Exam Feedback November 2016 Part 2 Exam Feedback

[frmpart2dan]

can anyone ever pass with less than 50%? Never feel so scared after exam!!!

 

[frmfrm]

Backtesting VaR

1. The 1996 Amendment requires to backtest the one-day, only 99% VaR over the previous 250days.(GARP BOOK)

2. According to the 1996 Amendment, market risk VaR also should be calculated with a 10-trading day time horizon and 99% confidence level.(GARP BOOK)

2. Sample size increase, Type II error decrease. (GARP BOOK)

3. The penalty multiplicative factor is set based on number of exceptions (based on trading days 250)

(not based on confidence level. confidence level is only 99%) (GARP BOOK)

(A bank calculates the 99% VaR using its current method for each of the 250 trading days and then compares the calculated 99% VaR to the actual loss.)

4. Regarding regulatory, Industry analysts have suggested lowering the required VaR confidence level to 95%
and compensating by using a greater penalty multiplier. Unfortunately, this is not approved yet.

correct answer is Sample size increase, Type II error decreases

 

[CAN]

Yes. Increasing sample size will reduce type II error and increase power.
This is because a larger sample size narrows the distribution of the test statistic.
This is frm part 1 curriculum.

 

[fjc120]

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...

So you are saying you can borrow or have exposure for 800,000 without posting collateral? I didn't really remember the readings, so I just went with work experience.

 

[fjc120]

Correct
1. Cybersecurity- take the systems offline and then report problem
2. Non-quantifiable risks since the financial crises
3. 90%smm
4. Self control risk assessment
5. Post high quality bonds as collateral
6. Overcollateralization
7. Pricing of a two period bond
8. Liquidity Value at Risk 6.43
9. Calculate the expected loss
10. Libor manipulation happened when banks submitted low rates
11. Reduce moral hazard by letting arranger take stake
12. Other creditors do not have recourse to the SPV
13. Risks aggregated at the granular level
14. Enterprise risk management
15. Correlation Swap receives 0.4 more
16. Expected loss
17. Smoothing only impacts volatility
18. Collapse in ABCP and CP market following Lehman
19. Increasing sample size Expected loss
20. Add stock with lowest MVAR
21. Credit Value at Risk Calculation
22. Principal mapping
23. Reject 0 because critical value above
24. Historical does not rely on normal distirbution

Unsure

1. RAROC
2. Ho Lee calculation
3. Forward Rate Libor calculation
4. CCP multilaternal netting calculation
5. CVA
6. Beta hedge

Incorrect
1. Gumbel Frechet - selected wrong answer
2. Hedge Funds
3. Operational risk
4. 6x9 FRA
5. Implied Volatility Graph
6. Libor/ OIS calculating derivatives
7. Linear/Stratification/Quadratic Programming
8. Minimum transfer amount

This is an analysis of my questions. Bold weighted ones reflect uncertain answers currently in correct but might be incorrect. I can't remember any other questions at the moment and am hoping for 40 correct which I hope will be enough to clear the exam

you mean .9 SMM or 90% PSA?

 

[fjc120]

I've really disliked the long texts with 3 questions associated. I've skipped them and kept them for the end of the exam. But at the end I was so tired I don't even remember those questions ... I count all of them as failed :'(

Did the same thing. The first item set threw me off and I spent so much time on it so I left the rest of the Item sets for last and had to guess on some at the end. I'm hoping this strategy pays off if indeed the curve is 50-55%.

 

[fjc120]

I am also not sure but what made me choose incremental is that the question clearly mentioned the fact the portfolio contained only 1 position and that one new position was about to be added. Maybe I am wrong but I would use MVaR in case we want to increase the exposure to particular asset and not add a new one which is currently not in the portfolio.

I put MVAR because the practice exam spoke about MVARS and their relation to beta. I felt incremental var was there as a trick.

 

[fjc120]

In defense of GARP, I like the idea of not simply "recycling " questions from old exams. If most of the questions are simply a rehash of old ones, the test becomes "stale", too easy and loses its value.

Candidates who just took the test may find the questions too difficult and tricky simply because it's their first time to have seen those questions.

I think that is fair, and is a more accurate assessment of a candidate's mastery of the subject matter.

If questions are too similar to previous exams, it is not an adequate measure of mastery, instead it is just a test of how well one has done practice tests.

There is a big difference between the two. And I feel GARP is measuring mastery not dilligence.

I agree but why does GARP expect us to MASTER the material simply by reading their selected ambiguous readings that have virtually NO practice questions or straightforward examples throughout......

CFA DOES THIS 100% more clearly.

 

[fjc120]

@farahm Which spot rate did you use?
We had 3.50% one year then 3.25 and 2.75 forward one year
Thanks

It asked to calcuate a 2 year zero but we were only given one year spot and forward rates with 50/50 one year from now so I figured we had to calculate the two year spot from thos rates using 3.5 and 3 (half of 2.75, 3.25). I'm I nuts????

