5
votes
Accepted
Calculating beta to market
In a word, yes. That's a correct and valid view to take but, as you'll always find in finance, it really depends on context and the question that you're trying to answer. This is the case in markets ...
- 131
4
votes
Accepted
EAD = Drawn amount + Undrawn amount * CCF?
Your equation is right. There are 2 ways to write EAD:
EAD = Drawn + a x Undrawn; or
EAD = a x Limit.
In both equations, a is called CCF but it is derived/estimated differently depending on which ...
- 256
4
votes
Portfolio VaR of a hedge portfolio (long index, short future): What total exposure to take to calculate VaR?
Firstly, your portfolio volatility of 0.74% is the variance, as the vol will be 8.6% relative your equity position. This is the Case 2 below. I will try to give you a derivation that you hopefully can ...
- 1,282
3
votes
Accepted
EPE for interest rate swap
The expected positive exposure
The expected positive exposure of a swap (or any other type of asset) at a given date $t_i$ is the expectation of the positive part of its value at that date (as that's ...
- 2,280
3
votes
To currency hedge or not to currency hedge (ETFs)?
Whether you should currency hedge or not (from a mean-variance perspective) depends on the relative volatility of the asset and the currency, and on how correlated they are.
Consider an investment in ...
- 5,971
3
votes
Accepted
How to interpret the (expected) exposure and CVA of an option or a single share
For a very nice reference on this matter, I recommend Pykhtin and Zhu’s Guide to Modelling Counterparty Credit Exposure, a short paper that thoroughly defines these concepts.
Expected Exposure $EE(t)$...
- 8,229
2
votes
cva for a collateralised swap
Collateral imperfections: the CVA cover the expected exposure in the event that the counterparty defaults. When the trade is collateralized and subject to variation margin. This exposure will come ...
- 2,280
2
votes
Do cash accounts contribute to exposure?
I am adding on to @noob2 answer -- which, is correct if expressing exposures as a value of the fund's base currency. E.g., Fund XYZ has $1M of short equity exposure.
When calculating a portfolios ...
- 4,368
2
votes
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Do cash accounts contribute to exposure?
I assume you are referring to the calculation of Gross Exposure and Net Exposure, which are commonly used by Hedge Funds.
These funds typically have long and/or short positions in stocks (hence they ...
- 11.8k
2
votes
Accepted
Effects of hedges on counterparty exposure used for RWA computation
So, basically, the answer is no.
For capital requirements Basel has three categories:
a) Counterparty Credit Risk
b) Market Risk
c) Operation Risk
All RWA calculations are additive.
If your hedge ...
- 12.1k
2
votes
Accepted
Confused on Portfolio's Net Exposure
A hedge fund will generally have three kinds of positions: Cash, Long Positions and Short Positions.
You find the value of long positions (VLP) by adding up the dollar values of all long positions. ...
- 11.8k
2
votes
Accepted
Bond price and credit exposure in Repo agreement
A: The hedge fund is being lent bonds as collateral for the cash they are giving out. So, the net exposure to the bank is (cash out minus value of bonds being posted). Hence the answer.
B: ...
- 17.9k
2
votes
Accepted
Validation of XVA models
This recent paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3891120 (highly recommended in its entirety) has its entire section 5 devoted to XVA model validation.
You may also find these ORE ...
- 13.2k
1
vote
calculating net exposure to an index
So the return on one fund is: $1.5\alpha$
And the return on the other is: $-1.0\alpha$
Where $\alpha$ is the return of your index.
And you want to target a specific return as a multiple of your ...
- 12.1k
1
vote
How to estimate Dealers’ Gamma Positioning
The Hedging Demand and Market Intraday Momentum paper by Baltussen et al may be useful to answer your questions.
Not only retail buys puts and sells calls, mutual funds tend to also write calls and ...
- 31
1
vote
Accepted
FX exposure in foreign equity index futures and commodity futures
Very interesting
Yes id say same logic applies to a euro commodity futures.
the futures is like a series of 1 day forward contracts, so any day, your fx exposure is only on that days euro gains/losses
- 796
1
vote
Validation of XVA models
In general, the model validation consists of several steps:
Checking the model design, i.e. model theory, model assumptions, model limitations, etc.;
Checking the model inputs, i.e. market data ...
- 83
1
vote
Expected Loss on a Portfolio, which contains an asset and a default protection contract, due to credit defaults
Assuming "asset" means a credit-risky bond, and "protection" is a standard credit default swap on the same notional.
Ignoring the coupons and interest payments, there are 4 ...
- 13.2k
1
vote
Exposure calculation of a re-coupon swap
If the MtM is settled and the fixed rate reset every period, then the exposure in the future is at most the BPV times the swap rate change over one period, easily modeled within any interest rate ...
- 5,702
1
vote
Confused on Portfolio's Net Exposure
the gross dollar exposure is the sum of all absolute values of your dollar exposures.
the net dollar exposure is the sum of all the signed values of your dollar exposures.
a dollar neutral portfolio ...
- 2,207
1
vote
Is exposure at default the same thing as the limit amount on a loan?
Credit limit is the maximum amount of credit an institution will extend to the client. it is a maximum risk measure.
Exposure at default is a current risk measure. The amount of of credit that is ...
- 6,672
1
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Is exposure at default the same thing as the limit amount on a loan?
EAD can also be higher than credit limit because of adding the costs of collection activities, noting that these can take a long time. As you mention, the credit limits will tend to have been maxed ...
- 41
1
vote
Is exposure at default the same thing as the limit amount on a loan?
From mathematical perspective, EAD is the sum of contingent limit amount multiplied by cash conversion factor and cash and non cash exposures (all type of loans that is already allocated to the client)...
- 11
1
vote
Is exposure at default the same thing as the limit amount on a loan?
The short answer is that EAD is different from the credit limit and in many cases would be lower. For example if a corporate credit line is used for working capital purpose, the EAD might be much ...
- 11
1
vote
How to calculate the CVA of a forward contract?
The calculations are correct; I played a little with the parameters and it seems that the risk free rate is not 2%, but 2.5%. Given this input, the exposures are 125.23 and 167.01, as given in the ...
- 11
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