I gave the same answerAlso, there was a question about LTCM and 2007 subprime credit crisis. I think that the response is that in both cases the problem was they didn’t take properly the correlations in their models.
Yep, I remember using that formula for one of the questionsThere was a question about Credit Spread, I used the following formula:
CS=-1/T * Ln(D/F) - Rf
Are you agree?
There was a question about Credit Spread, I used the following formula:
CS=-1/T * Ln(D/F) - Rf
Are you agree?
This is a question I went back to... You were back testing one day 99% VAR and realized exceptions 2% of the time. I went with the logic that you would expect exceptions just 1% of the time for the model to be correctly calibrated. So I narrowed it to the two answers that said it was incorrectly calibrated... But The wording was confusing in the rest of the answers and I think I chose something like "Incorrectly calibrated because you would expect 2% exceptions less than 1% of the time."Does anyone else remember a question which mentioned back testing with a one tailed test?
I cannot remember what answer I chose however the fact that they mentioned a 'one tailed' back test was incorrect am I wrong? shouldn't back testing be two tailed !This is a question I went back to... You were back testing one day 99% VAR and realized exceptions 2% of the time. I went with the logic that you would expect exceptions just 1% of the time for the model to be correctly calibrated. So I narrowed it to the two answers that said it was incorrectly calibrated... But The wording was confusing in the rest of the answers and I think I chose something like "Incorrectly calibrated because you would expect 2% exceptions less than 1% of the time."
if I'm remembering the response correctly, I believe it was option B. I could be completely wrong in my thinking. For some reason this question confused me completely the first time around, so I marked it to go back.
You said you remember 50+... keep them comingHi all,
I spent about an hour trying to remember as many questions as possible yesterday while going through the material - I came up with about 55. I can post them tonight if anyone is interested. After a quick check I made roughly 15 mistakes out of 55, so it seems from this very approximate sampling that I should be a notch above 70%, so I am only mildly confident.
@frankdc11, I answered this question differently but I might be wrong. I am a bit foggy on the details though but I think I remember it indeed said that there were realized exceptions 2% of the time (not entirely sure about that though).
We are backtesting over 250 days with 99% confidence so we expect 0.01*250 = 2.5 exceptions.
We end up with 2% exceptions, or 0.02*250 = 5 exceptions.
(5-2.5)/sqrt(0.01*0.99*250) = 1.589, which is inferior to the critical value needed to reject the hypothesis that the model is correctly calibrated.
In other words, 2% exceptions over 250 days instead of the expected 1% is not statistically significant enough to conclude with 99% confidence that the model is flawed.
Other questions I remember from the top of my head / my answer / how correct I believe my answer is after quickly checking the books (happy if you can prove me wrong either way!) :
1/Bitcoin risk / being used for transactions in sanctioned countries / correct
2/Collateral to be posted and balance / 5 and 7 (5 above threshold + 2 INDEPENDENT amount) / correct
3/Similiarities between 2007-2009 and LTCM / correlation risk understimated / correct
4/Implied volatility shape before announcement / volatility frown / correct
5/Credit spread using -ln(yrs to maturity) * ln (market value) - ln(face value) / can't remember / correct
6/Which instrument to hedge credit risk and market risk / TRS / unsure but I believe TRS does hedge market risk for the buyer, since seller/receiver has to pay any depreciation in the underlying asset?
7/A question on 99% ES where they gave you 99.2%, 99.4%, etc. values / I averaged starting from 99.2%, since ES should be loss IN EXCESS of the quantile; not 99% / I believe this is correct
8/A lengthy scenario involving 3 companies with positions with each other in a call, CDS, etc. and possible answers with right way risk - what the hell? I thought this one was a bit absurd. I eliminated "call price would decrease" since the underlying price and volatility rose, which both make a call more expensive, but then I wasn't sure so I picked "increase in right way risk" since all the companies seemed to be improving, but I really had no idea so I am gonna go with wrong
/
9/A calculation of required market capital / do not forget to add the stressed VaR component and use multiplier / correct
10/Indicator of decreasing funding liquidity / increasing treasury-corp spreads / wrong I believe; there was an option with dealer bank clients reducing their exposure which I think was better
11/Value of risky debt under Merton / Risk-free minus put / correct
12/Incremental VaR with negatively correlated position / the negative answer (position actually reduces ptf VaR due to negative correlation) / correct
13/LIBOR-OIS discounting / I didn't know how to do that so I went with 5% but I believe it is incorrect (as I did not even use OIS rates at all and just went for a simple "implied 1 year-rate in 1 year" calculation)
14/Vasicek expected rate after 4 years / current*exp(-k*T) + long.run.value(1- exp(-k*T)) / correct
15/Ho-Lee after 2 periods in lower node / first drift/12 + second drift/12 - 2*annual vol*sqrt(1/12) since lower node is following the "negative shocks" path twice / correct
16/17/2 questions about Fixed Income VaR Mapping / I hate this concept and always had a weak understanding of it so I don't remember / am gonna go with incorrect
18/Which asset to add to another to form a 2-asset portfolio given a risk budget of 67 million if I remember correctly (200 million added to 300 million) / calculated the answer that seemed obvious just by reading it (low correlation with existing asset) / correct
19/Some stuff about best practice when outsourcing / comparing the IT systems or controls or something like that / unsure
20/Bond price to discount using a tree and 1 + r/2 / can't remember / most likely correct
I don't remember that question exactly, but I think I chose the corn farmer as wellAdding one more WWR qs
short on Corn Farmer (or something similar)
There was a question about Credit Spread, I used the following formula:
CS=-1/T * Ln(D/F) - Rf
Are you agree?
They gave you the yield of T-BOND with 4 years to maturiy and I used it like the RfBut I was not able to get -- Rf in the problem, hence i used it as 0%, I am not sure what other people followed for Rf.
The answer has to do with anti-money laundering AML concerns.Hmm, I had decided against that one because I specifically remembered the reading mentioning that a feature of Bitcoin is the lack of anonymity, and the fact that transactions can always be traced back to the individuals who were involved. I could be wrong though.