Reduced form equations

sachin_patel · May 29, 2014, 2:54pm

do we need to remember the equations from reduced form? (interpret “lg” = lembda gamma)

I see the CFAI has Grey Box examples on these but no EOCs… it not needed i’d rather not spend time remembering the crazy equations.

Price of zero coupon bond = D(t,T) = K * e^-^l^g^(T-t)* P(t,T)

Probability of default = 1- e^-^l^(T-t)

Expected loss = K*[1- e^-^l^g^(T-t)]

PV f loss given default = K*P(t,T) *[1- e^-^l^g^(T-t)]

The only equation I remembered so far is Credit spread = lg

sachin_patel · May 29, 2014, 2:55pm

also it removed superscript… just imagine that equations are correct…

sachin_patel · May 29, 2014, 8:57pm

let me ask… anyone remembered this equations?

Jaishank · May 30, 2014, 2:51am

I think you got your answer

sachin_patel · May 30, 2014, 7:26am

lol…don’t be like CFA and make me assume

yet I am assuming that I don’t need to remember… but i do see examples in book and these are not so scary equations to remember so get confused…

may be Mr, sir, S2000 can help…