Anyone having a reference , best practice summary( article, book ) I could look into in termsof Market Risk limits (Delta,Gamma,Vega,..) versus VaR Limits , and calibrating one versus the other ?Thanks

<t>Hi,first of all, I read the previous threads regarding this topic.I'd like to find out if a best practice has been established and/or documented regarding the topic.Let me give a concrete example :an IR desk has the following limits:IR01 $400k / bpGamma $40k /bpVega $1mm / 1% volLet say that each...

great!thanks again

<t>thanks for the explanation.so if i rephrase what are you saying, you would evaluate such a trade as this :sell 2y OTm receiver, buy 5y OTM receiver ( for instance ) :spot5y-spot2y= alphaStrike5y-Strike2y=Betayou want Beta - Alpha to be somewhat large,you hope also that 2y Vol is rich versus 5y Vo...

<t>in fixed income, its frequent to see people expressing their views by "conditional trades": i.e people are not sure whether it will be a sell-off or rally in treasuries, but they may have the viewthat a sell-off will see the curve steepen, therefore they may enter a bear steepener. there's a vari...

b) i meant covariance matrix ( and not correlation).

ok, i am quite new to this so let me ask candidly :lets say 3 issuers default in first basket in B/ and 1 in the other basket in B/since these 4 issuers exist in A/ won't i receive the same payout in A/ ( one payment) and B/ (two payments)?

<t>lets call s4(i) , s8(i), s12(i) the 4y,8y,12y daily swap rates observations over 10y.I am trying to compute the wing weights such that the fly is not sensitive to parralel shift and flattening/steepening moves. there are many ways to proceed but i'd like to try a PCA method.currently i am doing t...

<t>lets call s4(i) , s8(i), s12(i) the 4y,8y,12y daily swap rates observations over 10y.I am trying to compute the wing weights such that the fly is not sensitive to parralel shift and flattening/steepening moves. there are many ways to proceed but i'd like to try a PCA method.currently i am doing t...

<t>Just would like to clarify methodology on trades like 4-8-12 "PCA based Fly".lets supposed we are paying 8y swap rate on 100m notional, and we are solving notional receivingon wings 4y & 12y, resp. Alpha and Beta.Which Principal Component Analysis has to be done ?Once done, how do you transla...

title is PART II: In Pursuit of a better butterfly Merryl Lynch.part I was written by Jo Shatz on 21 Nov 2003

<t>i am no correlation trader but basically-lots of people did : sold equity tranche protection with mezzanine hedge -position loosing money twice because equity widened and mezz tightened.what happened is that eq tranche investors have single-name ( idiosyncratic risk) , and since the autos surge i...

does anyone has this fixed income commentary paper by ML ? Part I describes 50-50,regression flies.Part II is supposed to cover PCA, concrete applications.Thx

quick practical question.i am currently looking at a trade recommendation on PCA weighted flyreceive 1.0 x 5y, buying wings alpha x 2y,Beta x 10y.what was the actual PCA performed to obtain values for Alpha & Beta ?thx

<t>if I give you two different strategies :A/ there's a CDO out there, 200 names. 1billion total notional. you buy protection on equity tranche for$40m. B/ there are two CDOs, 100 name each. names are not overlapping and these are the same 200 names as in A/you buy protection on equity tranche for$2...