Exam Feedback May 2016 Part 2 Exam Feedback

[Delo]

The exam was tougher than I imagined. Quantitative + Qualitative.
I think barely 10 - 15 questions were straightforward. Very wordy / lengthy - makes it hard to SPOT the easy ones.
There were several "never heard of" terms.

 

[Mkaim]

The only question that matters at this point is "What's the cutoff"

 

[Mkaim]

Each question was basically an essay, making time management essential.

 

[Delo]

There were roughly 5 people who didn't turn up in our room and 2 left very early - midway in exam. These people give me hope ....

 

[frmfrm]

Exam was though.

 

[brian.field]

London whale - I chose ignored or increased risk limits
Cyber security - I guessed "identify" critic risks
Distance to Default - I also chose BBB-/BB.
Delta call Delta put - I chose delta for call increased, delta for put decreased
About exception problem ...2.33 critical value accept or reject? I chose fail to reject. I think I arrived at a stat if 2.22 or so.

 

[brian.field]

QQ plot should be thick tail for both sides because it was steeper than the original line at both sides. I think the exam was much harder than the BT mock exam and GARP practice exam. I guessed 12 questions (all C!) the most disappointed thing is I even don't know how to revise again if I need to resit the exam. The questions are so tricky.

It was steeper for a portion and then curved back towards the 45 degree line which is why I found it to be a bit unclear.

 

[brian.field]

Half life of Vasicek - guessed

Market maker earns illiq premium even after all the costs - guessed

Fundamental review of trading book - cannot shift assets from trading to banking (vice versa) except only under strict circumstances

NSFR (currently at 1.05) decreases when wholesale loan matched dollar for dollar with mortgage loan - guessed

RAROC - guessed on both

 

[sriniwas]

Some questions:
1. Market risk charge using stress VAR

2. Change in CVA given the 3 years of pd, EAD, LGD values

3. CVA where discount factor LIBOR was regressed against another factor

4. London whale: what happened

5. Cyber security, what should be first step of CEO

6. Q-Q plot

7. Calculate DD using KMV model (long formula) and map to respective probability to default bucket.

8. Optimal allocation among managers using information ratio and TE and assign the left over to the index.

9. Expected shortfall using 96%-99% VAR value

10. One question on FRTB.

11. One question on netting factor calculation

12. One question on netting and other without netting.

13. Bond valuation using binomial tree

14. Wrong way risk for both options

15. Operational risk capital charge using basic indicator approach.

16. One where Frechet distribution was the answer

17. One where I selected poisson distribution for frequency, lognormal for body and pareto distribution for tail.

18. Central Clearing party where I selected 50 million as left over contribution share after one party defaulted.

Hi

Some questions:
1. Market risk charge using stress VAR

2. Change in CVA given the 3 years of pd, EAD, LGD values

3. CVA where discount factor LIBOR was regressed against another factor

4. London whale: what happened

5. Cyber security, what should be first step of CEO

6. Q-Q plot

7. Calculate DD using KMV model (long formula) and map to respective probability to default bucket.

8. Optimal allocation among managers using information ratio and TE and assign the left over to the index.

9. Expected shortfall using 96%-99% VAR value

10. One question on FRTB.

11. One question on netting factor calculation

12. One question on netting and other without netting.

13. Bond valuation using binomial tree

14. Wrong way risk for both options

15. Operational risk capital charge using basic indicator approach.

16. One where Frechet distribution was the answer

17. One where I selected poisson distribution for frequency, lognormal for body and pareto distribution for tail.

18. Central Clearing party where I selected 50 million as left over contribution share after one party defaulted.

Hi Gaurav,

18. I have also selected 50 million, but it was not working out exactly. There were 9 members with contributions of 10m each (90m). Than there was an initial margin of 10m. And a 10m first peice loss contribution by the CCP.
So if the total loss was 50 m, 10m from intitial margin, 10 million from contribution of the member who is defaulting (leaving 80m contributions from rest members), 10 million from first piece loss. So that leaves us with another 20 m loss to be set off.
If we deduct this 20 m from the 80 m contributions left over by the other non defaulted member, the balance should be 60m. But there wasn't a choice with 60m. I was frowning upon myself for not getting it right. Can anyone help.

Regarding current issues questions:
- There was one on which discount rate to use for derivative. I answeres t bill rates, because the derivatives had long maturity. other choices on repo, OIS and Libor were incorrect.
- There was also a question on lender of last resort vs liquidity regulation. Answer was C or D i guess.

 

[fujii_itsuki]

Hi all:
Here are some of my feedback:
1. QQ plot:I chose both fat tailed (I thought I'd be correct)
2. Cyber Security: I chose B (should be Identify..., was hesitating because I thought "recognize" is also important for the first step, but finally decided to choose "identify")
3. Distance to Default: really forgot about this, I tried to calculate something, andgod DD value between 2.2 to 2.5, so should be like BBB- to BB? (forgot which answered matched, but I chose that. Really not confident)
4. Market maker earns illiq premium even after all the costs --chose this
5.RAROC hurdle: I chose 8.8% but I was wrong, should be 12% because the hurdle rate should just be return on capital, not return on both debt and capital.
6. For the delta thing. Based on your guys feedback, I might have misunderstood the question. I thought it was asking for "delta of call delta" and "delta of put delta", which is "vega", so I chose "both decrease"...yup I think I was wrong.
7.Half life of Vasicek: Chose "if start with return lower than long-term mean", it will take shorter time to get half life. Not sure about this, just think that is due to volatility part, which will always increase the return a little bit.
8. Fundamental review of trading book: If they were changed, then regulatory capital can be moved between accts to get "benefit". But I think I was wrong...
9. Duration mapping: increase in interest rate and increase VaR
10. liiquid asset: "D" filtering algorithm (not sure about it)

Totally ran out of time, not be able to finish all the case studies..so I really did bad in the last 10 questions. All questions are very detailed and many of them are not appearing in the notes, so I probably only know 50% - 60% of the questions. The test is much harder then sample test, as well as what I expected...

