Exam Feedback May 2017 Part 2 Exam Feedback

[Roddefeller]

Yes i used the same approach,don't remember the answer though. EL is direct additive

I think key here is whether to use conditional or unconditional PD for year 2. I'm not sure though which approach is more appropriate.

 

[ashish_pandey]

I chose "the price of gold" will affect the exposure the most

Short soya beans is the answer i assume. If soya beans prices fall down the exposure increases (although in profit) but farmer is impacted badly and which creates a Higher probability of default which overall leads to wrong way risk.

I went for the same with the same logic

 

[FrmL2_Aspirant]

Agreed. With missing portfolio VAR and Value - BETA was equal to MVAR.

I calculated the ratio of return to beta to get the ans

 

[chopin]

Hello, there was a question about Backtesting Var and its assumptions. The response was " the exceptions are independents"?

 

[ilovemuffins]

1-2. PD x 2
3. Expected Loss
4. Expected Shortfall
5. CVA and fed funds rate
6. Volatility and Strike price
7. Mean reversion Vasicek
8. OIS vs LIBOR for derivatives
9. ERM risk contribution of each project
10. Correlation swap 30%
11. Forward to hedge
12. forward LIBOR, swap
13. lognormal VAR
14. Treynor to pick Fund 3
15. Distance to default least likely - most likely to default
16. Hurdle rate
17. credit VAR
18. VaR increase when adding Y
19. Risk governance
20. Use of historical data can introduce model risk
21. Bitcoin traceability
22. Automation of data - operational risk
23. CCP default, reserves, capital -250,000
24. Electronic trading
25. Autocorrelation
26. French Fama
27. Operational risk longer tail than market risk
28. AMA and standardized
29. Tier 1 capital CoCos
30. CoCos conversion trigger
31. Negative deposit rate
32. Emerging - External markets
33. Subordinated debt in financial distress
34. Higher leverage - weakening financial
35. KRI
36. Short soy futures
37. Move Fund 1 to Fund 3
38. worst case
39. Bitcoin operational risk
40. Lower minimum transfer amount
41. 2% recovery, 10 out of 200 loans default
42. 4 exceptions, backtesting
43. Move T- bonds to AA corporate bonds
44. Wrong way risk with CDS
45. Stress test
46. Risk appetite framework
47. Margin call 700k
48. not increasing deposit rate
49. Originator, SPV
50. Moral hazard, higher reserves
51. Unsmoothing infrequent trades
52. Smoothing
53. 0 bps
54. Generalized Pareto
55. Due diligence of vendors

Anyone remembers the answer to the question of ranking funds from least likely to more likely to default? The funds are called L, M and N.

 

[kunalparekh07]

1-2. PD x 2
3. Expected Loss
4. Expected Shortfall
5. CVA and fed funds rate
6. Volatility and Strike price
7. Mean reversion Vasicek
8. OIS vs LIBOR for derivatives
9. ERM risk contribution of each project
10. Correlation swap 30%
11. Forward to hedge
12. forward LIBOR, swap
13. lognormal VAR
14. Treynor to pick Fund 3
15. Distance to default least likely - most likely to default
16. Hurdle rate
17. credit VAR
18. VaR increase when adding Y
19. Risk governance
20. Use of historical data can introduce model risk
21. Bitcoin traceability
22. Automation of data - operational risk
23. CCP default, reserves, capital -250,000
24. Electronic trading
25. Autocorrelation
26. French Fama
27. Operational risk longer tail than market risk
28. AMA and standardized
29. Tier 1 capital CoCos
30. CoCos conversion trigger
31. Negative deposit rate
32. Emerging - External markets
33. Subordinated debt in financial distress
34. Higher leverage - weakening financial
35. KRI
36. Short soy futures
37. Move Fund 1 to Fund 3
38. worst case
39. Bitcoin operational risk
40. Lower minimum transfer amount
41. 2% recovery, 10 out of 200 loans default
42. 4 exceptions, backtesting
43. Move T- bonds to AA corporate bonds
44. Wrong way risk with CDS
45. Stress test
46. Risk appetite framework
47. Margin call 700k
48. not increasing deposit rate
49. Originator, SPV
50. Moral hazard, higher reserves
51. Unsmoothing infrequent trades
52. Smoothing
53. 0 bps
54. Generalized Pareto
55. Due diligence of vendors

Anyone remembers the answer to the question of ranking funds from least likely to more likely to default? The funds are called L, M and N.

