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Ito’s lemma is like the first few terms of a Taylor series. It can be informally derived by taking the Taylor expansion of the function up to its...
Why do you think a risk discount rate would always be higher than the risk-free rate? (It need not be, which I believe solves your confusion.)
No, it is not. Bear in mind what you’re reading is on the internet.
Yep.
It would actually be pretty unintuitive if positive homogeneity did not hold - that's why it's a good property for a risk measure, and why it's a...
You can be 100% confident that you won’t get a loss bigger than 20,000 because the probabilities there add up to 1.
Assets are things we own or things we are owed. If we use £10 of cash to buy £10 of some other asset, we haven’t made a profit or loss. We’ve just...
There is a good discussion here about it: https://quant.stackexchange.com/questions/16693/why-is-brownian-motion-merely-almost-surely-continuous...
In my example I tried to keep things simple by saying the risk-free rate would not change, so there will be absolutely zero market risk for the...
What you described is a decent rule of thumb for most 'nice' probability distributions, in particular continuous ones, but I wouldn't be confident...
Each cash-flow needs to be discounted using an appropriate risky rate, otherwise (if you discount everything at risk-free) you need to make...
Some of the what you wrote sounds sort of right but I think it's a bit muddled. I'll try to help, but this is partly for my own benefit as I...
Intuitively: Asset A is less likely to experience big negative returns than asset B, since it is positively skewed, even though the mean and...
In the event of a very large loss (e.g. an SCR-sized one), you might be able to put a deferred tax asset (or reduce the size of a deferred tax...
Question 1 Recall that P{A|B} = P{A, B} / P{B} = 1 / P{B} * P{A,B}. Here, B is X < -VaR_a, therefore 1 / P{B} = 1 / a. This is where the factor of...
