Exam Feedback November 2018 Part 1 Exam Feedback

[gprisby]

That would be the population standard deviation right? To get the sample standard deviation you would have to divide the .0032 by 2 = .0016 which would result in standard deviations of .04

Yup, you might be right. Unbiased would mean n-1, so 2. Damn! I always get the "n" or "n-1" confused.

 

[cmfrtblynmb209]

Hello all,
Here are the 81 questions I may remember from the exam. Please tell me if you remember extra questions

1 -Question about Implied volatility, option strikes and maturities in the B&S model
2 -"Entreprise-wide" risk management model question
3 -EL calculation with updated (increased value of loan) from 45 mln to 55 mln
4 -Swap comparative advantages with a table (I put the company with no absolute advantage as the fixed rate payer, not sure I was right)
5/6 -2 Code of Conduct questions (one with an employee using a model from former company)
7 -A t-test hypothesis with null hypothesis being as an equality (correct answer was failing to reject the null)
8 -A 95% confidence interval question linked to an hypothesis (the hypothetized value was in the interval if I remember correctly)
9 -APT question with updated factors (formula was sth like Ri = E(Ri) + aX + bY)
10 -Crack spread question with crude and heating oil gallons/barrels
11 -White noises and independant noises
12 -The operating / combined ratio question (105% being an incorrect solution)
13 -A question about credit spread risk (I put "credit spread can be easily found via the default transition matrix. Not sure..)
14 -Stack hedge question (30 vs 360 contracts).
15 -Change in price of a bond after duration and convexity effects combined
16 -Economic capital calculation where EL, UL and multiplicator were given
17 -A question about the impact of increasing level of significance for VaR and EL
18 -Number of contract to buy/sell to make a duration-hedge with a Cheapest-to-deliver bond (portfolio value, bond FV and durations were given)
19 -A question about mean-variance model components (inputs) vs other models inputs
20 -The variance of a Bernoulli distribution ( PD*(1-PD) )
21/22 -2 Bayes questions (one with a 3-states table (increase/neutral/decrease) and one with AA/BB bonds)
23 -How many additional Monte Carlo simulations required to narrow a confidence interval (think 12,000 was the correct answer)
24 -Sample standard deviation ("what is the StD of the most volatile asset ?")
25 -Cross hedge with maturity and correlation given (Zirconium)
26 -Long run volatility (not variance !) with GARCH(1,1) model
27 -EWMA updated variance (with previous vol and previous and new asset prices given)
28 -Updated Covariance with EWMA
29 -Adjusted beta hedge from 1,05 to 1,75
30 -Risk facing CCP (answer was Adverse selection)
31 -A question about whether netting through CCP is benefiting high-rated companies most
32 -A question where the correct answer was fat tail means time-varying volatility (acc. to me)
33 -A binomial one-step tree foe European call option
34 -correl + vol hedge ratio
35 -Delta normal VAR for a portfolio of long call options
36 -Gamma neutral portfolio
37/38 -R² and adj R² (and / or sqrt(R²), can't remember if this one or two different questions ; I hope it's two !)
39 -95% VAR for 60 days (using Poisson distribution)
40 -Converting 1-day 95% to 10-day 99% VAR
41 -Difference btw Mutual funds and Hedge Funds
42 -Sharpe ratio (need to compute the weighted exp return and std first)
43 -compute expected return with beta and risk free rate (CAPM question)
44 -a Multi factor question (or a second single factor question, can't remember precisely sorry for that)
45 -a forward rate calculation one year, two years from now
46 -FX forward with continuously componded rates (straigthforward exp(rDC - rFC) formula)
47 -a put-call parity question
48 -stop vs limit order question (correct answer was limit order, to me)
49 -Sortino ratio
50 -DV01 hedge ratio
51 -Loss frequency and severity distribution in Op. risks (Poisson + lognormal)
52 -Bootstrapping vs anthetic variate vs control variate (bootstrapping was correct acc. to me)
53 -Copulas question (Gaussian copulas was correct to me)
54 -WAM / WAY
55 -CPR / SMM
56 -A question about rating agencies process wrt local vs foreign debts
57 -A question about local vs foreign currency debt ratings (similar to 56 but definitely two different questions)
58 -A question about stocks price changes when rating changes
59 -Question about role of internal auditors in stress tests process (correct answer was sthg like "need to document material changes in stress test process")
60 -Second question about role of auditors wrt the board and shareholders
61 -Covariance stationary processes (answer was mean+covariance are stable over time)
62 -Values of beta in an stable AR(1) process (answer was 0,5 others choices being 0, 1 and 1,25)
63 -Probability question using binomial distribution applied to two cases and then sum them up
64 -FX loan without interests question (with useless and tricky wording)
65 -Net CCY exposure calculation and impact on gain/loss if foreign CCY is depreciating
66 -Price of a semi annual coupon bond (with price of the equivalent annual coupon bond given)
67 -question about spot rates curve vs forward rates (correct was spot curve is upward when fwd rates are higher that spot rates, not 100% sure but it sounds logical)
68 -question about which choices is relative to coherent risk measure (correct answer was p(A+B) <= p(A) + p(B) )
69 -second question about coherent risk measure in a bank but only with wording choices related to a bank's units
70 -basic risk definition (smth like "what is more likely related to a market risk ?" with answer being a drop in FX market)
71 -question about big failures and I thing LTCM was the correct answer (linked to model risk)
72 -UL calculation
73 -AIC curve question (B was correct)
74 -SPV question (a bank using SPV to transfer legal risk)
75/76 -2 quite esay questions about differences between OTC and exchanges
77 -duration hedge performing poorly when short term rates and long term rates are volatile and not correlated
78 -variation margin vs maintenance margin vs initial margin
79 -subordinated bonds being unsecured bonds with other unsecured bonds with a higher claim above them (not sure this is an acutal question)
80 -question about RiskMetrics vs Hybrid vs Historical models for VAR
81 -a question about the benefits of ES in operational risks and the fact that they give scenarios that had never happened in the past

