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Will Durant
12-20-2007, 11:38 PM
I am reading the "Oxford Guide to Financial Modeling" study note, about interest rate models. It talks about Ho-Lee, BDT, Extended Ho-Lee, Black-Karasinski and all the rest of them. But there isn't anywhere near enough detail to actually learn anything about any of these models (not to mention that it's extremely poorly written and organized, but that's a topic for another thread). The candidate is reduced to memorizing a bunch of random facts about the models.

Really understanding interest rate models require stochastic differential equations. If they are not going to cover them from this rigorous point of view, why bother treating them at all?

:soap:

beck
12-21-2007, 04:05 AM
haven't read the "Oxford Guide", but i think Hardy and Hull both cover those models in more details...

Will Durant
12-21-2007, 01:54 PM
Hull covers them in more detail, but the chapters on interest rate derivatives are not on the syllabus.

Hardy does a good job explaining arbitrage free vs equilibrium (her book is so much better written than the Ho & Lee stuff), but doesn't really get into interest rate modeling, just equities.

TiderInsider
12-22-2007, 12:30 AM
I am reading the "Oxford Guide to Financial Modeling" study note, about interest rate models. It talks about Ho-Lee, BDT, Extended Ho-Lee, Black-Karasinski and all the rest of them. But there isn't anywhere near enough detail to actually learn anything about any of these models (not to mention that it's extremely poorly written and organized, but that's a topic for another thread). The candidate is reduced to memorizing a bunch of random facts about the models.

Really understanding interest rate models require stochastic differential equations. If they are not going to cover them from this rigorous point of view, why bother treating them at all?

:soap:What's wrong with being familiar with a few points about the models? I agree that this could be achieved more efficiently than reading ch 5 and 6, but I don't think its a waste.

PAK
12-22-2007, 09:00 PM
I am reading the "Oxford Guide to Financial Modeling" study note, about interest rate models. It talks about Ho-Lee, BDT, Extended Ho-Lee, Black-Karasinski and all the rest of them. But there isn't anywhere near enough detail to actually learn anything about any of these models (not to mention that it's extremely poorly written and organized, but that's a topic for another thread). The candidate is reduced to memorizing a bunch of random facts about the models.

Really understanding interest rate models require stochastic differential equations. If they are not going to cover them from this rigorous point of view, why bother treating them at all?

:soap:

FYI, a more detailed example regarding BDT is available in the Financial Economic Module.

I understand your pain. I studied that note before.........enjoy....

Will Durant
12-23-2007, 01:02 PM
What's wrong with being familiar with a few points about the models?
I'm not sure, but I am reminded of the definition of generalist in my Murphy's Law calendar

A generalist knows less and less about more and more until he knows nothing about everything.

I was hoping (aside from passing the exam, of course) to get more than a passing familiarity with the topic covered. And for some topic, that is the case. However, this interest rate stuff is covered in a very superficial way.

However, mostly I think I just needed to rant about the poorly written study note. I finally finished and have moved on to something actually readable.

Laurelinda
12-23-2007, 10:33 PM
A generalist knows less and less about more and more until he knows nothing about everything.

:lol: That's awesome!

Will Durant
12-24-2007, 01:46 AM
The corollary is

A specialist knows more and more about less and less until he knows everything about nothing.

Will Durant
12-30-2007, 06:47 PM
The Risk Management book sucks too. How can a book manage to be repetitive to the point of boredom yet unclear at the same time?

:soap:

hamstrman
01-02-2008, 04:39 PM
The Risk Management book sucks too. How can a book manage to be repetitive to the point of boredom yet unclear at the same time?

:soap:

Haha! I completely agree! Five chapters on five different methods that, after I've read them in great detail, need it to be explained to me what the hell the differences were... This is after they repeated it over and over again.

PAK
01-02-2008, 04:42 PM
Haha! I completely agree! Five chapters on five different methods that, after I've read them in great detail, need it to be explained to me what the hell the differences were... This is after they repeated it over and over again.

Remember to read the Appendices :judge:

hamstrman
01-02-2008, 04:53 PM
Remember to read the Appendices :judge:

Bah. I'll just read the JAM manual and skip all the textbooks and I'll be sure to pass! I'm basing this off of wishful thinking. I think it'll work.

Caramel
01-03-2008, 04:39 PM
I am reading the "Oxford Guide to Financial Modeling" study note, about interest rate models. It talks about Ho-Lee, BDT, Extended Ho-Lee, Black-Karasinski and all the rest of them. But there isn't anywhere near enough detail to actually learn anything about any of these models (not to mention that it's extremely poorly written and organized, but that's a topic for another thread). The candidate is reduced to memorizing a bunch of random facts about the models.

Really understanding interest rate models require stochastic differential equations. If they are not going to cover them from this rigorous point of view, why bother treating them at all?