By the way, is there anyone remember the last question about the model risk? I chose D "liquidity decrease will increase model risk", but B "increase lookback period " seems ok too.. not sure about it..

 

[sriniwas]

The QQ plot was it thik or thin tails ...i choose thin, i saw on shweser if not mistaken.

How did you calculate the DD for the KMV question (20-10)/.28x20=1.78 which was among the answers provided . Where did i go wrong??? Initially i thought it is straight forward

Hi,
I calculated DD using the -d2 from N(-d), and ensuring that u use the asset returns rather than the risk free returns.
The number was some where around 2.5 i guess, which worked out as option D BBB/BB may be.

 

[fujii_itsuki]

Another about the addition of asset to maintain the TE at 3 and IR .75 i choose the 166m i dont know why and how
----
I chose b, 640,000 (should be this?) Just use formula to calculate percentage for Manager A and Manager B, and deduct them from princpal... Not sure if I was correct..

 

[sriniwas]

Hi,

There was a question on identifying wrong way risk from 4 choices, Corn futures , oil futures etc. Anybody remembers the answer. I was in a hurry, so marked D 'Corn futures'

Also was there a question whose answer was right way risk. Or am I hallucinating. I am not talking about the one where there was an option, wrong way, wrong way.

 

[fujii_itsuki]

Hi,

There was a question on identifying wrong way risk from 4 choices, Corn futures , oil futures etc. Anybody remembers the answer. I was in a hurry, so marked D 'Corn futures'

Also was there a question whose answer was right way risk. Or am I hallucinating. I am not talking about the one where there was an option, wrong way, wrong way.

--
Hi I chose D (corn futures).

 

[sriniwas]

Hi all:
Here are some of my feedback:
1. QQ plot:I chose both fat tailed (I thought I'd be correct)
2. Cyber Security: I chose B (should be Identify..., was hesitating because I thought "recognize" is also important for the first step, but finally decided to choose "identify")
3. Distance to Default: really forgot about this, I tried to calculate something, andgod DD value between 2.2 to 2.5, so should be like BBB- to BB? (forgot which answered matched, but I chose that. Really not confident)
4. Market maker earns illiq premium even after all the costs --chose this
5.RAROC hurdle: I chose 8.8% but I was wrong, should be 12% because the hurdle rate should just be return on capital, not return on both debt and capital.
6. For the delta thing. Based on your guys feedback, I might have misunderstood the question. I thought it was asking for "delta of call delta" and "delta of put delta", which is "vega", so I chose "both decrease"...yup I think I was wrong.
7.Half life of Vasicek: Chose "if start with return lower than long-term mean", it will take shorter time to get half life. Not sure about this, just think that is due to volatility part, which will always increase the return a little bit.
8. Fundamental review of trading book: If they were changed, then regulatory capital can be moved between accts to get "benefit". But I think I was wrong...
9. Duration mapping: increase in interest rate and increase VaR
10. liiquid asset: "D" filtering algorithm (not sure about it)

Totally ran out of time, not be able to finish all the case studies..so I really did bad in the last 10 questions. All questions are very detailed and many of them are not appearing in the notes, so I probably only know 50% - 60% of the questions. The test is much harder then sample test, as well as what I expected...

By the way, is there anyone remember the last question about the model risk? I chose D "liquidity decrease will increase model risk", but B "increase lookback period " seems ok too.. not sure about it..

Hello,
Same here. Did not get time to do the last 10 theoretical question. Guessed 7 of them, and worked on 3 during the last 15 minutes.

Also, do you remember the question on excess spread and overcollateralization ?

 

[Tipo]

Chose 8.8% on the RAROC hurdle as well..crap..
The question on excess spread and overcollateralization..was that about the benefits of implementing a stepup margin?

The more i see the questions on this thread the more worried i am
Think i should avoid BT for the next month lol

 

[Revilo]

I also chose 8.8%. Why u guys are saying it shld be 12?. We were not suppose to include the cost of the preferred shares?

 

[frmfrm]

Does anyone remember Distance to Default problem?

S=20
X= 7+ 0.5x7 = 10.5
Volatility = 28%
R = 5%(???)
T = 1

DD = 2. 34 , BB/ BBB- " (2.2 ~ 2.5

 

[fujii_itsuki]

I also chose 8.8%. Why u guys are saying it shld be 12?. We were not suppose to include the cost of the preferred shares?
---
I also chose 8.8%, not sure if it is correct.
I searched online, and found that hurdle rate should be at leaset "cost of equity", should preferred stock be excluded??

 

[Revilo]

Schweser definition for hurdle rate said preferred shares shld be included in the calcs.