Exam Feedback November 2017 Part 1 Exam Feedback

[manisha shrivastava]

Do you remember answer for swap, fra and gx hedge qstns?[/QUOTE]
It should be strangle, as the person was expecting large movements in the price, so he should ideally go for a strangle.

 

[oldfed]

I guess volume doesn't get affected. Only the open interest.

@oldfed there were 2 questions on VaR.. 1.6 Mn 95% 1d VaR given.. find 99% 10d VaR.. another question was 99% 120 days..find number of exceptions or sth like that.

Anyone remember the insurance premium prob? Was it 957 ??

GARCH .. given long range variance of 0.00004 a=0.13 b=0.82 cont.return -1.6% daily vol of 2%.

Hedging given b=1.35 target b=1.8 p=48 Mn.. contract size was not mentioned explicitly but as 10 times the value of FTSE 100..was the answer 16000 sth??

Rating transition matrix questions..? And 12.. or ??

Basis risk question

Network risk

Adjusted R2 - adding a independent variable will improve R2??

Deposit insurance - Moral hazard - depositors not analysing risk of banks

DBP vs. DCP pension

Inc in time till expiration will increase both call and put

Accrued int question

CCP and margining

Kindly confirm if upper bound was asked for European call or put.. my mind assumed as put

Thanks prsdmoh. Defintvely wrong on the first VAR. Hope I was more inspired on the second one.

Concerning your updated points.

1 I had smthg which looked like 957
2 In my memory : Vol estimation with GARCH was not "too hard" (computation thoroughness) but the correlation estimation with EWMA was...
3 For hedging with index for target b=1,8, I personnaly remember a contract multiplier, which theoritically did not need further multiplier to the future index contract size I believe. Do you remember if an answer was 1600? (in reference to the fact that you used a implied multiplier of 10)
4 Proba of default in transition matrix gave me smthg like 7% I believe
5 In my memory, Basis risk question was focusing on which part (short/long future) will benefit form Weakening/strenghtening of basis. But did not remember the wording.
6 Adj R2 and R2, remembered a question of impact of increasing the sample on both measures (not an add of independant variables)
7 agree for moral hasard
8 DBP vs DCP bothered me. It was not so straightforward for me. It implied understanding the impact of such plans on companies' Balance Sheet.
8 agree for theta on call/put
9 No precise recall on content for network risk, CCP margining and accrued interest questions.

 

[Jaskarn]

I remember one more question. Not shared above....

Something about bond price and yield and it was told that yield curve shifted upwards and we reach a new price. This new price due to two shifts? Options were given...

I marked Decrease due to convexity and increase due to ( something I don't remember??? maybe duration or something)

 

[oldfed]

I remember one more question. Not shared above....

Something about bond price and yield and it was told that yield curve shifted upwards and we reach a new price. This new price due to two shifts? Options were given...

I marked Decrease due to convexity and increase due to ( something I don't remember??? maybe duration or something)

A new one. Thanks! Maybe, it is one of the questions that previous forum participants called "duration/convexity" questions.
Personnaly, I remember the one you're talking about. But for me, I believe it was a unique shift on the curve and a question about the effect of each sensistivity measure (D and C) on the price of the bond after the shift. If it was an upward shift with no negative convexity (embedded option) on the bond (I do not remember unfortunately), I think convexity effect is increase in price (+0,5 * C * y²) and duration effect is decrease in price (-D * y). Obviously, I am not sure.

 

[pint0]

I had a real tough time understanding the question to calc. how many contracts to hedge a portfolio of 2.8 bil. And then something with the contract size is the portfolio value 10 times the future value of the index.
Normally these kind of questions are really easy, but for me as a non-english speaker and time stress it was difficult to get it. Can anyone recall the question? Or just tell me what the contract size was correctly calcuated?
I was typing in my calc. like a maniac, because I just knew the formula : (

But another question was:
How is loss frequency and loss severity distributed.

 

[kawal_frm]

I had a real tough time understanding the question to calc. how many contracts to hedge a portfolio of 2.8 bil. And then something with the contract size is the portfolio value 10 times the future value of the index.
Normally these kind of questions are really easy, but for me as a non-english speaker and time stress it was difficult to get it. Can anyone recall the question? Or just tell me what the contract size was correctly calcuated?
I was typing in my calc. like a maniac, because I just knew the formula : (

But another question was:
How is loss frequency and loss severity distributed.

loss frequency - poisson
loss severity - lognormal...option D was answer

 

[kawal_frm]

another question: issuer has a call option on callable bond while borrower has put option for mortgage.cant recall 100%...but options were something along these lines

 

[schumi_frm]

There was another one in which a payment was supposed to be received (or made, I forgot) in some currency, and the investor was afraid for appreciation (depreciation) of that currency. So he wanted to take on some strategy in case that would happen, but at the same time be able to profit in case it did not happen. Does someone remember the answer? I think I chose long put.

