Exam Feedback May 2018 Part 2 Exam Feedback
- Thread starter Nicole Seaman
- Start date
-
- Tags
- feedback
There was a question related to credit loss provisioning of IFRS and FASB.like whether the expected credit loss is calculated for the life time etc.
I think the answer for question on USD becoming a mean to measure volatility was that banks can magnify shocks. Next close answer was the one related to activities of intermediary banks, however, there I think they excluded European banks part.
nikhil.aggarwal
New Member
I chose Upward slope as well for Vasicek model. Given current rate as 5% and theta as 8%. So ultimately long run rate is 8% which will produce upward slope. k is 0.02 which is the rate at which current interest rates will go towards theta.
For difference in IFRS and CECL, I chose ECL is lifetime from beginning in CECL and in stages for IFRS
2-3 questions on hazard rate from Credit Spread and then calculate PD using Hazard rate
2 questions on CVA calculation for two different positions with different PD, EE, RR
From Basel, there is one question like nigerian fund sold UK bonds and sold the proceedings in Loans for local market. Interest rates are spiked. Impact on LCR, NSFR etc
One question on ERM best practices
One question on incremental VaR using covariance
One on securitization calculation for equity tranche
One is to calculate ES
London whale case study i.e different VaR model was proposed when VaR limit was breached
A question on friction between originator and someone. i..e to resolve friction what should be done etc
Ho-Lee model calculation for lower node
Bond price using binomial model
CVaR Calculation
A question on First line of defense
Models from portfolio construction - choose the correct one from quadratic linear stratification linear
Calculation of lognormal VaR
A question on data quality from third party
VaR mapping question for fixed income. To choose correct one from principal, duration and cash flow approach
Comparison of age weighted, volatility correlation and filtered approach
Limitation of Kendall correlation approach
Calculation of DV01 hedge, beta was given
Some scenario was given and select the option from WWR and RWR
A question from Pareto and GEV for EVT
For difference in IFRS and CECL, I chose ECL is lifetime from beginning in CECL and in stages for IFRS
2-3 questions on hazard rate from Credit Spread and then calculate PD using Hazard rate
2 questions on CVA calculation for two different positions with different PD, EE, RR
From Basel, there is one question like nigerian fund sold UK bonds and sold the proceedings in Loans for local market. Interest rates are spiked. Impact on LCR, NSFR etc
One question on ERM best practices
One question on incremental VaR using covariance
One on securitization calculation for equity tranche
One is to calculate ES
London whale case study i.e different VaR model was proposed when VaR limit was breached
A question on friction between originator and someone. i..e to resolve friction what should be done etc
Ho-Lee model calculation for lower node
Bond price using binomial model
CVaR Calculation
A question on First line of defense
Models from portfolio construction - choose the correct one from quadratic linear stratification linear
Calculation of lognormal VaR
A question on data quality from third party
VaR mapping question for fixed income. To choose correct one from principal, duration and cash flow approach
Comparison of age weighted, volatility correlation and filtered approach
Limitation of Kendall correlation approach
Calculation of DV01 hedge, beta was given
Some scenario was given and select the option from WWR and RWR
A question from Pareto and GEV for EVT
From what i remember there was an option saying it would have different impact on trading and banking activities. I chose that one.
I choose the answer"LTCMs individualistic culture did not contribute to its failure". Hope I remember it correctly.
There’s also an option on net exports I think
LTCMs individualistic did contribute as they Portfolio managers were overconfident that their model will never fail
The model depends on the scaling factor and the long run mean. For this question the long run mean was above the short rate so the curve was upward sloping.
https://i2.wp.com/www.r-bloggers.com/wp-content/uploads/2010/04/vasicekYieldCurves.png?ssl=1
Bilal Ehsan
Member
The exam was not that easy in my opinion if you dont know the exact details and concept for the questions. Theortical Questions were not that straight forward with many questions there were two options left...For numerical questions, i feel they were on the par level of Mock exam and lower than BT questions...They were solvable except one or two questions where there was doubt that all options are wrong because the exact ans was not given ...
Few observations:
1. Current issue was the easiest of all. If one has read current issue twice , he can easily get 80 percent correct. High scoring area
2. Market risk among all the areas I believe was the most doable area with high scoring possibility if you know your stuff . There were not many difficult questions.
