Allacalander

01-12-2009, 06:13 PM

These are the first of many questions I'm sure to have from this book. I've read through the required readings once now, though understood very little or glazed over some sections that I didn't follow.

Chapter 1.

1. What is meant by the term "objective function concavity" as it relates to this chapter? I know what that means in a general sense, but I guess a different phrasing of the question is what is the objective function that they are considering? (pg 6)

2. There is a sentence I don't quite follow. It starts as "In addition, the idiosyncratic nature of some portion of these losses..." I'll let you look up the rest, since you'll need the context anyway. (pg 20)

3. "Credit risk that reveals itself as basis risk in the systematic risk." What does this mean? (pg 32)

Chapter 3

4. There are 6 bullets listed in subsection on the Level II Compensation Structure. I don't see how bullet #6 has anything to do with the other bullets. (pg 69-70)

Chapter 17

5. How is leverage equivalent to A/S? (pg 353)

Chapter 18

6. What is the "par bond" curve? I found references to a par yield curve and a bond yield curve and many other similar sounding curves. (pg 364)

7. The book states it is easy to check that one particular specification gives the same duration value as a directional model they provde. I can't figure out how to show this "easy to check" item. I think it might have to do with notation primarily. (pg 364)

8. Similarly, "it is not difficult to prove Eq (6)." Really? Because I couldn't figure it out. (pg 364)

9. How do they obtain Eq (7)? (pg 365)

10. I read "convexity" and, for simplicity, interpret that as "curvature." In doing so, I'm confused as to why "when convexity is relatively large, duration will decrease with increases in the factor." There are also two other similar conclusions they state here on similar agrumentative grounds. I know when they say convexity they are talking about the financial definition, but that doesn't help clear it up for me. (pg 365)

11. The last paragraph in this section begins with "beyond the formal mathematics" and then proceeds to use some more formal mathematics. Unfortunately, I don't follow starting from "Eq (6) is produced in the limit" (pg 365)

12. Does anyone know what a rectangular probability distribution is? Is that just another word from uniform? (pg 366)

I recognize that many of these are probably subtle details which aren't testable or even necessary, but every time I hit a spot I don't get, my attention and focus dwindles even more. Besides, how do I KNOW it isn't testable? This is probably a good number of questions to start with. The answers to these may well prompt others, and as I proceed through the chapter, I'll probably find more. Answer what you can; burn the rest.

Chapter 1.

1. What is meant by the term "objective function concavity" as it relates to this chapter? I know what that means in a general sense, but I guess a different phrasing of the question is what is the objective function that they are considering? (pg 6)

2. There is a sentence I don't quite follow. It starts as "In addition, the idiosyncratic nature of some portion of these losses..." I'll let you look up the rest, since you'll need the context anyway. (pg 20)

3. "Credit risk that reveals itself as basis risk in the systematic risk." What does this mean? (pg 32)

Chapter 3

4. There are 6 bullets listed in subsection on the Level II Compensation Structure. I don't see how bullet #6 has anything to do with the other bullets. (pg 69-70)

Chapter 17

5. How is leverage equivalent to A/S? (pg 353)

Chapter 18

6. What is the "par bond" curve? I found references to a par yield curve and a bond yield curve and many other similar sounding curves. (pg 364)

7. The book states it is easy to check that one particular specification gives the same duration value as a directional model they provde. I can't figure out how to show this "easy to check" item. I think it might have to do with notation primarily. (pg 364)

8. Similarly, "it is not difficult to prove Eq (6)." Really? Because I couldn't figure it out. (pg 364)

9. How do they obtain Eq (7)? (pg 365)

10. I read "convexity" and, for simplicity, interpret that as "curvature." In doing so, I'm confused as to why "when convexity is relatively large, duration will decrease with increases in the factor." There are also two other similar conclusions they state here on similar agrumentative grounds. I know when they say convexity they are talking about the financial definition, but that doesn't help clear it up for me. (pg 365)

11. The last paragraph in this section begins with "beyond the formal mathematics" and then proceeds to use some more formal mathematics. Unfortunately, I don't follow starting from "Eq (6) is produced in the limit" (pg 365)

12. Does anyone know what a rectangular probability distribution is? Is that just another word from uniform? (pg 366)

I recognize that many of these are probably subtle details which aren't testable or even necessary, but every time I hit a spot I don't get, my attention and focus dwindles even more. Besides, how do I KNOW it isn't testable? This is probably a good number of questions to start with. The answers to these may well prompt others, and as I proceed through the chapter, I'll probably find more. Answer what you can; burn the rest.