Category: Swatches

Expected Return of a Defaultable Zero Coupon Bond

Yield isn’t always what you earn. In credit-risky bonds, default risk drives a wedge between yield and expected return. This video walks through a simple yet rigorous example of a defaultable zero-coupon bond, showing how to compute expected return — and why it often falls short of the promised yield.
Posted On:

From Uncorrelated to Correlated Random Variables: The Gauss+ Case

In this video, we learn how to construct correlated standard normal variables from uncorrelated ones using linear combinations — a technique that is foundational in many quantitative models, including Gauss+. This post explains the math, provides visual intuition, and shows why this approach is so important in risk modeling and quantitative finance.
Posted On:

Understanding Undiversified Value at Risk (VaR)

In this video, we understand what Undiversified VaR means, how to calculate it, and why it represents a worst-case, no-diversification measure of portfolio risk. A practical explanation for FRM Part 2 candidates.
Posted On:

Understanding Default Correlation

This video explains the concept of default correlation using a simple two-loan numerical example. Starting from the assumption of independent defaults, we show how correlated defaults significantly raise the likelihood of joint default — and why this matters for portfolio risk, structured products, and credit capital models.
Posted On:

Beta Distribution – All we need to know for the FRM Exam

In this video, we explore the fundamentals of the beta distribution, a continuous probability distribution defined between 0 and 1. Using various values for the parameters alpha and beta, we demonstrate how the shape, skewness, and concentration of the distribution change. Whether you’re new to statistics or brushing up on your knowledge, this visual explanation provides a clear and concise understanding of how the beta distribution behaves under different scenarios.
Posted On:

Arbitrage Explained: Value Additivity vs. Dominance

In this video, we break down two key types of arbitrage—Value Additivity and Dominance—using simple, intuitive examples. Learn how pricing inconsistencies can lead to risk-free profit opportunities, a concept every FRM candidate should master. Perfect for those studying arbitrage or prepping for the Financial Risk Manager exam.
Posted On:

Understanding Equilibrium Interest Rate Models: The Vasicek Way

Explore the world of interest rate modeling with this clear and concise walkthrough of the Vasicek equilibrium model. Learn how an equilibrium interest model is created, and understand why equilibrium models, while not ideal for pricing, can still be used for other meaningful purposes.
Posted On:

Understanding the Short Rate

In this video, we explore the concept of the short rate — a fundamental but often misunderstood concept in interest rate modeling. Learn how this unobservable, instantaneous rate powers the pricing of bonds, forward rates, and the entire yield curve. Whether you’re diving into the Vasicek or CIR model or prepping for your FRM exams, this explanation will give you a clear conceptual foundation.
Posted On:

Understanding the Concept of Riding the Yield Curve

This video explains how a bond can earn a higher return even if interest rates remain unchanged — through a concept known as “riding the yield curve.” Using a simple six-year coupon bond and spot rate term structures, we walk through step-by-step valuation and highlight how changes (or the lack thereof) in the yield curve impact bond prices and holding period returns.
Posted On: