Exam Feedback FRM Part 1 (May 2014) Exam Feedback

[Roshan Ramdas]

No.. check this: (assuming 1st payment on Jan 1 2014 and last payment on 1st Jan 2016)
For Half yearly:

Jan1 2014- First Payment
July 1 2014- Second Payment
Jan1 2015- Third Payment
July 1 2015- Fourth Payment
Jan1 2016- Fifth Payment

Similarly 9 for quarterly . Assuming no netting it gives 14 payments. With netting 9.

Hope it is clear now.

What is the effective swap start and end date assumptions please in this example ??

 

[Adelaide]

is this the leap hog one.. the basis differen.. its on account of carrying cost.. if u r referring to tht one

it was one qualitative question...answers included information about price movements, share number...the rest dotn remember

 

[an12]

The long run average volatility rate was lower than the current volatility estimate,.....I thereby landed up going for the graph which showed a gradual downward sloping line (based on the mean reversion property).[/q
execpt for 1 option in all the graphs it was downward only...dunno which one is exactly correct

 

[Adelaide]

there was also a graph with spot and forward rates ...which one did you pick here?

 

[an12]

it was one qualitative question...answers included information about price movements, share number...the rest dotn remember

is tht the future one.. giving option for normal, inverted, mixed.. is it tht one u r referiing.. i opted for normal

 

[an12]

ohh ok.. now i got it.. in tht forward rate would fall below th spot after a point. i dont remembr its option number

 

[an12]

there was also a graph with spot and forward rates ...which one did you pick here?

ohh ok.. now i got it.. in tht forward rate would fall below th spot after a point. i dont remembr its option number

 

[amresh]

What is the effective swap start and end date assumptions please in this example ??

Start date... Any date ranging from 2nd october 2013 to 31st december 2013.
End date.. i think it should match with last payment date.

Please dont ask anything more.. as i am supposed to flunk and swap was among my weakest topics..

 

[hoang.vu90]

The long run average volatility rate was lower than the current volatility estimate,.....I thereby landed up going for the graph which showed a gradual downward sloping line (based on the mean reversion property).

The one I chose is the one ossilating around the mean. That is the property of mean reversion I think. Not just falling to mean and stay constant or moving away from the mean.

 

[amresh]

I think it was Last option in my paper.
anyways for rising term structure forward>Spot>Par.. a
For falling Term structure Par>Spot>Forward... b

And it was mix of these. So for first part it had be like a above and second part like b above.

ohh ok.. now i got it.. in tht forward rate would fall below th spot after a point. i dont remembr its option number

 

[Roshan Ramdas]

I think it was Last option in my paper.

I think that this is the option where the spot rate curve shows a decline + the forward rate curve showing an even more "clean" & steep decline roughly around the time the spot rate starts declining,....there was another one which could have just made the mark (think it was option B),..but I landed up rejecting it as the declines were not coming out clearly.

 

[amresh]

I think that this is the option where the spot rate curve shows a decline + the forward rate curve showing an even more "clean" & steep decline roughly around the time the spot rate starts declining,....there was another one which could have just made the mark (think it was option B),..but I landed up rejecting it as the declines were not coming out clearly.

ok.. This is what i did additionally... there were only two options where we had first part increasing and second part decreasing. Then i checked for the co-ordinates on the x axis and noticed that in one of the figures decline started at 6 (third option) while in other it started at 8. 8 was matching with the decline of term structure so i went with this one.

 

[Roshan Ramdas]

The one I chose is the one ossilating around the mean. That is the property of mean reversion I think. Not just falling to mean and stay constant or moving away from the mean.

I just checked the "Estimating Volatilities and Correlations" chapter.
Under the "Using GARCH(1,1) to forecast future volatility" section there are graphs of the expected path for the variance rate when current variance is above & below long term variance rate,.....none of them show an oscillating trend.

@an12,...this could help you cross verify the option that was selected as well.

 

[Adelaide]

oh no....I have chosen option b) as I thought they converge.....

 

[amresh]

One new question. You guys would have selected normal in future curve options. I was looking for contango which was not there in any of the options so i went with inverted. Came back home and read again and concluded that it was Normal not inverted.

 

[amresh]

I just checked the "Estimating Volatilities and Correlations" chapter.
Under the "Using GARCH(1,1) to forecast future volatility" section there are graphs of the expected path for the variance rate when current variance is above & below long term variance rate,.....none of them show an oscillating trend.

@an12,...this could help you cross verify the option that was selected as well.

I had only relied on GARP material and could not relate the Graphs with what i had read. so guessed it and expect to get it wrong.

 

[an12]

ok.. This is what i did additionally... there were only two options where we had first part increasing and second part decreasing. Then i checked for the co-ordinates on the x axis and noticed that in one of the figures decline started at 6 (third option) while in other it started at 8. 8 was matching with the decline of term structure so i went with this one.

u guys have great memory.. i just remember the graph in which forwrad rate decline was steep after a point.,.. n i had selected that

 

[hoang.vu90]

I just checked the "Estimating Volatilities and Correlations" chapter.
Under the "Using GARCH(1,1) to forecast future volatility" section there are graphs of the expected path for the variance rate when current variance is above & below long term variance rate,.....none of them show an oscillating trend.

@an12,...this could help you cross verify the option that was selected as well.

Is it in Dave note ? I cant seem to find it. As far as I know, any economic model with mean reversion means oscillating around mean. As shown in this example http://seekingalpha.com/article/176726-economic-bull-that-mean-mean-reversion-is-still-coming

 

[Roshan Ramdas]

Is it in Dave note ? I cant seem to find it. As far as I know, any economic model with mean reversion means oscillating around mean. As shown in this example http://seekingalpha.com/article/176726-economic-bull-that-mean-mean-reversion-is-still-coming

Its in GARP's Quantitative Analysis text book.

 

[Roshan Ramdas]

One new question. You guys would have selected normal in future curve options. I was looking for contango which was not there in any of the options so i went with inverted. Came back home and read again and concluded that it was Normal not inverted.

Selected normal,.... -> normal market and contango have the same meaning. So does inverted market and backwardation.

Append - Please ignore my earlier note w.r.t,...normal / contango & inverted / backwardation meaning the same.
Normal / Inverted are terms use to describe a futures price curve which is an increasing / decreasing function of time to maturity.
Contango / backwardation are terms used to describe the futures price drift towards the spot price as you approach maturity.