No it offered to sell put options on its own stock. If that weakens - implying weakening credit quality of B - put options will turn into money for A, hence increasing counterparty exposure for A in the moment credit quality of B is deteriorating ==> Hence, credit exposure and credit quality negatively correlated = wrong-way risk.
Level 2: Post what your remember here...
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No it offered to sell put options on its own stock. If that weakens - implying weakening credit quality of B - put options will turn into money for A, hence increasing counterparty exposure for A in the moment credit quality of B is deteriorating ==> Hence, credit exposure and credit quality negatively correlated = wrong-way risk.
ibrahim-1987
Active Member
yes i know, but also, if B offered collateral to A with more B bonds, the also if b deteriorate it will default in existing debt and the collateral also,..... increasing exposure!!!!
ibrahim-1987
Active Member
y make me cross my eyes!!!!! are y sure option b was like this!!!
Sorry :-(
I am not going to read all ans as the fact that it was easy and i was able to finish in nearly 3 hours as everybody has been experiencing ..it will be very difficult to pass now....and i am sure, being easy rattled me in some question as i made some stupid mistakes....just couldn't remember the obvious (damn hall was like Antarctica..froze my brain)...
Since most of the questions are posted, i am not going to go over them again but seeing all the responses, i doubt if i will make it given the stupid mistakes i made in this easy exam....
For the VOLUME of part 2 which we had to cover just makes it tough.....It is vast in relation to number of questions that they ask...
Well Good luck to all !! and Thanks to BT staff for their great support !!
Since most of the questions are posted, i am not going to go over them again but seeing all the responses, i doubt if i will make it given the stupid mistakes i made in this easy exam....
For the VOLUME of part 2 which we had to cover just makes it tough.....It is vast in relation to number of questions that they ask...
Well Good luck to all !! and Thanks to BT staff for their great support !!
svasudevan
New Member
Hi friends,
I see a lot of other members recollecting so much.. Let me try to contribute something
1)There was a downward sloping curve (left to right) (Y axis was implied volatility and X axis was Strike)
Which of the following is under valued
a)Out of the money puts
b) Out of the money calls
c) In the money call
d) In the money put
I thought it was - Out of the money calls
2) A fund manager has 21,000 shares of A and 20,000 shares of B; market has 250,000 of Share A and 300,000 shares of B. (I don't remember the numbers exactly)
The fund manager wants to liquidate his position; but does not want to sell more than 15% of his position on any one day. What is the liquidiy duration (Note: THe question says that 15% of his total position, not exclusively A or B)
3) How did John Rusnack manipulate the var calculations
- By feeding fake positions into the trading book
4) Does Credit to GDP ratio increase or
Does trade balance o GDP ratio increase
when there is a healthy shock to the system (Current issues)
Not sure of the answer
5) Confidence VAR
94 a
95 b
96 c
97 d
98 e
99 f
What is the Expected shortfall at 95.5% confidence
I guess the answer is Answer: Average of c,d,e,and f
6) The difference between Ireland and US Subprime crisis
Answer: securitization in the US
7) A manager wants to hedge his fixed income portfolio with an instrument which has negative duration.
There were 4 choices..
The answer I guess is: Interest only (IO)
8) You enter into a total return swap with Counterparty B for an amount of 2 Million
Counterparty B pays LIBOR + 2.5%
I pay returns on Nikkei Index which is currently at 9700
The exchange of payments is once an year
At the end of one year, Nikkei is 11500 and Libor is 0.35%
What is the money flow to me ?
Answer is: % increase in Nikkei Times 2 Million - (0.35% + 2.5%) Times 2 Million
This will be the Outflow for me
9) I own a TBA.
Compare it with a Treasury
What happens if the interest rates increases and decreases ?
