troubleshooter
Active Member
The question was to calculate default intensity in year 3. If you follow Hull, you see exactly how it's done.... PD in year 3/prob. of survival upto 2 years... I am pretty certain about this one...
Level 2: Post what your remember here...
- Thread starter troubleshooter
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Yes. It is not a simple subtraction. We use the survival probabilities.
So basically, default intensity corresponds to unconditional probability?
I used the formula used by David, i.e -1/T(1-ln(avg. cumulative default in 3 yrs)), this didn't give me the required answer and I wondered whether GARP messed up with the answers.
Hmm, I see a clearer picture emerging as far as my performance in the exam goes. My confidence level has slightly diminished in the wake of some of the answers being posted here to some of the questions. Nevertheless, I felt good after the exam and I am still confident of passing the exam. Let's see what happens.
What I found frustrating while preparing for Level 2, something that I didn't experience while preparing for Level1, which was more streamlined, was the vast number of topics that we had to read. What made that worse was that these topics where scattered across various books/authors. Before you get used to one author's style you are trying to grasp the same concept explained by another author in his/her style. It resulted in a lot of confusion for me as my background is not in finance. I hope GARP realizes this and streamline their curriculum in a manner that makes it easier for the people from the non-finance background to understand these complex topics as well.
David,
Thank you for answering most of my queries. I did learn quite a bit from your posts and the posts from other users here. It seems GARP likes to repeat questions going by the posts made by test takers in the previous years. I am referring to a couple of them, namely the ES@95.5% confidence and the BASEL question regarding which model explicitly incorporates diversification. I came across the latter in your PQ. Also, I was able to answer the question on loan equivalent RAROC as I had looked at one of your examples in the slides a couple of days before the exam. Although, you said that GARP would not likely test us on the mechanics of the High-water mark. They did test it, but I was able to answer that one as well because I decided not to leave anything to chance.
Suzanne,
Thank you for your support and clicking the 'like' button for almost every post of mine. I think it's quite encouraging
Good luck to everyone else who took the test.
What I found frustrating while preparing for Level 2, something that I didn't experience while preparing for Level1, which was more streamlined, was the vast number of topics that we had to read. What made that worse was that these topics where scattered across various books/authors. Before you get used to one author's style you are trying to grasp the same concept explained by another author in his/her style. It resulted in a lot of confusion for me as my background is not in finance. I hope GARP realizes this and streamline their curriculum in a manner that makes it easier for the people from the non-finance background to understand these complex topics as well.
David,
Thank you for answering most of my queries. I did learn quite a bit from your posts and the posts from other users here. It seems GARP likes to repeat questions going by the posts made by test takers in the previous years. I am referring to a couple of them, namely the ES@95.5% confidence and the BASEL question regarding which model explicitly incorporates diversification. I came across the latter in your PQ. Also, I was able to answer the question on loan equivalent RAROC as I had looked at one of your examples in the slides a couple of days before the exam. Although, you said that GARP would not likely test us on the mechanics of the High-water mark. They did test it, but I was able to answer that one as well because I decided not to leave anything to chance.
Suzanne,
Thank you for your support and clicking the 'like' button for almost every post of mine. I think it's quite encouraging
Good luck to everyone else who took the test.
troubleshooter
Active Member
Hmm, I see a clearer picture emerging as far as my performance in the exam goes. My confidence level has slightly diminished in the wake of some of the answers being posted here to some of the questions. Nevertheless, I felt good after the exam and I am still confident of passing the exam. Let's see what happens.
What I found frustrating while preparing for Level 2, something that I didn't experience while preparing for Level1, which was more streamlined, was the vast number of topics that we had to read. What made that worse was that these topics where scattered across various books/authors. Before you get used to one author's style you are trying to grasp the same concept explained by another author in his/her style. It resulted in a lot of confusion for me as my background is not in finance. I hope GARP realizes this and streamline their curriculum in a manner that makes it easier for the people from the non-finance background to understand these complex topics as well.