Impressive recall.

 

[flex]

Hello all,
Here are the 81 questions I may remember from the exam. Please tell me if you remember extra questions

32 -A question where the correct answer was fat tail means time-varying volatility (acc. to me)

it's an incredible work, the great respect.

can u remember: there was kurtosis mentioned at this (#32) qstn?

 

[firstplace]

Do you remember the answer to country risk/local debt question? I thought that if they left the "currency bloc" then that would allow them to print money hence address any local debt.

 

[kylian.mbappe]

Do you remember the answer to country risk/local debt question? I thought that if they left the "currency bloc" then that would allow them to print money hence address any local debt.

I put currency bloc as well..

 

[kylian.mbappe]

it's an incredible work, the great respect.

can u remember: there was kurtosis mentioned at this (#32) qstn?

Yes probably

 

[hfischer]

Do you remember the answer to country risk/local debt question? I thought that if they left the "currency bloc" then that would allow them to print money hence address any local debt.

I took took that as well. Seemed like the most logical answer to me

 

[AHoekstra]

Hello all,
Here are the 81 questions I may remember from the exam. Please tell me if you remember extra questions

1 -Question about Implied volatility, option strikes and maturities in the B&S model
2 -"Entreprise-wide" risk management model question
3 -EL calculation with updated (increased value of loan) from 45 mln to 55 mln
4 -Swap comparative advantages with a table (I put the company with no absolute advantage as the fixed rate payer, not sure I was right)
5/6 -2 Code of Conduct questions (one with an employee using a model from former company)
7 -A t-test hypothesis with null hypothesis being as an equality (correct answer was failing to reject the null)
8 -A 95% confidence interval question linked to an hypothesis (the hypothetized value was in the interval if I remember correctly)
9 -APT question with updated factors (formula was sth like Ri = E(Ri) + aX + bY)
10 -Crack spread question with crude and heating oil gallons/barrels
11 -White noises and independant noises
12 -The operating / combined ratio question (105% being an incorrect solution)
13 -A question about credit spread risk (I put "credit spread can be easily found via the default transition matrix. Not sure..)
14 -Stack hedge question (30 vs 360 contracts).
15 -Change in price of a bond after duration and convexity effects combined
16 -Economic capital calculation where EL, UL and multiplicator were given
17 -A question about the impact of increasing level of significance for VaR and EL
18 -Number of contract to buy/sell to make a duration-hedge with a Cheapest-to-deliver bond (portfolio value, bond FV and durations were given)
19 -A question about mean-variance model components (inputs) vs other models inputs
20 -The variance of a Bernoulli distribution ( PD*(1-PD) )
21/22 -2 Bayes questions (one with a 3-states table (increase/neutral/decrease) and one with AA/BB bonds)
23 -How many additional Monte Carlo simulations required to narrow a confidence interval (think 12,000 was the correct answer)
24 -Sample standard deviation ("what is the StD of the most volatile asset ?")
25 -Cross hedge with maturity and correlation given (Zirconium)
26 -Long run volatility (not variance !) with GARCH(1,1) model
27 -EWMA updated variance (with previous vol and previous and new asset prices given)
28 -Updated Covariance with EWMA
29 -Adjusted beta hedge from 1,05 to 1,75
30 -Risk facing CCP (answer was Adverse selection)
31 -A question about whether netting through CCP is benefiting high-rated companies most
32 -A question where the correct answer was fat tail means time-varying volatility (acc. to me)
33 -A binomial one-step tree foe European call option
34 -correl + vol hedge ratio
35 -Delta normal VAR for a portfolio of long call options
36 -Gamma neutral portfolio
37/38 -R² and adj R² (and / or sqrt(R²), can't remember if this one or two different questions ; I hope it's two !)
39 -95% VAR for 60 days (using Poisson distribution)
40 -Converting 1-day 95% to 10-day 99% VAR
41 -Difference btw Mutual funds and Hedge Funds
42 -Sharpe ratio (need to compute the weighted exp return and std first)
43 -compute expected return with beta and risk free rate (CAPM question)