Four choices out of which I think the right answer is:
TBA underperforms and underperforms
(the real trick to the problem is to know that TBA is mortgages and that there is negative
convexity on both the high and low ends of the interest rates)
10) I have a portfolio; I want to hedge the floating rate with the most liquid instrument
a) Eurodollar futures
b) swaption
c) 2 year Interest rate swap
d) one more option
I think the answer is : a) Euro dollar futures
11) Enron debacled; its subsidiary (XYZ) survived because of ring fencing..what is the correct statement out of 4 choices
I guess the answer is: Ring fencing allowed XYZ to have a different (better) credit rating, which allowed them to issue debt at a lower interst rate
12) There was a problem to calculate the default probability based corporate bond prices
1 year xyz bond price was given
Recovery rate was zero
1 year risk free rate was given
Used the formula PD = 1 - (1+y)/(1+y*)
13) What factor should have caused red flag in Madoff's case
a) Consistently high returns
b) Use of Madoff's name in all the prospectus
c,d : Don't remember
I guess the answer is (a)
Thanks
I see a lot of other members recollecting so much.. Let me try to contribute something
1)There was a downward sloping curve (left to right) (Y axis was implied volatility and X axis was Strike)
Which of the following is under valued
a)Out of the money puts
b) Out of the money calls
c) In the money call
d) In the money put
I thought it was - Out of the money calls
2) A fund manager has 21,000 shares of A and 20,000 shares of B; market has 250,000 of Share A and 300,000 shares of B. (I don't remember the numbers exactly)
The fund manager wants to liquidate his position; but does not want to sell more than 15% of his position on any one day. What is the liquidiy duration (Note: THe question says that 15% of his total position, not exclusively A or B)
3) How did John Rusnack manipulate the var calculations
- By feeding fake positions into the trading book
4) Does Credit to GDP ratio increase or
Does trade balance o GDP ratio increase
when there is a healthy shock to the system (Current issues)
Not sure of the answer
5) Confidence VAR
94 a
95 b
96 c
97 d
98 e
99 f
What is the Expected shortfall at 95.5% confidence
I guess the answer is Answer: Average of c,d,e,and f
6) The difference between Ireland and US Subprime crisis
Answer: securitization in the US
7) A manager wants to hedge his fixed income portfolio with an instrument which has negative duration.
There were 4 choices..
The answer I guess is: Interest only (IO)
8) You enter into a total return swap with Counterparty B for an amount of 2 Million
Counterparty B pays LIBOR + 2.5%
I pay returns on Nikkei Index which is currently at 9700
The exchange of payments is once an year
At the end of one year, Nikkei is 11500 and Libor is 0.35%
What is the money flow to me ?
Answer is: % increase in Nikkei Times 2 Million - (0.35% + 2.5%) Times 2 Million
This will be the Outflow for me
9) I own a TBA.
Compare it with a Treasury
What happens if the interest rates increases and decreases ?
Four choices out of which I think the right answer is:
TBA underperforms and underperforms
(the real trick to the problem is to know that TBA is mortgages and that there is negative
convexity on both the high and low ends of the interest rates)
10) I have a portfolio; I want to hedge the floating rate with the most liquid instrument
a) Eurodollar futures
b) swaption
c) 2 year Interest rate swap
d) one more option
I think the answer is : a) Euro dollar futures
11) Enron debacled; its subsidiary (XYZ) survived because of ring fencing..what is the correct statement out of 4 choices
I guess the answer is: Ring fencing allowed XYZ to have a different (better) credit rating, which allowed them to issue debt at a lower interst rate
12) There was a problem to calculate the default probability based corporate bond prices
1 year xyz bond price was given
Recovery rate was zero
1 year risk free rate was given
Used the formula PD = 1 - (1+y)/(1+y*)
13) What factor should have caused red flag in Madoff's case
a) Consistently high returns
b) Use of Madoff's name in all the prospectus
c,d : Don't remember
I guess the answer is (a)
Thanks
Dennis Choi
New Member
you do need to reduct it. Gross net spreads are the ones that don't have to be deducted. not "Net"
LeeBrittain
Member
I'm mad at myself because I had so much time left that I went back and changed 3 or 4 answers from right to wrong. I think this was a dangerous exam to take for most of us here who frankly were probably overprepared and could read too much into some questions, many of which were poorly designed. I'm still hopeful that I passed, but I doubt I will get all Q1's. If I had to guess I'd say I got 75-80% right, but that might not be good enough to pass if everyone else did relatively well.
Some questions that I still have from the exam...
1) question on the potential hedging instrument that's most liquid.... I chose d) 2 year option on eurodollar futures, because the swap was a 2 year swap and Eurodollar futures only have 90 day duration, right? So i thought it was a trick question where Eurodollar futures in and of themself would not be an effective hedge on a 2 year swap given the maturity mismatch. But do they have Eurodollar futures that go 2 years out?? If so then my answer was wrong.
