Exam Feedback May 2018 Part 2 Exam Feedback

[nikhil.aggarwal]

There is one question to hedge MR and CR, but for TRS option there is "Sell". I am not sure if selling of TRS could hedge CR correctly.

 

[schumi_frm]

Yes, you are right, now I remember. I went for this one but I was not convinced at all, I think he was long/short other credit derivatives, right?

 

[terrance00232]

Oh, I guess I choose the wrong one with the collateral.

 

[nikhil.aggarwal]

Yes, you are right, now I remember. I went for this one but I was not convinced at all, I think he was long/short other credit derivatives, right?

Yes I guess he was long on underlying and selling TRS on same underlying will increase CR.

 

[Bilal Ehsan]

There were two options for TRS..Second one was the right one where he will receive floating rate equivalent to Risk free

 

[Bilal Ehsan]

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?)

How

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.***?) Yes
-Additional collateral necessary: (2.750.000?) Yes
-CVaR (288.800 ?) I choose the same but how did you calculate it:?
-CVA given discount factors (one with collateral, one without)..Both were with collateral...You need to subtract from both i believe
-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 ? )...MVAR was not given, I divided Excess return/ Beta because MVAR= VARP/Portfolio value * B so in this case varp/Portfolio value will remain same. So i went with option with greatest
-Asset allocation return
-Failure rate VaR 4% -> reject model? YES
-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?)

 

[Bernardo]

Regarding the IFRS9/CECL question, I guess the correct alternative mentioned that under CECL provisioning, lifetime epxected losses were recognised since origination.

 

[Bernardo]

For the question about risk plan, I am pretty confident that the right answer suggested using scenario analysis.

 

[Elmin367]

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?)

-Fama-French (positive correlation with SMB, small caps underperform large caps in the long term?) - This took quite a lot of my time. In the end I chose the one regarding Small caps outperforming large caps, and Value stocks outperforming Growth.
-Effect strong US dollar (balance sheet companies borrowing US dollar)? - I chose magnifying shocks

 

[hana1563]

How

did you consider rounding amount whrn calcualting collateral? there was a rounding amount of 50000 so i took it into consideration when calculating which resulted in 2,700,000. i honestly didnt know if i had to subtract it thou. can anyone tell me what is right

 

[schumi_frm]

How

For the CVaR, I think the number of defaults at 95% was given, so I used this to obtain the portfolio loss by multiplying this number by the LGD and exposure and then dividing by the total number of loans. Then I substracted the EL.

 

[Bilal Ehsan]

What was the question? i even dont remember it....i went with that risk budgeting should be not a part of risk calculation..Was there some option?

 

[Bernardo]

What was the question? i even dont remember it....i went with that risk budgeting should be not a part of risk calculation..Was there some option?

If I remember correctly, the question asked what was the right statement about risk planning. One of the alternatives said that the business managers should submit the risk plan for the Board approval.

 

[jamietay]

For the hurdle rate question, did anybody get 10.2%? (I'm trying to recall with whatever memory that's left). If you use the hurdle rate formula, did you get that answer?

 

[Bilal Ehsan]

Yes it was 10.2%..You remember about stressed losss ans

 

[jamietay]

Yes it was 10.2%..You remember about stressed losss ans

Not really but if I see the options or the answers I might recall.

 

[Bilal Ehsan]

We were giving Two derivative postion and also we were provided PD in normal condition and PD in stressed condition...Options i dont remember but i got around 24 or 22.4 Million?

 

[schumi_frm]

I remember I got 0.06 for one of the last questions in my exam (CVA maybe?). Another option was 0.6, the other two I forgot.

There was also a VaR question (99% I think), and I went for the answer saying that with large enough number of observations the failure rate should converge to 1% or something like that. Is this correct?
For another VaR I answered that there was a low chance of type II error (t-stat was very low).

Another VaR one was to choose the right stock to add to the portfolio so that the VaR remained under 16M or something. I think I went for adding stock X which resulted in a VaR of 15.8 or something like that.

And does someone remember the answer for the credit default models?

 

[Mace]

I'm a bit worried by all of you saying it was a straightforward or even easy exam, to be honest. I found it much stranger, and less straightforward, than the mocks, or than the Nov'17 Part I. In a lot of cases, the questions made sense to me but the answer choices didn't. Thought I was well prepared, but left quite unsure if I'd pass. Let's see end of June I guess.

 

[Elmin367]

I remember I got 0.06 for one of the last questions in my exam (CVA maybe?). Another option was 0.6, the other two I forgot.

There was also a VaR question (99% I think), and I went for the answer saying that with large enough number of observations the failure rate should converge to 1% or something like that. Is this correct? - That's what I also chose.
For another VaR I answered that there was a low chance of type II error (t-stat was very low).

Another VaR one was to choose the right stock to add to the portfolio so that the VaR remained under 16M or something. I think I went for adding stock X which resulted in a VaR of 15.8 or something like that. - Wasn't it 15.3M?

And does someone remember the answer for the credit default models?