Exam Feedback November 2016 Part 2 Exam Feedback

[Moey]

Whether you use sqrt12 or the formula there still lead to same answer as choice C (6 something)

Actually sqrt12 gives you the 10.* answer - probably their "right wrong" answer. The original var was 3-something.

 

[[email protected]]

There was one question about lesson learnt for period 2007-2013 on commercial paper. I think I chose that option when investors are exiting the CP and ABCP, not sure if it is right?!

Another question asked what will reduce systemic risk of global CCP, I chose require collateral which is globally liquid, anyone has the same answer?

I marked same options as yours or both the questions....

 

[[email protected]]

What is d answer for volatility term structure question? I marked 2 year option in d answers...

 

[emilioalzamora1]

apparently there have been different figures at different exam sites. I think the VaR was about 2.2 and the they wanted to have the LVaR for 10 days.
2.2 x sqrt {(10+1)*(1+2*10)}/6*10 = LVaR ~ . 4.3

 

[raya]

How about this?

• Bank has a basket of 500 short CDS. Each CDS for $1.000.000 bond, which has a 4% probability of default. RR equals 0%. There is a 5% probability that at least 25 bonds go to default. Calculate credit VaR. Correct me who remember exactly if I'm wrong. I haven't any idea.
• Question about overcollaterization fund similar Table 9-1 in Malz. I think such type of question would be appropriate for Excel, not for TI BA II Plus and 3 minutes for each question.

The overcollateralization question, I think the answer was C. This question was quite straigthforward I think, but may be I've misunderstood the question. I don't remember the numbers unfortunately .

1- calculate the amount of interest paid by the pool of loan (4 million I think it was 80 loans of y million paying x% each)
2- calculate the amount lost when 4 loan default which gave 0.2 million
3- so you have 3.8 millions to reverse to investors + overcollat account + equity
4- The amount to be paid to senior was 1.92million (based on the nominal of senior tranche * senior interests)
5- Amount due to mezzanine was 0.56 million (based on the nominal of mezzanine tranche * mezzanine interests)
6- max 1.25 millions to reverse into collat amount (given)
7- So we have 3.8 - 1.92-0-56-1.25 to reverse in collat amount.

rougthly this is how I've done, again not sure about the numbers exposed here

 

[raya]

I answered 9 too but only because my full multi-netted answer wasn't there (and planned to revisit). I think "CCP novation" is multi, not just bilateral though.

I've answered the same thing. I've done a similar exercise before (hereunder) and the exposures reduced by CCP was 32 (10 + 4+ 4 +14) in this excercise

Exposures:

 

[frmpart2dan]

The overspecialization answer is C I believe, very calculative questions with so many steps, I missed one of the step and there is an answer (D) for that!!! Apparently they know how to trick people into wrong answer

 

[frmpart2dan]

I think that's quite unrealistic tho. A pure guessing test can score 25% marks alr.. i would say the safest passing score will be 60%, should be around 55%

I dont think pure guessing will net 25% of overall results, maybe the person just pick only B for all the questions but that will surely make him failed the test, I think someone with 45% correct in this exam clearly shows a masters of knowledge, especially those questions which require lots of thinking in 2 minutes!

 

[Trueman]

First one is 4,950,000, credit VaR
overcollaterization is which qns?

MBS issue (80 loans $1.000.000 each with floating rate LIBOR + ?) has three tranches: senior, mezzanine and equity. I don't remember sums of tranches and spreads between tranche rates and 30-day LIBOR . Overcollaterization account has a fixed size $1.200.000 maximum. 4 of 80 loans have defaulted before first payment. You have four patterns (A,B,C,D) of payments to senior, mezzanine and equity tranches at the end of the year - which is correct?

 

[raya]

MBS issue (80 loans $1.000.000 each with floating rate LIBOR + ?) has three tranches: senior, mezzanine and equity. I don't remember sums of tranches and spreads between tranche rates and 30-day LIBOR . Overcollaterization account has a fixed size $1.200.000 maximum. 4 of 80 loans have defaulted before first payment. You have four patterns (A,B,C,D) of payments to senior, mezzanine and equity tranches at the end of the year - which is correct?

