Quant Primer – 2007 FRM

Notation1

3

Derivatives

4 Matrices

5

i rate, and compounding

2 Variance example

Notation

X

Notation

Notation

ˆ estimate of Beta parameter

Greek symbols (common)

( )X

Z

( )X XZ

sPopulation

“we want it,but can’t get”

Sample“Use to draw inferences about the population”

Greek symbols (common)

alpha y intercept

beta systematic risk

epsilon error term

lambda persistence (EWMA), average (Poisson)

mu expected return (mean)

rho correlation coefficient

sigma standard deviation

Sigma sum

Chi distribution

Greek symbols

standard deviation (X) X

Greek symbols

standard deviation (X) X

2variance (X) X

Greek symbols

standard deviation (X) X

2variance (X) X

2 =X X

Greek symbols

( , )StandardDev( ) StandardDev( )XY

XY

X Y

COV X YX Y

Greek symbols Population variance

2 2

1

1( )

m

n n ii

u um

Greek symbols Sample variance

m

n n ii

u um

2 2

1

1( )

1

Premiu

ms

Interest rate (i)

Real risk-free (riskless) rate

Premiu

ms

Interest rate (i)

Real risk-free (riskless) rate

Inflation

Premiu

ms

Interest rate (i)

Real risk-free (riskless) rate

Inflation

Default risk (credit risk)

Premiu

ms

Interest rate (i)

Real risk-free (riskless) rate

Inflation

Default risk (credit risk)

Liquidity

Premiu

ms

Interest rate (i)

Real risk-free (riskless) rate

Inflation

Default risk (credit risk)

Liquidity

Maturity

Future value of PV: compound frequency Interest may be paid annually, semiannually,

quarterly, monthly, or even daily

Future value of PV: compound frequency

Present Value (PV)

Present Value (PV)

FutureValue (PV)