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I need some clarity on the negative exposure…when and how does it arise? What effect does it have on the economic capital? Clarifications on any other important point on this issue is welcome.
Hi
(this is my personal opion), compared with optimal hedged tool, whick can result the risk neutral, if we want to create a negative exposure, we can over-hedged according our target Beta,
and this over-hedged will create another exposure, not coming from primary instead of coming from hedged instrument.Share my idea and enhance our understand of risk! please give me more advices about it. thanks.
Manas, what does ‘negative exposure’ mean? I do not understand what your question means in the context of economic capital, grateful if you could elaborate a bit.
Tks.
Mukul,
Indeed I am not really clear about this too (and hence my request for clarification). There is a short reference to negative exposure in the handbook. It says a NE arises (to a bank) if the payment is received by another bank. The first bank can set off this NE by lending equal amount to another counterparty. I couldn’t understand this concept.
Manas
Mukul,
I couldn’t reply earlier as I was busy for my PRMIA Exam III. You would be happy to know that I passed Exam III and thus completed my PRM designation last week.
Regarding Negative Exposure (which remains somewhat a mystery), it appears in Chapter III.B.1, under III.B.1.2.3 (Globally consistent definition and usage of risk factors and risk measures).
Lastly, I must say that taking the simulated tests (and going through the detailed answers) given in this website helped me immensely in preparing for and eventually passing the Exam III comfortably. Why don’t you request PRMIA to include your website in their list of “Study aid providers”?
Manas
Hi Manas,
I am new to PRM and definitley will like to take the PRM tests.
Can you please let me know apart from the simulated tests and the detailed answers provided by PRMIA, are there any homework needed? Are there any books to start the preparation from.
I work as part of the FrontOffice Murex trader support group for a bank.
To enhance my domain skills and the risk management skills this course I feel will help me a lot.
Can you please suggest hardcopy material as homework for taking the tests?
Any info on preparing for PRM will help a lot.
Many thanks.Warm Regards,
IndrajitHello Indrajit,
Thanks for your post. To prepare for PRM, first of all you must be very thorough with the PRM Handbook. You may also like to refer to “Options, Futures and other Derivatives” by John Hull, which is an excellent book. You can also get good information from the internet. If you have Mathematics/engineering background, you just need to brush up the basic concepts of mathematics, otherwise any 12th standard mathematics book will be enough. After you are reasonably confident about the Handbook material, it would be a good idea to take some simulated tests, like Kesdee and Riskprep. You not only know where you stand and get a feel of the actual exam, but also get clarifications on certain topics which are not immediately clear from other readings. Beyond these, you really do not need anything more for your preparation. Also, take one paper at a time, starting with the easiest one. This will help you to focus more and do better. My sequence was II, I, IV and III.
I wish you all the best.
Manas
Hello Manas,
Thanks a lot for your detailed reply.
This is definitely of great help for me to start.
I will definitely get in touch with you for further details/clarifications as I start moving with it.
Many thanks.Warm Regards,
IndrajitMukul,
I have a request/sugguestion. Part of the tutorial, can you please post in a consolidated manner, most important/relevent formula tested in PRM exams (Part 1,2,3).
Much appreciated it.
hello Gzarny
do you have any other communicator tool, which i can chat or discuss some risk issue with you?Lance
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