Welcome to the finRGB FRM Exam Prep Channel! This channel is dedicated to helping you excel in the FRM Part 1 and Part 2 exams. For comprehensive study materials (instructional videos, notes, question sets and review videos), please visit our website at www.finRGB.com. While you're here, make sure you subscribe to this channel to stay updated on high-quality videos designed to simplify complex risk management concepts, provide in-depth explanations, and offer practical tips.
Thank you for the explanation ! I don’t understand the interest rate parity formula you introduce at the min 11:51, isn’t it suppose to be Fwd/Spot = (1+rEUR)/(1+rUSD) since USD is the domestic and EUR is the base (foreign) ?
Since our exchange rate quote is expressed as USD per unit of EUR, in the interest rate parity formula, (1 + r(USD)) goes in the numerator and (1 + r(EUR)) goes in the denominator.
@@mayssamahmoud3506 Sure, this video on the channel will help you with the formula and interpretation of the IRP: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-yDTJRlRRKAI.html
Are you even fvcking serious? You literally complicated the hell out of how a swap functions. SHOW REAL EXAMPLES! what is this t0 t1 bullsh|t. Just show actual currency rates and an example in real currency. I cannot stand when people overcomplicate simple sh|t.
Thanks for the video! so essentially the financing costs for the euros is 0.5%, with the swap. is there a significance or costs savings compared to just borrowing from the euro market in real life so it justify the swap?
Could you pls help explain that does VaR provide a maximum or a minimum value we can lose for a given confidence level ? Or does it depends on the type of distribution i.e profit distribution or loss distribution? please help clarifying this as I'm little confused. thanks
Hello @mamta0508. Focusing exclusively on the loss distribution, the use of "maximum" vs "minimum" is respectively linked to the whether you use "level of confidence" vs "level of significance" to express your VaR. If your 95% confidence VaR is 10 mn, you will be 95% confident that your actual loss (or negated profit) will not exceed 10 million (i.e. a maximum level). Alongside, you can say that 5% of the time, your loss will turn out to be more than 10 million (i.e. a minimum level).
@@mamta0508Just to be clear, 95% VaR = 10mn gives just one number. 95% of the time (e.g. 19 times out of 20) the Clean P&L (essentially excluding factors not in Var, e.g. income from new deals and time effects) should be either a profit (of any size) or a loss in the range 0-10mn. It doesn’t say how bad the loss might be, in the 5% of the time that VaR is exceeded! With HistSim VaR, you can monitor the tails to some extent by logging VaR at other confidence intervals, e.g. 97.5% and 99%. If the distribution is normal then the ratio of 99% VaR / 97.5% VaR should be about 1.18, so if you observe a bigger ratio than that then you might have “fat tails”.
If you'd like to understand CVA, you can watch these (more introductory) videos on the channel before accessing this video: 1) Exposure metrics: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-0XXnqihoCY4.html 2) Valuation Adjustments: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-7m7rXBRhqa4.html 3) CVA for a Bond: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-vKBV7YCQi1Y.html
There are two ways you can do this valuation: Method 1 is to find the present value of the respective cash flows in the two currencies separately. Then, you convert the PV of the cash flows in the 'other' currency to the currency in which value is being calculated by using the current exchange rate. This is because the PV of cash flows is as of today. Method 2 is to find the net cash flow on each settlement date using the forward exchange rate as of that date and then discount all netted cash flows to today. Both methods give the same final answer.
PD is the unconditional probability of default. You'll get it if you calculate the expectation (i.e. probability weighted average) of conditional probability of default (conditional on various chosen values of F).
@finRGB , So the notional value won't change as the FX rates are locked in at the beginning and since EUR/USD has their own interest rate (Interest rate parity). Won't it have two risk: 1) Interest rate fluctuation risk 2) FX currency risk (where proceeds are received in quote currency and to covert the the same in base currency?
Thanks a lot for the best explain and derivation of the BM! May I ask where is the 2nd part of this topic? That how you convert back from discrete to continuous. Really appreciate it!
The aim was to present the concept in its most general sense (without resorting to any approach or technique to calculate Credit VaR). Will surely add a solved example in a video on CreditMetrics / Vasicek models.