3. Credit risk. It was a balanced section where there were not many surprises. Numerical questions were focused on PD, CVAR, CVA, Credit Spread, Collateral , Stressed loss. There was no Merton model calculations. Few questions were on Senior and sub ordinate debt scenarios
4. Operational risk was one of the toughest among all. The theory was very vague and one needs to know the exact concept from the book. I believe for this section one needs to learn the basic points from the section. Few important sections were missing like LVAR was not there.Also there was no direct Raroc calculation except for hurdle rate. Theory was very dense
5. Coming to Risk and investment management, I believe that was the toughest among all. Calculations were long and theory was difficult as well.
In paper, Current issue and market risk were the areas where one can score 80 percent .Operational and Risk seems to be on the lower side.
Exam was slight above the Mock and there were not many surprises. It was doable paper
Thank you david for your help through out.
Few observations:
1. Current issue was the easiest of all. If one has read current issue twice , he can easily get 80 percent correct. High scoring area
2. Market risk among all the areas I believe was the most doable area with high scoring possibility if you know your stuff . There were not many difficult questions.
3. Credit risk. It was a balanced section where there were not many surprises. Numerical questions were focused on PD, CVAR, CVA, Credit Spread, Collateral , Stressed loss. There was no Merton model calculations. Few questions were on Senior and sub ordinate debt scenarios
4. Operational risk was one of the toughest among all. The theory was very vague and one needs to know the exact concept from the book. I believe for this section one needs to learn the basic points from the section. Few important sections were missing like LVAR was not there.Also there was no direct Raroc calculation except for hurdle rate. Theory was very dense
5. Coming to Risk and investment management, I believe that was the toughest among all. Calculations were long and theory was difficult as well.
In paper, Current issue and market risk were the areas where one can score 80 percent .Operational and Risk seems to be on the lower side.
Exam was slight above the Mock and there were not many surprises. It was doable paper
Thank you david for your help through out.
Bilal Ehsan
Member
Also i remember these following questions after the exam 
This is for david. Just to add
This is for david. Just to addBilal Ehsan
Member
1. Two questions on credit provisiong from IASB and FASB...One asking which one is stricter in terms of Expected loss treatment and other asking for the treatment of accurals
2. Two questions from Central clearing as well
3. FINTech question asking for the benefit. Result in lending available to under develop areas
4. Global nexus impact of Dollar on the worldwide...Ans i believe was that Dollar appreciation result in low economic growth due to low lending restrictions
5. Machine learning. Forest trees ..
6. Cultural impact. ans was that LTCM culture was not responsible for the downfall, it was their creditors own culture.
Bilal Ehsan
Member
It was not LTCM , it was AIG who were over confident. See this
I rechecked again with the notes after the exam, it specifically mentions the shock magnification issue. I could, still, be wrong though.
schumi_frm
New Member
Hello,
I found the quantitative questions on the easy side (less long calculations required than in some practice exams) but many of the qualitative were tricky. I think the time pressure for part 2 is less if you know the theory really well, otherwise you find yourself strongly hesitating between 2 (or even 3 or 4) answers in many questions....
Some questions I remember:
-Incremental VaR (260.***?)
-Additional collateral necessary: (2.750.000?)
-CVaR (288.800 ?)
-CVA given discount factors (one with collateral, one without)
-Hurdle rate
-Capital requirement
-Ho-Lee
-VaR question (Low chance of type II?)
-ES
-Stress loss
-Hazard rates/PD
-Effect of spread(?) on DVA/CVA
-Credit spread -1/Tln(D/F) – Rf
-Regression hedge
-Lognormal VaR
-LVaR
-Excess Return to MVar (increase 3, decrease 1 ? )
-Asset allocation return
-Failure rate VaR 4% -> reject model?
-Bond valuation tree
-Overcollateral / equity cash flow
-Losses over threshold – Pareto / Extreme
-RAF
-Friction arranger-asset manager
-Operational losses based on data from retail
-FASB/IRFS9
-ERM
-Vasicek (upward sloping?)
-Right/wrong way risk value of CDS
-Forecasting default LDA, KMV, Merton, Logistic regression (?)
-Skew – Which option overvalued/undervalued with respect to another one
-Lowest LaR
-SMA operational risk
-Data quality dimensions
-LTCM (collapse major factor was not its culture?)
-PIT/EL calculated on data from good times (not suitable for stress test?)
-Funding and counterparty credit risk?