It did give me answer A i think. UGH

 

[SoSo0921]

I chose MVaR. There are many similar problems in the garp practice exams.
MVaR is a means to reduce the risk. The additional amount of risk that a new investment position adds to a portfolio.
This problem asked how they minimize the risk when new investment position added.

 

[LizKO]

does anyone know the answer to the data governance question? I put LOBs in spreadsheets, but felt a couple could be right.

 

[frmfrm]

Incremental VaR is the exact (fully simulated) answer to the change in VaR resulting from removal of the position.

Marginal VaR, as a partial derivative, informs an linear approximation to removal--or just a change--in the position; i.e., marginal VaR gives us Component VaR which is an approximation.

When a trader has a choice between two new positions for a portfolio, the the trader can compare the marginal VaRs to make the best selection.

The question was related MVaR issues.
Therefore I chose Marginal VaR too.

According to GARP and David, Incremental Var for a position gives u the Var change of portfolio resulting from removing the position a from the portfolio.
Simply ,Var(P+a)-Var(P) =Incremental Var, value Var of portfolio including position a, now remove position a from from portfolio and revalue portfolio P Var the resulting change in Var is incremental Var.

While Marginal Var for a position is derivative of portfolio w.r.t the per unit $ change in value of the position is dP/da. It answers the question how much portfolio Var changes w.r.t every $ change in value of position. If position value change by small value da then resulting change in portfolio Var is marginal Var. If position changes by infinitsimal da $ then resulting change in Var$ of portfolio dP is the marginal Var.

 

[frmpart2dan]

does anyone know the answer to the data governance question? I put LOBs in spreadsheets, but felt a couple could be right.

I think the answer is data are in different legal areas

 

[fjc120]

I think the answer is data are in different legal areas

darn, I put spreadsheets but it's definitely between the two.

It was tricky for me, for I know spreadsheet data is frowned upon and difficult to control, but legal jurisdictions pose a problem in terms of communication of data.

after saying that, its prob the legal areas. whoops.

 

[Johnkrause1]

you mean .9 SMM or 90% PSA?

0.9% SMM

 

[Eternity]

darn, I put spreadsheets but it's definitely between the two.

It was tricky for me, for I know spreadsheet data is frowned upon and difficult to control, but legal jurisdictions pose a problem in terms of communication of data.

after saying that, its prob the legal areas. whoops.

I also went different regions and line of business. Because if the data is collected centrally in one master spreadsheet, the data consolidation will be easier than collating the data from different regions/business units

 

[Johnkrause1]

Incremental VaR is the exact (fully simulated) answer to the change in VaR resulting from removal of the position.

Marginal VaR, as a partial derivative, informs an linear approximation to removal--or just a change--in the position; i.e., marginal VaR gives us Component VaR which is an approximation.

When a trader has a choice between two new positions for a portfolio, the the trader can compare the marginal VaRs to make the best selection.

The question was related MVaR issues.
Therefore I chose Marginal VaR too.

According to GARP and David, Incremental Var for a position gives u the Var change of portfolio resulting from removing the position a from the portfolio.
Simply ,Var(P+a)-Var(P) =Incremental Var, value Var of portfolio including position a, now remove position a from from portfolio and revalue portfolio P Var the resulting change in Var is incremental Var.

While Marginal Var for a position is derivative of portfolio w.r.t the per unit $ change in value of the position is dP/da. It answers the question how much portfolio Var changes w.r.t every $ change in value of position. If position value change by small value da then resulting change in portfolio Var is marginal Var. If position changes by infinitsimal da $ then resulting change in Var$ of portfolio dP is the marginal Var.

Unfortunately the correct answer to this question is the Incremental VAR. I did a bit of research on this because it was bugging me after the exam. While both in a sense are correct the MVAR works best for a portfolio with a lot of small positions to reduce the risk of a portfolio towards the global mininum variance portfolio. However, the IVAR works best for large changes in a portfolio with few positions and large values, as was the case in the exam to give a before/ after approach. So this to me seems the correct answer. I selected MVAR too by the way

 

[CAN]

Unfortunately the correct answer to this question is the Incremental VAR. I did a bit of research on this because it was bugging me after the exam. While both in a sense are correct the MVAR works best for a portfolio with a lot of small positions to reduce the risk of a portfolio towards the global mininum variance portfolio. However, the IVAR works best for large changes in a portfolio with few positions and large values, as was the case in the exam to give a before/ after approach. So this to me seems the correct answer. I selected MVAR too by the way

You selected MVaR. I chose MVaR too.

Also I learned MVAR works best for a portfolio with a lot of small positions to reduce the risk of a portfolio towards the global mininum variance portfolio.

Many selected MVaR.
Anyone want to guess the correct answer?

I think both MVaR and IVaR are correct.

 

[mghm]

Only one can be correct ...how both can be correct ?

 

[farahm]

It asked to calcuate a 2 year zero but we were only given one year spot and forward rates with 50/50 one year from now so I figured we had to calculate the two year spot from thos rates using 3.5 and 3 (half of 2.75, 3.25). I'm I nuts????

It did give me answer A i think. UGH

I picked A as well - if i remember correctly.