Hello, I've answered above in the thread .

 

[Trueman]

Anyone know what is the answer for the question about the percent of contribution of the asset manager by allocation of assets. There are 2 negative answer -0.69 and -0.3 and 2 positive answers, I got crazy by that qns, seem easy but no option is close to my answer!

I think the question is very similar to tables 24.7 and 24.8 in BodieKaneMarcus, but I don't remember rates of return for equity in index and in portfolio
Equity 50% 40% ? ?
Fixed income 35% 40% 5,6% 6,0%
Cash 15% 20% 1,2% 0,5%
After all I thought about this example in BodieKaneMarcus some times on friday...

 

[S666]

I think the question is very similar to tables 24.7 and 24.8 in BodieKaneMarcus, but I don't remember rates of return for equity in index and in portfolio
Equity 50% 40% ? ?
Fixed income 35% 40% 5,6% 6,0%
Cash 15% 20% 1,2% 0,5%
After all I thought about this example in BodieKaneMarcus some times on friday...

I got -0.03% for that question

 

[S666]

Anyone know what is the answer for the question about the percent of contribution of the asset manager by allocation of assets. There are 2 negative answer -0.69 and -0.3 and 2 positive answers, I got crazy by that qns, seem easy but no option is close to my answer!

Sorry I meant I got -0.03% for this one...

 

[equanimity]

I studied for 4 months (> 300 hours) and found it to be a very difficult exam! I'm hoping for 50% correct...

 

[Diep Anh Ngo]

I disagree with that. Forgone revenue and opportunity costs are not normally included in OpRisk loss reporting.

Agree, i remember my answer is B (not included opportunity and insurance as well)

 

[fjc120]

These are the questions I remember:

1) CVA: given two lines (each having a cash flow, a discount factor, an exposure and a probability of default --> multiply them together and then add line 1 and line 2 together
2) implied volatility "frown" --> I chose the plot that looked like the frown (I didn't overthink this)
3) CCP netting (I believe it was bi-lateral) --> net the cash flows between each counterparty, then add the reduction in margin (I didn't use multi-lateral netting)
4) when tail index = 0, Frichet is heavier than Gumbel
5) 6x9 FRA (I chose long/short two FRAs but I believe the correct answer was long spot rate, short one bond and long the other bond)
6) expected loss --> just apply the formula... easy
7) calculate expected shortfall --> average of VaRs beyond the confidence interval
8) Historical VaR and Historical Bootstrap --> do not rely on normal distribution
9) VaR confidence interval can be different than confidence interval used to backtest VaR
10) LIBOR rate used to discount uncollateralized derivatives
11) LIBOR manipulation happened when banks submitted low rates (to appear more creditworthy)
12) correlation swap receives more than $400,000)
13) vol surface extrapolation (1.2 on the x-axis; greater than 17%)
14) DV01 hedge (need more of the the 5-year note and must multiply that by the regression coefficient)
15) CSA minimum transfer and threshold (1.2 million threshold and exposure is 1.3 million, but minimum transfer amount is 200,000 so there is no collateral transfer)
16) CPR (just apply the formula)
17) RCSA
18) cyber attack (what to do... I got this one wrong)
19) ERM
20) risk aggregation challenge (I chose the answer related to data being in spreadsheets at the business unit level... not sure if this is correct?)
21) RAF (board should ensure that management adheres to RAF)
22) backtest VaR model (I chose fail to reject because test statistic was below critical value)
23) portfolio construction techniques (I think I chose linear programming)
24) hedge fund strategies (risk arbitrage... I think I chose decline in equities prices)
25) reduce CCP failure by high quality collateral and frequent margin calls
26) net stable funding ratio (I chose that it would decline)
27) tranche waterfall (I chose x, y, 1.2 million and 90,000 for the equity tranche because the overcollateralization had a maximum of 1.2 million)
28) CDS seller returns are negatively correlated with the returns on a long put
29) pricing a bond using a binomial tree (I believe the answer was $938 or $935, but can't recall)
30) reporting operation loss from destroyed office (I chose that lost business cannot be included but insurance could be included... not sure if this is correct)

This is all that I can remember... I studied for 4 months (> 300 hours) and found it to be a very difficult exam! I'm hoping for 50% correct...