 

[kawal_frm]

There was another one in which a payment was supposed to be received (or made, I forgot) in some currency, and the investor was afraid for appreciation (depreciation) of that currency. So he wanted to take on some strategy in case that would happen, but at the same time be able to profit in case it did not happen. Does someone remember the answer? I think I chose long put.

it was AUD INR question....i also answered long put

 

[prsdmoh]

another question: issuer has a call option on callable bond while borrower has put option for mortgage.cant recall 100%...but options were something along these lines

A call option is given by the investor of the bond to the issuer whereas preypayment is given by the lender to the borrower. I guess..

 

[prsdmoh]

What about the Operational risk question with BIA as one of the option?

 

[kawal_frm]

A call option is given by the investor of the bond to the issuer whereas preypayment is given by the lender to the borrower. I guess..

i think...in callable bond call option is with bond issuer as he has the right to buy back bond....with mortgage borrower can refinance so put option is with borrower

 

[prsdmoh]

How much do u expect to score ppl.. can someone share..? I expect 60-65..

 

[dubeyamitgmailcom]

I thought it was very challenging, but easier than the May 2017 exam. I skipped 10-12 in the first 50 questions because they involved more work/thought, however, by the time I was done with the exam, I was unable to spend enough time on those remaining questions so I had to guess

I also picked strangle for Q14. I think that's right. I don't think its butterfly because the position was only two legs, a call and a put. Isn't a butterfly 4 legs?

There was a question on mortality, should've studied that part, but I glossed over it quickly. The one step European put binomial tree was pretty easy (thanks David!)

I got a 3232 in May, and since i heard that is barely failing, I hope to do better this time around!

Did anyone get Q4???? It was the easiest question on the exam but I couldnt' get it for the life of me. It was when you had to figure out how any bushel contracts you had to hedge with. We had the portfolio value which was 4M, then you had the contract size and multiplier, so that was in the denominator. Then you were given the standard dev of the spot and future and correlation.. but i multipled the first part with (stand dev spot/stand dev future)*Correlation.. but could not get the answer!

Can I just add that when taking an exam, people need to be more responsible when checking in. The proctor's said multiple times to shut your phone off, but people kept leaving the sound on.. delaying the exam start date by 30 minutes. Same thing happened in May. Unfortunately, I saw some people dismissed as they didn't enter the room by 7:45AM.

Also, i was surprised by how many country risk questions that were asked! 2 or 3? Do you think the curve is more lenient for November exams?

Hi Omar,

I have given this exam for the first time and I understand that we get either a pass or a fail as result and nothing else. However, you mention that you got 3232 in May. Just wondering if we get some sort of marks also in addition to the final result. Just curious. Thanks

 

[oldfed]

A call option is given by the investor of the bond to the issuer whereas preypayment is given by the lender to the borrower. I guess..

another question: issuer has a call option on callable bond while borrower has put option for mortgage.cant recall 100%...but options were something along these lines

Hi prsdmoh.

If I remember well, it was about who get the embedded call option in first a bond situation and then a mortgage situation (no recall of embedded put option) with 4 melt options with investor/issuer and borrower/lender. I answered issuer /borrower (mortgage prepayment).

For your last question. Your 60-65 scale is my scale too. Maybe nearest to 60. It's not to be consensual, that's what I expect now, when taking into consideration what have been told on that forum. It seems that i made more computation errors than I thought when leaving the room and there are still numerous 50/50 and some 25% random guesses.

(Again thanks a lot to partcipants and moderators to give us that opportunity to discuss and have feedbacks after the exam I, didn't use enough the forum during the preparation).

 

[Unusualskill]

There was one question that I feel not right. "...Sell call options to purchase ..."? Does this make sense?

 

[Unusualskill]

I also would like to know about the UL question.

Regarding the cost of carry, If I remember correctly there was a question where the forward and the spot price were given, together with the risk-free rate, the dividend and the storage cost. I applied the formula forward = spot * exp(r + u - q -y ) and isolated y. I got then something different than 0 and I think matched one of the answers.

I would also like to know how to calculate the Unexpected loss question,I also got 137 according to formula. Sqrt(UL_1^2+UL_2^2+2*corr*UL_1*UL2) but there was no answer.

 

[kawal_frm]

I would also like to know how to calculate the Unexpected loss question,I also got 137 according to formula. Sqrt(UL_1^2+UL_2^2+2*corr*UL_1*UL2) but there was no answer.

how can you get more than 96 even if you give 100% weight age to 96 UL? i got answer 68.......did u take .5^2....coz 137/2~ 68...if i remember correctly they were of equal weight-age...i am not sure if my answer is correct though

 

[Unusualskill]

how can you get more than 96 even if you give 100% weight age to 96 UL? i got answer 68.......did u take .5^2....coz 137/2~ 68...if i remember correctly they were of equal weight-age...i am not sure if my answer is correct though

yeah probably forget the weight lol . thx!

 

[kawal_frm]

How much do u expect to score ppl.. can someone share..? I expect 60-65..

its very difficult to say how many right..in first attempt i was able to do 50-55 and expecting at-least 40 correct among them...then there are lot of 50-50's...option elimination...guess work ...and some 10 questions with completely random 25% chance....a good day favoring my luck I might even cross 70...bad day and i will struggle to get 55