Hi All. I just got a DNMRR for my FA with a grader comment that I need improvements for Task 2. For my submission, I chose CTE(95) > 10% to determine the price but reading through previous posts I think this might be over conservative. I also get confused about the following points:
1. Performance metric - The assignment gives us BBA uses PM as their profit measure. Is profit measure also called performance metric?
2. Risk metric - There are so many discussions about distinctions between Risk measure and Risk metric. Some argued that CTE is a risk measure and CTE(95) is a risk metric, similarly for VaR. I google them all and wikipedia says that "The term "VaR" is used both for a risk measure and a risk metric. This sometimes leads to confusion. Sources earlier than 1995 usually emphasize the risk measure, later sources are more likely to emphasize the metric."
http://ift.tt/WQKSBA
So I am not sure which term is correct.
3. Price determination - I believe that we cannot just set the price so that the average of PM is higher than 10% because it is too way risky. We often set some conditions like "CTE(x) > 10%" to come up with our desired offer. However, how can we justify that CTE(95) is better than CTE(90)?
4. The questions ask for what ranges of price should BBA enter negotiations with CDL. Is that different with the price BBA should sell Air Miles to CDL? Or just some neighbouring points of the initially suggested one?
5. The task clearly says that we do not need to modify the model. However, there are some over simplifications which do not make perfect sense. I did change and add some further assumptions for the model. Are there anyone MMRed also do that?
Hope receive your helps. Thank you.
1. Performance metric - The assignment gives us BBA uses PM as their profit measure. Is profit measure also called performance metric?
2. Risk metric - There are so many discussions about distinctions between Risk measure and Risk metric. Some argued that CTE is a risk measure and CTE(95) is a risk metric, similarly for VaR. I google them all and wikipedia says that "The term "VaR" is used both for a risk measure and a risk metric. This sometimes leads to confusion. Sources earlier than 1995 usually emphasize the risk measure, later sources are more likely to emphasize the metric."
http://ift.tt/WQKSBA
So I am not sure which term is correct.
3. Price determination - I believe that we cannot just set the price so that the average of PM is higher than 10% because it is too way risky. We often set some conditions like "CTE(x) > 10%" to come up with our desired offer. However, how can we justify that CTE(95) is better than CTE(90)?
4. The questions ask for what ranges of price should BBA enter negotiations with CDL. Is that different with the price BBA should sell Air Miles to CDL? Or just some neighbouring points of the initially suggested one?
5. The task clearly says that we do not need to modify the model. However, there are some over simplifications which do not make perfect sense. I did change and add some further assumptions for the model. Are there anyone MMRed also do that?
Hope receive your helps. Thank you.
BBA Task 2 - Some vague confusions about the questions and assumptions
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