 

[fjc120]

Volatility frown? I didnt want to overthink so i just picked the common volatility smile for equities? Also the colateral one, it says he had 800 and increased exposure to 1300 so this would require a 500k transfer which is above the threshold. I feel good about this one.

 

[Moey]

Also the colateral one, it says he had 800 and increased exposure to 1300 so this would require a 500k transfer which is above the threshold. I feel good about this one.

I put zero for this one. Forgot the details but remember that despite crossing the threshold to post margin, the delta didn't exceed the minimum marginal transfer.

 

[equanimity]

Volatility frown? I didnt want to overthink so i just picked the common volatility smile for equities? Also the colateral one, it says he had 800 and increased exposure to 1300 so this would require a 500k transfer which is above the threshold. I feel good about this one.

The threshold amount and the minimum transfer amount are additive. If the threshold is 1.2 million and the exposure goes to 1.3 million and the minimum transfer amount is $200,000, then the exposure would need to be greater than $1.4 million in order for collateral to be posted, right? Therefore, I chose $0...

 

[Eternity]

These are the questions I remember:

1) CVA: given two lines (each having a cash flow, a discount factor, an exposure and a probability of default --> multiply them together and then add line 1 and line 2 together
2) implied volatility "frown" --> I chose the plot that looked like the frown (I didn't overthink this)
3) CCP netting (I believe it was bi-lateral) --> net the cash flows between each counterparty, then add the reduction in margin (I didn't use multi-lateral netting)
4) when tail index = 0, Frichet is heavier than Gumbel
5) 6x9 FRA (I chose long/short two FRAs but I believe the correct answer was long spot rate, short one bond and long the other bond)
6) expected loss --> just apply the formula... easy
7) calculate expected shortfall --> average of VaRs beyond the confidence interval
8) Historical VaR and Historical Bootstrap --> do not rely on normal distribution
9) VaR confidence interval can be different than confidence interval used to backtest VaR
10) LIBOR rate used to discount uncollateralized derivatives
11) LIBOR manipulation happened when banks submitted low rates (to appear more creditworthy)
12) correlation swap receives more than $400,000)
13) vol surface extrapolation (1.2 on the x-axis; greater than 17%)
14) DV01 hedge (need more of the the 5-year note and must multiply that by the regression coefficient)
15) CSA minimum transfer and threshold (1.2 million threshold and exposure is 1.3 million, but minimum transfer amount is 200,000 so there is no collateral transfer)
16) CPR (just apply the formula)
17) RCSA
18) cyber attack (what to do... I got this one wrong)
19) ERM
20) risk aggregation challenge (I chose the answer related to data being in spreadsheets at the business unit level... not sure if this is correct?)
21) RAF (board should ensure that management adheres to RAF)
22) backtest VaR model (I chose fail to reject because test statistic was below critical value)
23) portfolio construction techniques (I think I chose linear programming)
24) hedge fund strategies (risk arbitrage... I think I chose decline in equities prices)
25) reduce CCP failure by high quality collateral and frequent margin calls
26) net stable funding ratio (I chose that it would decline)
27) tranche waterfall (I chose x, y, 1.2 million and 90,000 for the equity tranche because the overcollateralization had a maximum of 1.2 million)
28) CDS seller returns are negatively correlated with the returns on a long put
29) pricing a bond using a binomial tree (I believe the answer was $938 or $935, but can't recall)
30) reporting operation loss from destroyed office (I chose that lost business cannot be included but insurance could be included... not sure if this is correct)

This is all that I can remember... I studied for 4 months (> 300 hours) and found it to be a very difficult exam! I'm hoping for 50% correct...

most of the questions are same
Risk aggregations choose the data is collected by region and business line