Exam Feedback May 2016 Part 2 Exam Feedback

[Revilo]

For duration mapping and var, i chose that var would decrease due to higher rates since duration is lower if yields are higher. Therefore if duration is lower than var shld be lower too no?

 

[daquity37]

For duration mapping and var, i chose that var would decrease due to higher rates since duration is lower if yields are higher. Therefore if duration is lower than var shld be lower too no?

I agree.

Also as spot price increases, delta of both call and put increase(less negative). I am pretty sure about the question.

Lastly I also got 8.8% for hurdle rate. Theres a formula which is weighted avg of rates between preferred and common eq

 

[frmfrm]

As spot price increases Call delta increases and Put delta decrease.

I have a book, "Options : Pricing, Greeks & Strategies: A GUIDE FOR OPTIONS BASICS "
The Book says that If spot price increases, Call delta increases and Put delta decrease.
Because Call premium increases and Put Premium decrease.

 

[daquity37]

As spot price increases Call delta increases and Put delta decrease.

I have a book, "Options : Pricing, Greeks & Strategies: A GUIDE FOR OPTIONS BASICS "
The Book says that If spot price increases, Call delta increases and Put delta decrease.
Because Call premium increases and Put Premium decrease.

http://www.deltaquants.com/assets/images/putcalldelta.jpg

 

[frmfrm]

Options : Pricing, Greeks & Strategies: A GUIDE FOR OPTIONS BASICS

Put delta "-1" is better than "0"

As you see, put delta -0.71 .. - 0.61 .. -0.48

Put Option : If Spot price decrease, Option is exercised (In the money option)

 

[daquity37]

Bro, put delta decreases in magnitude but increases in real terms. I think author meant in magnitude. Imo GARP trying to trick us. I still think I am right lol but I may be wrong. Somebody can confirm

 

[aof]

What about LIBOR and OIS?? Anyone solved that?

 

[aof]

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

I believe that GARP book mentions about preferred share in the hurdle rate... I think it should be 8.8

 

[Tipo]

I believe that GARP book mentions about preferred share in the hurdle rate... I think it should be 8.8

Oh great
I wasnt sure if to incldue or not
It seemed to easy if i excluded it..so i included it in..8.8%

 

[Tipo]

Bro, put delta decreases in magnitude but increases in real terms. I think author meant in magnitude. Imo GARP trying to trick us. I still think I am right lol but I may be wrong. Somebody can confirm

Not sure , i used this

http://www.optiontradingtips.com/images/call-put-delta.gif

 

[Mkaim]

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.

For the option one, I chose both would increase. My crappy logic (potentially) was that as the call becomes more in the money the delta would increase (deep in the money calls have a delta of close to 1) and the delta for put would deviate away from -1 and towards 0 (as deep in the money puts have a delta of -1). Again, I could be overconfident with this one.

 

[Mkaim]

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??

IMO - Preferreds should be included as they are a form of equity - Schweser includes them I think. Picked 8.8

 

[Mkaim]

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

I think I picked the step up margin as it forces the issuer to refinance - Form of credit enhancement. Don't remember the presented scenario but could be wrong.

 

[Mkaim]

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 ....

On my end, there were about 6 to 7 empty seats with tests on the table ( no shows). IMO, I would rather have them take the test and help me out - pretty devious idea.

 

[Mkaim]

1. Does anyone remember Distance to Default problem?

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

So...DD = 2. 34

answer was " D. BB/ BBB- " (2.2 ~ 2.5)

right or wrong?


2. Does anyone remember Credit Var(number 2) problem?

I hated this question - it set me back 5 minutes.

 

[GioKe]

Difficult exam. Tricky. More quant than expected. Much more difficult than part 1 Nov 2015. It is up in the air for me. Short on time. Guessed a few. Got super turnt at the raptors game. (Game 3 yeeeee!) Going to bed. Mad hangover tm morning probably.

 

[Ajay]

I found the paper difficult. More quantitative questions and most of them were lengthy. It occupied the entire 4 hours.

Additional questions I could recall -
Question on SMM and PSA pre payment for mortgage.
Preferred rate for derivatives.

 

[fujii_itsuki]

I found the paper difficult. More quantitative questions and most of them were lengthy. It occupied the entire 4 hours.

Additional questions I could recall -
Question on SMM and PSA pre payment for mortgage.
Preferred rate for derivatives.

Totally forgot the prepayment thing so just pure guess, I chose D, 1.05 something...

 

[ank_hesh]

There was a question with a graph where A had a higher slope and then declined while B had a lower Slope that stayed constant. And we were asked to choose the correct option: 1. Implied probability in second year for B is higher than A 2. Initial cost of CDS for A is higher than B. I chose #2. But 1 and 2 both seemed likely.

On the case study there was the NSFR and CoCo question. I chose CoCo.

Question on Expected Shortfall. Quite straightforward. Last question on Normality assumptions in Risk Management: 1. 97.5% Var is 95% 2. Unlike KMV merton relies on Cumulative probability. I chose #2.

 

[ank_hesh]

There was a question on ho Lee drift model. And what drift would give a 0% interest in lowest node. Question on WCDR for Credit Risk. On Portfolio weight using TR and sd the answer was 6,400,000.