2) Question was like "If manager wanted to invest in a fixed income security with negative duration, and wants to reduce her exposure to interest rates, so what should she do?" One option was buy puts in IO security, but I thought that buying a put is equivalent to going short. Does that mean if you go short an investment with negative duration is your position in effect positive duration? So instead I chose buy puts in zero coupon bonds. So by going short in an investment that has positive duration does your investment then have "negative duration"?
3) First Rusnak question- Came down to did Rusnak alter the results of backtested Vars or did he input nonexistent positions into the VAR model? I chose the latter but i'm afraid the former may have been right, although the wording would be unfair there because in my mind the Rusnak reading made it sound like he fudged the INPUTS on the var model, not that he went back and just changed the VAR output.
4) Another question which I don't think people have mentioned is the one where you are given four banks with different investment $'s and then different collateral $'s. Question asked which bank is the least exposured to a liquidity run? I chose the bank which had the lowest % of collateral/total investment $'s.
David- I feel like your notes and questions prepared us well for the exam. One area that I don't think was covered in your notes but was on the exam was the question about the liquidity duration of a portfolio given certain share position sizes and % that could be sold in a day without effecting the price.
Some questions that I still have from the exam...
1) question on the potential hedging instrument that's most liquid.... I chose d) 2 year option on eurodollar futures, because the swap was a 2 year swap and Eurodollar futures only have 90 day duration, right? So i thought it was a trick question where Eurodollar futures in and of themself would not be an effective hedge on a 2 year swap given the maturity mismatch. But do they have Eurodollar futures that go 2 years out?? If so then my answer was wrong.
2) Question was like "If manager wanted to invest in a fixed income security with negative duration, and wants to reduce her exposure to interest rates, so what should she do?" One option was buy puts in IO security, but I thought that buying a put is equivalent to going short. Does that mean if you go short an investment with negative duration is your position in effect positive duration? So instead I chose buy puts in zero coupon bonds. So by going short in an investment that has positive duration does your investment then have "negative duration"?
3) First Rusnak question- Came down to did Rusnak alter the results of backtested Vars or did he input nonexistent positions into the VAR model? I chose the latter but i'm afraid the former may have been right, although the wording would be unfair there because in my mind the Rusnak reading made it sound like he fudged the INPUTS on the var model, not that he went back and just changed the VAR output.
4) Another question which I don't think people have mentioned is the one where you are given four banks with different investment $'s and then different collateral $'s. Question asked which bank is the least exposured to a liquidity run? I chose the bank which had the lowest % of collateral/total investment $'s.
David- I feel like your notes and questions prepared us well for the exam. One area that I don't think was covered in your notes but was on the exam was the question about the liquidity duration of a portfolio given certain share position sizes and % that could be sold in a day without effecting the price.
@1: chose: Eurodollar Future. Think those are available until 10 years.
@2: chose: Buy the put option on the zero should be correct: Duration positiv for the zero; hence you will profit when yields go down. BT you will profit from the put only if yields go up ==> negative duration; Revert the argument for puts on IOs: IOs negative duration; put on IOs positive duration.
@3: Rusnak DID NOT maniuplate backtests, he inputed non-existent positions.
@4: did the same, but not sure.
LeeBrittain
Member
Whew, if that's the case then my changing the answers was a net zero as I changed two from wrong to right and two from right to wrong!
Look at this question I posted before the exam (http://forum.bionicturtle.com/threads/implied-volatility.5838/). It is the same question as the exam. I don't really remember from where I found this question (Sorry David again for nothing quoting source)
Robert Morris
New Member
Few that I can remember that had me puzzled were:
1. MCS for MBS. I chose path dependence, but there was also an answer regarding calculating zero volatility option adjusted spread. However OAS would be zero under zero vol, possibly typo?
2. LVAR - greatest constant spread LC for various confidences and time periods. I chose 99%,10 day. But since constant spread LC isn't affected by confidence level or holding period this didn't seem to make sense as a question.
3. Performance of a TBC ABS under increasing/decreasing yield - not sure if this was covered anywhere in the notes. Guessed underperform for both.
4. Conv Arb one was definitely badly worded. Coupon was the only cash inflow however this would be expected not an increase.