David,
Thank you for answering most of my queries. I did learn quite a bit from your posts and the posts from other users here. It seems GARP likes to repeat questions going by the posts made by test takers in the previous years. I am referring to a couple of them, namely the ES@95.5% confidence and the BASEL question regarding which model explicitly incorporates diversification. I came across the latter in your PQ. Also, I was able to answer the question on loan equivalent RAROC as I had looked at one of your examples in the slides a couple of days before the exam. Although, you said that GARP would not likely test us on the mechanics of the High-water mark. They did test it, but I was able to answer that one as well because I decided not to leave anything to chance.
Suzanne,
Thank you for your support and clicking the 'like' button for almost every post of mine. I think it's quite encouraging
Good luck to everyone else who took the test.
I agree with you absolutely on the GARP's curriculum being repetitive and not very well organized. I am beginning to think GARP is really amateruish and FRM is overrated... I remember reading about CDS in at least 4 different sections and Total Return Swap in just about the same number of times. They should set the bar little higher. And then you see questions on the test that are plainly flawed. With 220 M asset having at least 700 M of DV01, what were they thinking? Do they even review their questions for typos and other issues? If they cannot afford to hire reviewers, I am ready volunteer my time to review the questions...
I am confused though... if they give you a table of CUMULATIVE probs, you can't use Hull's method as is since you'd need marginal probs, no? You'd have to find marginal probs for year 1 and 2 first. So you wouldn't be able to use the probs in the table directly, right? Man, I made way more mistakes than I thought.
troubleshooter
Active Member
Read the first paragraph from Hull...
troubleshooter
Active Member
I just remembered one more question. Sorry if it has been posted already.
The question was on POT and it asked what distribution would result when PST threshold is high. The answer was Generalized Pareto Distribution. Easy one but thought I should share it. This thread could be a treasure trove for those taking Level 2 in November. I am suspecting I could be one of them, after boasting earlier in this thread that it was an easy test... hehe...
The question was on POT and it asked what distribution would result when PST threshold is high. The answer was Generalized Pareto Distribution. Easy one but thought I should share it. This thread could be a treasure trove for those taking Level 2 in November. I am suspecting I could be one of them, after boasting earlier in this thread that it was an easy test... hehe...
troubleshooter
Active Member
Only GARP can answer your question. The last time I read up on that it goes like this. They get average score of Top 5% test takers. Then they take some percentange of that, which would be the passing score. Eg., If top 5 test takers on average score 95% and they set 80% (this is a variable GARP sets each year so that they can control the pass rate and is not published), then we should get at least 76% of questions right that translates to 61 questions. I am being quite conservative here. I don't really believe that top 5% would be able to score 95% (76 out of 80 questions), also 80% of top 5% score is a bit on high side as well... So if you think you got 60 out of 80 questions right, I would think you would have a certain pass... I am sure I have screwed up at least 10 questions so my hope is that I did not get more than 20 wrong overall...
troubleshooter
Active Member
Agreed... For those of us who only used Schweser it is the toughest. I wanted to briefly read up on the exotic options form Hull, but never had time. Now I wish I had done that...
troubleshooter
Active Member
Dennis: Read this from Hull and you will know why... I too screwed this one up... Honestly, Swaps are not covered in detail in Lvl 2 and I just wish my memory from Lvl 1 back in 2009 was better...
Oh man, I totally read the question wrong. It asked for hazard rate instead of unconditional probs...crap. Thanks. There goes another one. Oh well. No more of this obsessing. This isn't healthy. Thanks!