For the more likely to default question, I dont remember the exact order but I used the formula ( Ln(V) - Ln(F))/volatility = Distance to default( when t=1). The results were quite close, but the higher the number, lower the default prob.

 

[FrmL2_Aspirant]

Hello, there was a question about Backtesting Var and its assumptions. The response was " the exceptions are independents"?

I think I too replied same -> BASEL assumption is that they are independent

 

[ABC_2017]

I used this formula:

View attachment 1218

Forgot what I put down as the answer, maybe 7 something?

There was the volatility element also, xxdw , shouldn't that be included in the calculation. i.e. k(longrun mean - current)/30 + xx/sqroot(30). ???

 

[ABC_2017]

Yes, first one I went with 'D' that said transfer of operational risk to customer with use of wallets
Even the second one with 'D' - other three were not even close like can be tracked easily, reversed easily.

I was referring last year FRM material and missed reading about Bit coins . But from the general understanding of the whole distributed ledger system for bitcoins, I always thought that one of the major advantages would be about easy KYC , better Anti money laundering managements because of the transparency the whole system would provide. Everyone has the access to the transactions happening , which I though should mean easier traceability. Am I miss something big here ?

 

[bpdulog]

If I am given a $200MM portfolio with 3 assets and projected portfolio SD of 17%, how to compare VaR between projected portfolio and equally weighted, perfectly correlated portfolio at 95% confidence? Assume Asset 1 volatility is 17%, Asset 2 is 30% and Asset 3 is 8%?

 

[bpdulog]

I was referring last year FRM material and missed reading about Bit coins . But from the general understanding of the whole distributed ledger system for bitcoins, I always thought that one of the major advantages would be about easy KYC , better Anti money laundering managements because of the transparency the whole system would provide. Everyone has the access to the transactions happening , which I though should mean easier traceability. Am I miss something big here ?

One of the pitfalls of Bitcoin is them being used for money laundering. Since there is no central authority verifying account identities, your counterparty may be a drug dealer or may be in embargoed country

 

[FM22]

One of the pitfalls of Bitcoin is them being used for money laundering. Since there is no central authority verifying account identities, your counterparty may be a drug dealer or may be in embargoed country

Do not forget that it is easy to identify the clients if you have account details of the client. Thus Banks can easily locate the details of the client

 

[FM22]

There were two questions regarding Bitcoins.... In one of the questions they asked about the benefit of retail merchant if they start accepting Bitcoins?
one of the benefit in the choices was " Less cost for retail merchants" i chose this answer. as bitcoins are less expensive then other payment solutions I guess

 

[FM22]

I think I too replied same -> BASEL assumption is that they are independent

thats correct

 

[FM22]

I calculated the ratio of return to beta to get the ans

In Marginal VAR formulae, The portfolio VAR and total portfolio size was same for all the options. So the determining factor only was BETA. Higher the beta higher the MVAR for any asset.

 

[FM22]

Does anybody remember these questions and the answers?

- Unsmoothing infrequent trades
- Smoothing

 

[emilioalzamora1]

As I expected, two questions about smoothing from Ang's book.

 

[KA1991]

If I am given a $200MM portfolio with 3 assets and projected portfolio SD of 17%, how to compare VaR between projected portfolio and equally weighted, perfectly correlated portfolio at 95% confidence? Assume Asset 1 volatility is 17%, Asset 2 is 30% and Asset 3 is 8%?

Are you referring to the one - that was questioning about the diversification benefit?
The one with diversification benefit - I calculated the individual var (A+B+C) and Diversified Var with given Portfolio SD. Difference between both is the benefit.

 

[KA1991]

Does anybody remember these questions and the answers?

- Unsmoothing infrequent trades
- Smoothing

Yes I do - unsmoothing the returns to add noise back to the reported returns.

 

[KA1991]

Hello All - what's your expectation of passing score? I'm finding finding it difficult now.