5. Implied Vol Skew. Must have been OTM Put that was undervalued using ATM vol. ITM Call and OTM Put would both be using a lower vol than implied. Per P-C Parity this would under value the OTM put and the ITM Call the same in absolute terms, but the put more in % terms.
There was definitely inconsistencies with the compounding on questions even after the stated assume continuous unless told. It would definitely have been better to clearly define this for each question involving TVM/compounding calcs.
1. MCS for MBS. I chose path dependence, but there was also an answer regarding calculating zero volatility option adjusted spread. However OAS would be zero under zero vol, possibly typo?
2. LVAR - greatest constant spread LC for various confidences and time periods. I chose 99%,10 day. But since constant spread LC isn't affected by confidence level or holding period this didn't seem to make sense as a question.
3. Performance of a TBC ABS under increasing/decreasing yield - not sure if this was covered anywhere in the notes. Guessed underperform for both.
4. Conv Arb one was definitely badly worded. Coupon was the only cash inflow however this would be expected not an increase.
5. Implied Vol Skew. Must have been OTM Put that was undervalued using ATM vol. ITM Call and OTM Put would both be using a lower vol than implied. Per P-C Parity this would under value the OTM put and the ITM Call the same in absolute terms, but the put more in % terms.
There was definitely inconsistencies with the compounding on questions even after the stated assume continuous unless told. It would definitely have been better to clearly define this for each question involving TVM/compounding calcs.
1. I choose path dependence or else MCS will not be used to price MBS?
2. Same Chose that. I was thinking doesn't LVAR=VAR+Liquidity cost? The longer the day, the higher?
3. Did not see that in Schweser text. Schweser also did not cover the Liquidity duration part (they cover the simple example only)
4. Same
5. http://forum.bionicturtle.com/threads/implied-volatility.5838/ I don't remember the exact wording of the question but I suddenly have a new thought. Are they asking about which will be the most under priced in terms of absolute value?
In the money Call (Real) - $50
In the money Call (Wrong implied volatility) - $40
Difference- $10
Out the money Put (Real) - $1
Out of money Put (Wrong implied volatility) - $0.50
Difference- $0.50
2. Same Chose that. I was thinking doesn't LVAR=VAR+Liquidity cost? The longer the day, the higher?
3. Did not see that in Schweser text. Schweser also did not cover the Liquidity duration part (they cover the simple example only)
4. Same
5. http://forum.bionicturtle.com/threads/implied-volatility.5838/ I don't remember the exact wording of the question but I suddenly have a new thought. Are they asking about which will be the most under priced in terms of absolute value?
In the money Call (Real) - $50
In the money Call (Wrong implied volatility) - $40
Difference- $10
Out the money Put (Real) - $1
Out of money Put (Wrong implied volatility) - $0.50
Difference- $0.50
LeeBrittain
Member
on the LVAR question I chose the 90%, 5 day VAR as the question was which confidence level and holding period would have the highest liquidity adjustment (with a constant spread). There's no impact on the adjustment with constant spread for longer holding period or higher confidence level, so the constant spread adjustment would be the same under all scenarios. So, everything else equal, the 90%, 5 day Var would be the lowest unadjusted VAR out of all of them, which means the liquidity adjustment would be the highest (as a % of total VAR) with that option compared to the others which had higher confidence levels and longer holding periods.
Leli
Member
I answered like you, thinking about impact of constant spread on % of VaR but the question was IMO not well written (but maybe it's because i'm not so good at english
)
)I know I might be going crazy now after reading the posts above 
- one question - I am not sure where I am imagining this from? But wasn't the question regarding - Performance of a TBA with changes in interest rate with respect to the normal fixed income portfolio? - If not - I got it really wrong 
- I chose underperform when interest rate decrease (convexity) and but same / overperformance when interest rate increase - I don't even remm the choices now
- one question - I am not sure where I am imagining this from? But wasn't the question regarding - Performance of a TBA with changes in interest rate with respect to the normal fixed income portfolio? - If not - I got it really wrong - I chose underperform when interest rate decrease (convexity) and but same / overperformance when interest rate increase - I don't even remm the choices now1) Implied volatility is assumed to be the center. What will be the effect? (out-the-money call value )
2) What did John Rusnak do? (made fake transactions to manipulate VaR)
3) What will the Q-Q plot look like? (I marked the one which was straight below 1 and then upward sloping for +ve values)
4) Backtesting, outcome (?)