44 -a Multi factor question (or a second single factor question, can't remember precisely sorry for that)
45 -a forward rate calculation one year, two years from now
46 -FX forward with continuously componded rates (straigthforward exp(rDC - rFC) formula)
47 -a put-call parity question
48 -stop vs limit order question (correct answer was limit order, to me)
49 -Sortino ratio
50 -DV01 hedge ratio
51 -Loss frequency and severity distribution in Op. risks (Poisson + lognormal)
52 -Bootstrapping vs anthetic variate vs control variate (bootstrapping was correct acc. to me)
53 -Copulas question (Gaussian copulas was correct to me)
54 -WAM / WAY
55 -CPR / SMM
56 -A question about rating agencies process wrt local vs foreign debts
57 -A question about local vs foreign currency debt ratings (similar to 56 but definitely two different questions)
58 -A question about stocks price changes when rating changes
59 -Question about role of internal auditors in stress tests process (correct answer was sthg like "need to document material changes in stress test process")
60 -Second question about role of auditors wrt the board and shareholders
61 -Covariance stationary processes (answer was mean+covariance are stable over time)
62 -Values of beta in an stable AR(1) process (answer was 0,5 others choices being 0, 1 and 1,25)
63 -Probability question using binomial distribution applied to two cases and then sum them up
64 -FX loan without interests question (with useless and tricky wording)
65 -Net CCY exposure calculation and impact on gain/loss if foreign CCY is depreciating
66 -Price of a semi annual coupon bond (with price of the equivalent annual coupon bond given)
67 -question about spot rates curve vs forward rates (correct was spot curve is upward when fwd rates are higher that spot rates, not 100% sure but it sounds logical)
68 -question about which choices is relative to coherent risk measure (correct answer was p(A+B) <= p(A) + p(B) )
69 -second question about coherent risk measure in a bank but only with wording choices related to a bank's units
70 -basic risk definition (smth like "what is more likely related to a market risk ?" with answer being a drop in FX market)
71 -question about big failures and I thing LTCM was the correct answer (linked to model risk)
72 -UL calculation
73 -AIC curve question (B was correct)
74 -SPV question (a bank using SPV to transfer legal risk)
75/76 -2 quite esay questions about differences between OTC and exchanges
77 -duration hedge performing poorly when short term rates and long term rates are volatile and not correlated
78 -variation margin vs maintenance margin vs initial margin
79 -subordinated bonds being unsecured bonds with other unsecured bonds with a higher claim above them (not sure this is an acutal question)
80 -question about RiskMetrics vs Hybrid vs Historical models for VAR
81 -a question about the benefits of ES in operational risks and the fact that they give scenarios that had never happened in the past

A very nice recollection! I recall most of these as well and hoping I can make a couple of additions.

1.) There was a question on a German bank (?) that wanted to make loans denominated in USD and have this exposure hedged on-balance. Believe there were some options with forwards or issuance of CDs in USA.
2.) A question on Flat Price versus Full Price and the impact on the flat/full price of the bond while moving to the next coupon payment.
3.) Question on the volatily term structure. Believe the answer was something along the lines of it being downward sloping if Cur vol > LR Vol.
4.) Steepening of the curve and how to trade on that with a swap.

FYI, for 7, 23, 48, 53, 61 , 62, 67, 68 I am fairly certain I checked the same answers (and good chance/fairly confident that they are correct.)

74, the SPV question I think I recall. It was about setting up an SPV for derivative trading. Not sure how the Q asked it whether it was legal risk or counterparty risk.

You guys have any further recollection of a question on implied vol (1) or white noise (11)? I really dont recall this lol

I am also curious about the Gamma hedge were we had a portfolio with negative gamma and needed to neutralize with an option. Did I miss a trick question here as was it really just dividing the PV gamma by the option gamma? Believe it was among the answers. Same for the WAM/WAC, did we have to do something with the prepayments or was it just a simple weighted average?