Suzanne Evans
Well-Known Member
Hi ji.park1234,
Thank you for your comments. I'd like to point it out that you can change your username from your email address. I'd recommend that you do so for added privacy protection. See this link here for instructions: http://www.bionicturtle.com/news-an...mend-you-change-your-screen-name-in-the-forum
Thanks,
Suzanne
Dennis Choi
New Member
@troubleshooter. Well I'm not bragging about my memory but I do can say that 32.5 is absolutely right. First of all, I calculated every type of LiboR+3.xx% while the bond appreciated 20%(I think I even remember the index rates which were 9600->11500). There is absolutely noway that an interest payment of 8.5M can come out. Anybody, try it yourself. The 3.xx portion I recall was 3.00. (So it was LiBoR + 3.00%) When you use 0.25% as the LiBoR rate the only time you can get an 8.5M interest is when it is LiBoR+4.00%.... I am like 200% sure that it wasn't starting with a 4. It was definitely starting with a 3 and I recall it was 3.00%
Any one who doesn't agree well ok then.
Oh and the notional on the reference was 200M.
troubleshooter
Active Member
I really hope you are right...
Let's try to recreate the problem the best we can.
1. Notional Amount = 200 M (confirmed.)
2. Index went from 9,500 to 11,400, so the rise was (11,400 - 9,500)/9,500 = 1,900/9,500 = 20% (I am pretty sure of this)
3. Floating rate at the start at the initial of the swap = Libor0 + x (Unfortunately, I cannot be sure of these values)
4. Floating rate at the end of the period = Libor1 in the end + x. Note this is not relevant to the question and is there to screw with your head, which worked in my case.
So Total Return Receiver gets 200 M * 20% = 40 M
Does anyone remember what Libor0 and x for this question? The sum of Libor+x has to be 4.25% get the answer of 31.5 M.
Let's try to recreate the problem the best we can.
1. Notional Amount = 200 M (confirmed.)
2. Index went from 9,500 to 11,400, so the rise was (11,400 - 9,500)/9,500 = 1,900/9,500 = 20% (I am pretty sure of this)
3. Floating rate at the start at the initial of the swap = Libor0 + x (Unfortunately, I cannot be sure of these values)
4. Floating rate at the end of the period = Libor1 in the end + x. Note this is not relevant to the question and is there to screw with your head, which worked in my case.
So Total Return Receiver gets 200 M * 20% = 40 M
Does anyone remember what Libor0 and x for this question? The sum of Libor+x has to be 4.25% get the answer of 31.5 M.
Dennis Choi
New Member
I really hope you are right...
Let's try to recreate the problem the best we can.
1. Notional Amount = 200 M (confirmed.)
2. Index went from 9,500 to 11,400, so the rise was (11,400 - 9,500)/9,500 = 1,900/9,500 = 20% (I am pretty sure of this)
3. Floating rate at the start at the initial of the swap = Libor0 + x (Unfortunately, I cannot be sure of these values)
4. Floating rate at the end of the period = Libor1 in the end + x. Note this is not relevant to the question and is there to screw with your head, which worked in my case.
So Total Return Receiver gets 200 M * 20% = 40 M
Does anyone remember what Libor0 and x for this question? The sum of Libor+x has to be 4.25% get the answer of 31.5 M.
to apply the 4.25%. It would have to be LiBOR + 4.00%............the number 4 was definitely not what I saw and wrote down on the test sheet . Even when assuming that I have a bad memory and it was LIBOR + 3.5%. You would have to add 0.75% to get 8.5M for the 31.5 outflow.
So back to applying my memory. it was LiBOR +3.00%....Then multiplying 3.75% to 200M and subtracting 7.5M would get a value of 32.5
troubleshooter
Active Member
If your memory is correct, which I strongly believe it is because I got 32.5 and I am quite certain I used the Libor from the end of the period. But sorry to tell you, Majesta, that it is wrong. We are supposed to use Libor from the start of the swap (see my earlier post today with Hull's screenshot). So the correct anwer I believe is 33.5 (200*20% - 200*3.25% = 40 - 6.5 = 33.5). In any case, I know that I screw this one up as I used the Libor from the end...
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