5) Calculate ES for 96.5% confidence (straight-forward average of VaRs above 95.5%)
6) Netting arrangements, calculate exposure (straight-forward add all)
7) Suggest measure for specific exposure profile (Ans: credit triggers since bond ratings needs to be considerd and posting very high collateral is not feasible)
8) Calculate implied risk-free rate [using (1+rfr) = (1-PD)* (1+yield)]
9) What will be the common strike for 4 barrier options (no idea personally, I marked 42 guessed)
10) Calculate VaR for bond transition matrix (it was 9)
11) Calculate default rate for 3rd year(cum. default rate in yr 3 - cum. default rate in yr 3
12) Which of the following statements related to correlation are wrong (Ans: correlation is possible for few distributions only)
13) What is true about the ratios net stable and liquidy (liquidity ratio Is calculated for 30 days)
14) Which is the most liquid hedging option? (Eurodollar futures?)
15) What is true about ring fencing assets (allows SPE to issue debt at lower interest rates)
16) Calculate probability of default (20%)
17) Calculate option value (I didn't know that we had to calculate the probabilities of up and down moves. I marked B 0.8 something)
18) Calculate component VaR (wi*betai*VaRp)
19) Calculate hedge using keyrates (30k short and 3.5k short)
20) 5k short out-of-the-money calls, 5k ITM calls, some 8k forwards, calculate VaR (25% volatility, 252 days, daily at 99%), I got D (9500 something)
21) Calculate payment for Total Return Swap (Ans was 31.5, -40 mil and +8.5)
22) Which approach does not require correlation estimates (data driven approach bootstraapiing)
23) What is true about weighting schemes (I marked C, age weighted gives less weight to old VaRs)
24) Hedge using negative duration (Short put on IO mortgage strip?)
25) Enhancement required so that senior tranche has 90% protection (5 mil)
26) Calculate the amount of duration mismatch (700, D(liab) * liab - D(assets) * assets)
27) Which asset should be pledged as collateral? (given correlation matrix, I choose D
28) Which asset to add to the portfolio? (Nix, because it had the highest information ratio)
29) What amount of alpha is attributable to the benchmark? (0.18% found )
30) What will make it more beneficial to make an investment based on ARAROC? (Reducing the equity beta)
31) What is true about capital requirements under basel III? (Equity capital tier 1 must be 4.5%)
32) Which of the following will add to equity tier 1 capital under basel 3(common stock) 33) What are the most frequently used distributions for severity prob of default? (poisson and lognormal)
34) Which of the following is not true? (operational VaR is symmetric and fat tailed)
35) Which of the following is true? (Total risk = sum of risk contributions)
36) What is the capital requirement? (capital factor was 3, and a table of various confidence levels and VaR and SVaR was given, had to use 10 day 99% VaR, I got 340 something)
37) Difference between capital requirements based on drawdown if loan-equivalent is 0.6 something (difference was 20-30? I don't remember)
38) Something about assumptions changing (Ans: Operating risk increases/decreases) [don't remember this question properly]
40) Some big question with 2 custom formulas for calculating exposure to loans. We had to find the value of b and g? (b < 0, g >= 0)
41) Which of the following accounts for diversification? (internal models approach?)
42) There was a question on Irish and US credit crisis, it asked for what was a factor in Irish crisis but not in US.(securitization)
43) There was a question on Icelandic banking system.(CBOI giving bd loans backed by inter bank collterals)
44) What factor should have raised red flag regarding the fraud by Bernie Madoff.(performance fee)
45)Question with 2 bonds, each 100m, and they both form a pool that backs a senior/sub structure. Prob default of each bond is equal to p.
Then they have some answers that represent prob of default of the equity tranche or the senior tranche.(prob of no default on equity is (1-p)*(1-p) so default prob on equity is 1-(1-p)*(1-p)=2p-p^2
46) There was a market value of credit risk question. It gave an exposure of 100k and then a risk free bond with MV of maybe 980 or 970. Ans:7.3%
47) Hedge fund fee question that gave you a 2 and 20% fee structure and return numbers (?). There was a high watermark but no hurdle rate in place. I think I put down answer D...2.99? I guessed it right?