-Duration mapping, principal mapping, cash flow mapping FI
-Distressed and merged arbitrage hedge funds (non-linear returns?)
-IT Outsourcing risks (High compensation?)
-Fama-French
-Hedge credit and market risk
-Random forests
-Fintech lending (allow to give credit to previously undeserved costumers due to lower financing costs?)
-Kendall – Not good when many pairs neither concordant nor discordant
-Age-weighted, filtered, etc:
-Subordinated debt firm in distress, volatility increases
-Different VaR estimates explanation
-SPV
-Risk plan
-Operational/Credit/Market risk distributions
-Risk Dealing Bank
-ERM - Target credit rating
-Unsmoothing returns
-Effect strong US dollar
-Credit enhancement?
-Machine learning
Does someone remember the answer to the following questions?
-Forecasting default LDA, KMV, Merton, Logistic regression (Drawbacks)? I think I chose KMV but I was not sure at all.
-Risk plan: Use scenario analysis?
-Tracking error managed/unmanaged?
-ERM?
-Fama-French (positive correlation with SMB, small caps underperform large caps in the long term?)
-Hedging market and credit risk? I chose the one with TRS, but I think it was a tricky one.
-Effect strong US dollar (balance sheet companies borrowing US dollar)?
-Risk Dealing Bank (sudden increase of OTC derivative transactions?)
I found the quantitative questions on the easy side (less long calculations required than in some practice exams) but many of the qualitative were tricky. I think the time pressure for part 2 is less if you know the theory really well, otherwise you find yourself strongly hesitating between 2 (or even 3 or 4) answers in many questions....
Some questions I remember:
-Incremental VaR (260.***?)
-Additional collateral necessary: (2.750.000?)
-CVaR (288.800 ?)
-CVA given discount factors (one with collateral, one without)
-Hurdle rate
-Capital requirement
-Ho-Lee
-VaR question (Low chance of type II?)
-ES
-Stress loss
-Hazard rates/PD
-Effect of spread(?) on DVA/CVA
-Credit spread -1/Tln(D/F) – Rf
-Regression hedge
-Lognormal VaR
-LVaR
-Excess Return to MVar (increase 3, decrease 1 ? )
-Asset allocation return
-Failure rate VaR 4% -> reject model?
-Bond valuation tree
-Overcollateral / equity cash flow
-Losses over threshold – Pareto / Extreme
-RAF
-Friction arranger-asset manager
-Operational losses based on data from retail
-FASB/IRFS9
-ERM
-Vasicek (upward sloping?)
-Right/wrong way risk value of CDS
-Forecasting default LDA, KMV, Merton, Logistic regression (?)
-Skew – Which option overvalued/undervalued with respect to another one
-Lowest LaR
-SMA operational risk
-Data quality dimensions
-LTCM (collapse major factor was not its culture?)
-PIT/EL calculated on data from good times (not suitable for stress test?)
-Funding and counterparty credit risk?
-Duration mapping, principal mapping, cash flow mapping FI
-Distressed and merged arbitrage hedge funds (non-linear returns?)
-IT Outsourcing risks (High compensation?)
-Fama-French
-Hedge credit and market risk
-Random forests
-Fintech lending (allow to give credit to previously undeserved costumers due to lower financing costs?)
-Kendall – Not good when many pairs neither concordant nor discordant
-Age-weighted, filtered, etc:
-Subordinated debt firm in distress, volatility increases
-Different VaR estimates explanation
-SPV
-Risk plan
-Operational/Credit/Market risk distributions
-Risk Dealing Bank
-ERM - Target credit rating
-Unsmoothing returns
-Effect strong US dollar
-Credit enhancement?
-Machine learning
Does someone remember the answer to the following questions?
-Forecasting default LDA, KMV, Merton, Logistic regression (Drawbacks)? I think I chose KMV but I was not sure at all.
-Risk plan: Use scenario analysis?
-Tracking error managed/unmanaged?
-ERM?
-Fama-French (positive correlation with SMB, small caps underperform large caps in the long term?)
-Hedging market and credit risk? I chose the one with TRS, but I think it was a tricky one.
-Effect strong US dollar (balance sheet companies borrowing US dollar)?
-Risk Dealing Bank (sudden increase of OTC derivative transactions?)
I think the answer related to LTCM was the closest to correct one. Other ones were straightforward, I think.
Similar threads
