bank of England, my solution was more based on chapter 3 section 1.1?
Last edited by a moderator: Feb 26, 2015