48) Merger acquisition question - gave 2 stocks and asked what positions you'd take. Buy target and short acqurere
49) PE fund question about the Mezz Capital strategy - sub and pref stock with no change in control
50) One question on through the cycle credit ratings and how they relate to asset appreciation and depreciation - possible solutions were along the lines of "...tightens credit when home prices depreciate..." Something like that.
51) Question on what signs show that an increase in lending (I think) isn't leading into an asset bubble (or something like that). Ans seems that asssets are backed by colletral repo
52) Convert arb question about cash inflow - answer was bond coupon
53. High threshold (converge to GEP)
54. Backtesting (95% vs 99 %)99%
55. Interest rate effect(O/p and U/P)
56. KMV
59. impact concentration to UL and EL: increase only UL
60. Which one is example of Wrong Way risk
61. Delay in Valuation (Model Risk): counter party linked
62. Liquidity Duration 2 stocks (my ans: 10 days)
63. Highest beta line in SA Approach (retail banking)
64 Liquidity (my ans : spread between short term & Treasury rates)
65. impact survivorship bias to Hedge Fund performance
66. 3 shocks (my ans : const. credit rtio for bank)
67. Asian Options: less volatile
68. Interest rate payments and prepayments: burn out effect
69: one on MBS exceess spread calculation:.15 %
70: which will causeincrease collateralizaition: excesss spread
71. @Question with LVaR and Elasticity: ans is increase Var by .24%
72 lowest and highet VaR limits for a portfolio: VaR1-VaR2 and VaR1+VaR2
73@Some question with VaR-Results calculated with historical simulation, delta normal and monte carlo simulation;
Consitency questioned by trader. What is the most plausible explanation for this inconsistency?
==> Answered: Different model assumptions;
74monte carloLpath dependent)
2) What did John Rusnak do? (made fake transactions to manipulate VaR)
3) What will the Q-Q plot look like? (I marked the one which was straight below 1 and then upward sloping for +ve values)
4) Backtesting, outcome (?)
5) Calculate ES for 96.5% confidence (straight-forward average of VaRs above 95.5%)
6) Netting arrangements, calculate exposure (straight-forward add all)
7) Suggest measure for specific exposure profile (Ans: credit triggers since bond ratings needs to be considerd and posting very high collateral is not feasible)
8) Calculate implied risk-free rate [using (1+rfr) = (1-PD)* (1+yield)]
9) What will be the common strike for 4 barrier options (no idea personally, I marked 42 guessed)
10) Calculate VaR for bond transition matrix (it was 9)
11) Calculate default rate for 3rd year(cum. default rate in yr 3 - cum. default rate in yr 3
12) Which of the following statements related to correlation are wrong (Ans: correlation is possible for few distributions only)
13) What is true about the ratios net stable and liquidy (liquidity ratio Is calculated for 30 days)
14) Which is the most liquid hedging option? (Eurodollar futures?)
15) What is true about ring fencing assets (allows SPE to issue debt at lower interest rates)
16) Calculate probability of default (20%)
17) Calculate option value (I didn't know that we had to calculate the probabilities of up and down moves. I marked B 0.8 something)
18) Calculate component VaR (wi*betai*VaRp)
19) Calculate hedge using keyrates (30k short and 3.5k short)
20) 5k short out-of-the-money calls, 5k ITM calls, some 8k forwards, calculate VaR (25% volatility, 252 days, daily at 99%), I got D (9500 something)
21) Calculate payment for Total Return Swap (Ans was 31.5, -40 mil and +8.5)
22) Which approach does not require correlation estimates (data driven approach bootstraapiing)
23) What is true about weighting schemes (I marked C, age weighted gives less weight to old VaRs)
24) Hedge using negative duration (Short put on IO mortgage strip?)