:soap:

Totally agreed with you!
I read this study note during my summer travelling, sitting in the Helsinborg public library of a certain nordic country; I spent 6 hours to cover the whole shyt, and I was totally disgusted because I understood little and learned nothing. It contained enough details and technical terms to make the reading long and painful, yet not enough details and forumla/theory to make the reading understandble.

Compare to this study note, I cannot help to be in love with Fabbozi's HBFIS book! It's much easier to read and comprehend, in relative terms!

Car'a'carn
01-07-2008, 03:55 PM
My rant is on picking chapters from Hull. For FET we had chapter 12, which is important for chapter 13, but of course the latter was not on the syllabus. We do get it now without chapter 12 of course.
:crazy:

Laurelinda
01-07-2008, 04:08 PM
My rant is on picking chapters from Hull. For FET we had chapter 12, which is important for chapter 13, but of course the latter was not on the syllabus. We do get it now without chapter 12 of course.
:crazy:

I love that. I haven't taken FET yet, so I'm constantly going back and reading chapters of Hull that aren't on the syllabus. Progress slowing way down... ;)

Car'a'carn
01-07-2008, 04:44 PM
I love that. I haven't taken FET yet, so I'm constantly going back and reading chapters of Hull that aren't on the syllabus. Progress slowing way down... ;)


To be fair there are some overlaps in the readings, so here and there progress speeds up.

Or we could've had better structured syllabus, but that's probably too much to ask for.

Laurelinda
01-07-2008, 05:05 PM
To be fair there are some overlaps in the readings, so here and there progress speeds up.

Yes, I was looking forward to that! But then I realized the JAM schedule had already removed the overlaps. :burn:

TiderInsider
01-07-2008, 06:48 PM
Could start a new thread for this, but I'll place my tangent here. I just got ALM of Financial Institutions. At first glance it looks pretty interesting, but $180!?! Are you kidding me...glad I didn't pay for this.

Laurelinda
01-07-2008, 07:36 PM
Could start a new thread for this, but I'll place my tangent here. I just got ALM of Financial Institutions. At first glance it looks pretty interesting, but $180!?! Are you kidding me...glad I didn't pay for this.

Ha ha! I haven't received mine yet. UPS tracking says "Out for delivery" in Omaha, NE. But I don't live in Omaha, NE. I wonder when they'll notice, take it out of the delivery truck and put it back on the road toward the right state. :lol:

alagangang
01-08-2008, 10:52 AM
Would anyone who wrote the old course 6 comment on how relevant course 6 is to APMV?

campbell
01-08-2008, 11:23 AM
Would anyone who wrote the old course 6 comment on how relevant course 6 is to APMV?

Course 6 was somewhat baby-APMV.

What I mean by that is that Course 6 covered intro material to some of the APMV stuff, at a lower level. Some of the Course 6 stuff shows up in the prelim exams now (mainly MFE). The exam questions were much more straightforward in that you would just have to spit out lists or you had relatively simple numerical problems to do.

Laurelinda
01-14-2008, 02:42 PM
My rant is on picking chapters from Hull. For FET we had chapter 12, which is important for chapter 13, but of course the latter was not on the syllabus. We do get it now without chapter 12 of course.
:crazy:

I'm getting really frustrated with this. How much of the original, unassigned Swaps chapter do we need to know because we were assigned the Swaps Revisited chapter? How much about the unassigned Chapter 10 do we need to know because we are assigned 22.1, which basically says go look at Chapter 10??? :horse: Bother. :(

Car'a'carn
01-14-2008, 04:45 PM
I'm getting really frustrated with this. How much of the original, unassigned Swaps chapter do we need to know because we were assigned the Swaps Revisited chapter? How much about the unassigned Chapter 10 do we need to know because we are assigned 22.1, which basically says go look at Chapter 10??? :horse: Bother. :(

Half the time I have impression that the syllabus was written with the assumption that students already took FET, the other half time the impression is that FET was written assuming students already took APVM.
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Will Durant
02-03-2008, 11:20 PM
Would anyone who wrote the old course 6 comment on how relevant course 6 is to APMV?
Not very - a few readings from HOFIS and Hull in common.

Will Durant
02-03-2008, 11:23 PM
Speaking of HOFIS (that worthless steaming pile of cow dung, figuratively speaking), here's a brilliant piece of writing from chapter 13

A variation of the zero-coupon bond is the deferred interest bond, also known as a zero-coupon bond.

:-?

Caramel
02-04-2008, 02:11 AM
I am reading the "Oxford Guide to Financial Modeling" study note, about interest rate models. It talks about Ho-Lee, BDT, Extended Ho-Lee, Black-Karasinski and all the rest of them. But there isn't anywhere near enough detail to actually learn anything about any of these models (not to mention that it's extremely poorly written and organized, but that's a topic for another thread). The candidate is reduced to memorizing a bunch of random facts about the models.

Really understanding interest rate models require stochastic differential equations. If they are not going to cover them from this rigorous point of view, why bother treating them at all?

:soap:

My feedback would simply be a copy-past of what you wrote above!
I learned nothing, spent much time reading it, and almost puked...so disgusting study notes!

