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jcole21

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tT
发表于 2011-7-11 19:17 | 只看该作者

Credit spread option quiz

option, Because, therefore, necessary
Why is a risk factor necessary in credit derivatives whose payout is dependent on changes to the credit spread?

Possible answers:

A: Because it reflects the extra uncertainty inherent in non-investment grade bonds
B: Because it reflects the bond's modified duration and therefore its sensitivity to yield changes
C: To enable gearing
D: Because changes to the credit spread are small and spread derivative bets are for large amounts of money

 

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Colum

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2#
发表于 2011-7-11 19:17 | 只看该作者
A.
B is like a yield beta.

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mik82

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3#
发表于 2011-7-11 19:17 | 只看该作者
and it is B and B and B

because I say it is B

:-)



Edited 1 time(s). Last edit at Thursday, May 12, 2011 at 08:38AM by pfcfaataf.

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zwjy

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4#
发表于 2011-7-11 19:17 | 只看该作者
cuz the CFAI said so..............isay the answer is B

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wake2000

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5#
发表于 2011-7-11 19:17 | 只看该作者
The answer is: B

The risk factor is the bond's modified duraton. This means payouts from the spread derivatives should be sufficient to cover value changes in the underlying bond.

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Windjammer

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6#
发表于 2011-7-11 19:17 | 只看该作者
Damn, I guessed A. That was pretty tricky.

NO EXCUSES

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NakedPuts2011

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7#
发表于 2011-7-11 19:17 | 只看该作者
You guys rock!

Duration is a Primary Risk Factor, but yield beta is not...man, simply memorizing a term didn't work.

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bodhisattva

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8#
发表于 2011-7-11 19:17 | 只看该作者
The "risk factor" discussed here is number used in payout formula (check credit derivatives in volume 4)...

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liangfeng

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9#
发表于 2011-7-11 19:17 | 只看该作者
B is the best possible answer.

"the risk factor is the value change of the security for a one basis point change in the credit spread." (V4, p. 125).

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