It would be nice if we can build a list of simple things that could help on exam day.

I will start with 1, hopefully a few contribute

Z value for VAR of 95% is 1.65 (probably would be given, but why risk it).

GIPS return calculations:

Modified Dietz: Capital employed = V0 + ∑ W * CF

Real estate: Capital employed = C0 + ∑ W * CF

Swap Durations

Fixed payment (years * 0.75)

Float payment (payment frequency * 0.5)

Pay fixed, receive floating REDUCES duration

If you forgot how to set up your formulas remmeber

The currency with the higher rate is the one that will sell at a forward discount.

While this would be due to arbitrage, a way to remmber it is, think it has higher rate because it has higher built inflation, and thus it must depreciate in the forward (although the true reason is simply arbitrage)

risk averse=concave , scared little bi*** hide in a cave

risk seeking=convex, risk taking mofos, the fly in jet packs (slopping up with convexity)

risk nutral= in bettwen flat line…

Time horizon: Mention number of : 1 stage, 2 stage or multiple stages. And define the stages.

Liquidity requirement: Calculate dollar figure at the end.





Monte Carlo Advantages:

  • Path dependent
  • Normality is not required
  • Portrays actual risk-return trade off
  • Flexibility to add multiple variables - Taxes, cashflows
  • Flexibility to handle individual security effect


  • Relies on historical data
  • Date intensive
  • Requires technology, implies high cost of diligence
  • Detail data give better simulation. Ex. using security return rather than asset class returns

spectacles, testicles, passport and pen

Financial Risks: Market, Liquidity, Credit Non-Financial Risks: Settlement, Operations, Model, Regulatory, Sovereign

Analytical VAR assumes normality of past returns and uses ex post std deviation Historical VAR ranks actual past returns Incremental VAR effect of individual asset to overall VAR CVAR applies to cash flows EAR applies to accounting earnings TVAR is VAR plus expected value in lower tail of distribution

Credit VAR (credit at risk) focuses on upper tail Credit Risk - only applies to long counterparty or “in the money” party

Manage Risk by: position limits, liquidity limits, performance stopouts, risk factor limits, limit exposure to any single counter party, assign collateral to loans, net payments, set credit standards, use credit derivatives, mark to market

WA: “Weighted Average” is the most common piece in the formula.

High wealth client - Cognitive Bias : Adapt & Moderate

High wealth client - EmotionalBias : Adapt

Low wealth client - Cognitive Bias : Moderate

Low wealth client - Emotional Bias : Adapt & Moderate

It is very easy. You have duration, when you hold bonds and receive fixed coupon. So when you pay fix, receive floating, you just the opposite reduce duration. I explained it this way for myself.

sorry, double comment

Remove call option from issued bond - sell european receiver swaption

Add call feature to issued bond - buy european receiver swaption

Strike of swaption = coupon rate - credit premium