25) Enhancement required so that senior tranche has 90% protection (5 mil)
26) Calculate the amount of duration mismatch (700, D(liab) * liab - D(assets) * assets)
27) Which asset should be pledged as collateral? (given correlation matrix, I choose D
28) Which asset to add to the portfolio? (Nix, because it had the highest information ratio)
29) What amount of alpha is attributable to the benchmark? (0.18% found )
30) What will make it more beneficial to make an investment based on ARAROC? (Reducing the equity beta)
31) What is true about capital requirements under basel III? (Equity capital tier 1 must be 4.5%)
32) Which of the following will add to equity tier 1 capital under basel 3(common stock) 33) What are the most frequently used distributions for severity prob of default? (poisson and lognormal)
34) Which of the following is not true? (operational VaR is symmetric and fat tailed)
35) Which of the following is true? (Total risk = sum of risk contributions)
36) What is the capital requirement? (capital factor was 3, and a table of various confidence levels and VaR and SVaR was given, had to use 10 day 99% VaR, I got 340 something)
37) Difference between capital requirements based on drawdown if loan-equivalent is 0.6 something (difference was 20-30? I don't remember)
38) Something about assumptions changing (Ans: Operating risk increases/decreases) [don't remember this question properly]
40) Some big question with 2 custom formulas for calculating exposure to loans. We had to find the value of b and g? (b < 0, g >= 0)
41) Which of the following accounts for diversification? (internal models approach?)
42) There was a question on Irish and US credit crisis, it asked for what was a factor in Irish crisis but not in US.(securitization)
43) There was a question on Icelandic banking system.(CBOI giving bd loans backed by inter bank collterals)
44) What factor should have raised red flag regarding the fraud by Bernie Madoff.(performance fee)
45)Question with 2 bonds, each 100m, and they both form a pool that backs a senior/sub structure. Prob default of each bond is equal to p.
Then they have some answers that represent prob of default of the equity tranche or the senior tranche.(prob of no default on equity is (1-p)*(1-p) so default prob on equity is 1-(1-p)*(1-p)=2p-p^2
46) There was a market value of credit risk question. It gave an exposure of 100k and then a risk free bond with MV of maybe 980 or 970. Ans:7.3%
47) Hedge fund fee question that gave you a 2 and 20% fee structure and return numbers (?). There was a high watermark but no hurdle rate in place. I think I put down answer D...2.99? I guessed it right?
48) Merger acquisition question - gave 2 stocks and asked what positions you'd take. Buy target and short acqurere
49) PE fund question about the Mezz Capital strategy - sub and pref stock with no change in control
50) One question on through the cycle credit ratings and how they relate to asset appreciation and depreciation - possible solutions were along the lines of "...tightens credit when home prices depreciate..." Something like that.
51) Question on what signs show that an increase in lending (I think) isn't leading into an asset bubble (or something like that). Ans seems that asssets are backed by colletral repo
52) Convert arb question about cash inflow - answer was bond coupon
53. High threshold (converge to GEP)
54. Backtesting (95% vs 99 %)99%
55. Interest rate effect(O/p and U/P)
56. KMV
59. impact concentration to UL and EL: increase only UL
60. Which one is example of Wrong Way risk
61. Delay in Valuation (Model Risk): counter party linked
62. Liquidity Duration 2 stocks (my ans: 10 days)
63. Highest beta line in SA Approach (retail banking)
64 Liquidity (my ans : spread between short term & Treasury rates)
65. impact survivorship bias to Hedge Fund performance
66. 3 shocks (my ans : const. credit rtio for bank)
67. Asian Options: less volatile
68. Interest rate payments and prepayments: burn out effect
69: one on MBS exceess spread calculation:.15 %
70: which will causeincrease collateralizaition: excesss spread
71. @Question with LVaR and Elasticity: ans is increase Var by .24%
72 lowest and highet VaR limits for a portfolio: VaR1-VaR2 and VaR1+VaR2
73@Some question with VaR-Results calculated with historical simulation, delta normal and monte carlo simulation;
Consitency questioned by trader. What is the most plausible explanation for this inconsistency?
==> Answered: Different model assumptions;
74monte carloLpath dependent)
I know I might be going crazy now after reading the posts above - one question - I am not sure where I am imagining this from? But wasn't the question regarding - Performance of a TBA with changes in interest rate with respect to the normal fixed income portfolio? - If not - I got it really wrong - I chose underperform when interest rate decrease (convexity) and but same / overperformance when interest rate increase (as some prepayments exist at higher interest rates - sub-optimal prepayments due to housing turnover (favorable to the investor). Can someone please comment?
- one question - I am not sure where I am imagining this from? But wasn't the question regarding - Performance of a TBA with changes in interest rate with respect to the normal fixed income portfolio? - If not - I got it really wrong - I chose underperform when interest rate decrease (convexity) and but same / overperformance when interest rate increase (as some prepayments exist at higher interest rates - sub-optimal prepayments due to housing turnover (favorable to the investor). Can someone please comment?Similar threads