Why do I chose to waste my life like this? I'd rather read about how Britney is doing in the rehab instead of reading this study notes!!!

"Oops, I did it again, I broke my heart, wasted my life, studying SOA..." ~~~ Singing in my head :)

Eroboy
02-04-2008, 06:35 PM
On the contrary, I found that those two chapters are very good read for the introduction on the interest rate modeling and calibration. That even makes me want to buy the whole book.

I think the emphasis on these two chapters are the basics for the interest modeling, not the calculation. If you look at the syllabus, the key words in the objectives are mainly focus on description for these two chapters. Only the black formula on cap/floor, swaption and bond options are mentioned to be included in the calculation. Though, some simple lattice tree might also be considered.

The only thing that was not very clear written is the comparison of the Black model and lattice model. The martingale treatment in the Hull's book provides more insights on why Black model works for the interest rate (bond) option.

Varto
02-26-2008, 09:53 PM
Little pet-peeve wanted to share. Not a biggy but I find the method to referencing textbook pages in the syllabus very ennoying, in that they do not specify at which paragraph one needs to start and end in the “to” and “from” pages.
Obviously, many times, the last page of the reference ends in one topic and starts another partially until the end of the page. Technically the SOA could ask questions on this material in the tail … anyway, I find it annoying to have to read these parts for fear that they might ask a question on it.

Will Durant
02-14-2010, 06:51 PM
:bump:

Follow-up observation on this reading...

Instead of talking about a dozen different interest rate models at the most superficial level, how about something like this paper (http://finance.wharton.upenn.edu/~benninga/mma/ho-lee.pdf) that takes just one model (Ho-Lee) and develops it to a lot more depth.

If you know how to take one interest rate model from first principles to implementation, you can easily teach yourself other models without too much stress. On the other hand, if all you've got is name recognition of a dozen different models if you need to do more you are going to go through quite a bit of pain.

campbell
02-15-2010, 07:26 AM
While I do agree that it's helpful to fully explore at least one interest rate model, it does happen to help to have a compare/contrast list of salient features [can it be used for risk-neutral/real-world modeling? Does it have a steady state? Are there computational oddities, like negative interest rates, that you've got to watch out for?] for practical purposes, especially if you're not the person who will be directly implementing the model.

Many times, as a practitioner, you are going to have software with built-in models, and going through the exercise of building up the model from the ground up isn't necessary. But you do need to know if the model is appropriate for valuing a dynamic hedging program, say.

This info is also helpful if you're trying to argue with regulators about what constitutes a reasonable interest rate model for regulatory purposes. Well, maybe it's helpful. [no further comment on that one]

Allacalander
02-17-2010, 10:14 AM
You're right campbell, but the way my brain works is that I can't really use a piece of software unless I know what's going on under the hood.

I agree with Will about needing info on stochastic differential equations. I never covered this anywhere in my college/grad school education and I don't think it ever appeared on any of my actuarial syllabi. I have just been operating under the assumption that somehow I slipped through the cracks on this very important topic.

I recognized back on FETE that this was a piece I was missing and tried to spend a little time learning it, but there simply wasn't enough time to do that AND prepare for the exam.

Lame in the Sactuary
02-17-2010, 12:34 PM
Has the syllabus changed since 2007? Interest rate models and stochastic calculus are covered in FETE. Or is the OP saying that it should be covered on both exams?

Car'a'carn
02-17-2010, 01:23 PM
Has the syllabus changed since 2007? Interest rate models and stochastic calculus are covered in FETE. Or is the OP saying that it should be covered on both exams?

These use to be in APMV in 07 and 08. They were moved to FETE in the fall of 08.

Allacalander
02-17-2010, 04:04 PM
I encountered interest rate models in FETE, but I do not remember seeing anything about stochastic differential equations. Did I just time it right? I took FETE in '07 and '08. I took APMV in '09 and will again in '10.

Car'a'carn
02-17-2010, 04:48 PM
I encountered interest rate models in FETE, but I do not remember seeing anything about stochastic differential equations. Did I just time it right? I took FETE in '07 and '08. I took APMV in '09 and will again in '10.

It is possible that "The Oxford Guide..." was on FETE before, I do not remember. But APMV had lots of Hull and all of Hardy in 07 and 08, and none last 2 years.

campbell
02-18-2010, 06:46 AM
There's going to be a lot of theory one misses because you took an exam at a particular time, of course. Or because you came to the profession from a particular background [I had seen a lot of finance theory and SDEs in grad school, so it was more a matter of learning particular applications when I took exams 6/8V/APMV]. Plenty of FSAs are around now who took exams well before any of this was on the syllabus.

That's why the SOA [and the CIA and the Academy] has lots of other resources, too, and have given seminars for FSAs on stuff like advanced modeling techniques, ERM concepts, etc. And some makers of actuarial and finance software will put out info about their models [to the extent that they're willing to share; some models are proprietary]