Good luck to all with the wait for the results! Its already killing me.

 

[kylian.mbappe]

A very nice recollection! I recall most of these as well and hoping I can make a couple of additions.

1.) There was a question on a German bank (?) that wanted to make loans denominated in USD and have this exposure hedged on-balance. Believe there were some options with forwards or issuance of CDs in USA.
2.) A question on Flat Price versus Full Price and the impact on the flat/full price of the bond while moving to the next coupon payment.
3.) Question on the volatily term structure. Believe the answer was something along the lines of it being downward sloping if Cur vol > LR Vol.
4.) Steepening of the curve and how to trade on that with a swap.

FYI, for 7, 23, 48, 53, 61 , 62, 67, 68 I am fairly certain I checked the same answers (and good chance/fairly confident that they are correct.)

74, the SPV question I think I recall. It was about setting up an SPV for derivative trading. Not sure how the Q asked it whether it was legal risk or counterparty risk.

You guys have any further recollection of a question on implied vol (1) or white noise (11)? I really dont recall this lol

I am also curious about the Gamma hedge were we had a portfolio with negative gamma and needed to neutralize with an option. Did I miss a trick question here as was it really just dividing the PV gamma by the option gamma? Believe it was among the answers. Same for the WAM/WAC, did we have to do something with the prepayments or was it just a simple weighted average?

Good luck to all with the wait for the results! Its already killing me.

Thank you very much for these !
For SPV, I think choice D was definitely Legal Risk. That is what I put (reasonably confident).

For the full price question, I cannot remember the exact 4 choices but l think I ticked the "full price is increasing until next coupon" choice.

I have a doubt about the economic capital question : do you (or anyone) remember if the answer was something like 1,48 mln ?

Also for comparative advantages, does anyone remember if the guy with no absolute advantage was fixed rate payer of the swap? (Choice C)

 

[flex]

Thank you very much for these !
For SPV, I think choice D was definitely Legal Risk. That is what I put (reasonably confident).

i think that depend on qstn context: for 'what kind MITIGATE' - must be c/party, but for 'TRANSFER to' U answer is right.

Also for comparative advantages, does anyone remember if the guy with no absolute advantage was fixed rate payer of the swap? (Choice C)

yep, 'advancer' want to be a float receiver

 

[kylian.mbappe]

Oh I dont remember the wording tbh

 

[Fjrodriguez]

Oh I dont remember the wording tbh

Hi everyone! It was definitely “mitigate” so I chose counterparty

 

[AHoekstra]

Yeah I am thinking the same regarding the swap. Too bad I ruined that one myself, marked the comp adv which was in the floating markets if I recall correctly.

Thinking about some of the questions. I remember the price change of a bond(dur&conv) gave me headaches. Believe it was mentioned that the bond was concave. I know this tripped me up on whether to add or subtract convexity.

@kylian.mbappe , what did you do for question 58 you mention? I was in doubt on this one since I believe it is also mentioned somewhere that rating downgrades can be beneficial for equity prices. But I also remember the other answers not making much sense to me. Think I went for a decrease in equity and bond prices after a downgrade.

 

[kylian.mbappe]

Yeah I am thinking the same regarding the swap. Too bad I ruined that one myself, marked the comp adv which was in the floating markets if I recall correctly.

Thinking about some of the questions. I remember the price change of a bond(dur&conv) gave me headaches. Believe it was mentioned that the bond was concave. I know this tripped me up on whether to add or subtract convexity.

@kylian.mbappe , what did you do for question 58 you mention? I was in doubt on this one since I believe it is also mentioned somewhere that rating downgrades can be beneficial for equity prices. But I also remember the other answers not making much sense to me. Think I went for a decrease in equity and bond prices after a downgrade.

I think I put the same answer for downgrades... for Cvx+duration I was talking about question #1 of the exam.. cannot remember (do not really think) that the bond was supposed concave... I just added the convexity as in the classic formula..

 

[cmfrtblynmb209]

I think I put the same answer for downgrades... for Cvx+duration I was talking about question #1 of the exam.. cannot remember (do not really think) that the bond was supposed concave... I just added the convexity as in the classic formula..

My memory isn't completely clear on the question at hand, but there was one apparently straightforward duration/convexity price change question that gave you both D and C. However, the C that was given was negative. I have no doubt that they would have had a dummy answer there to catch anyone who computed it as though the given convexity were positive. If I recall, the given yield change was negative, so the price change from duration was positive, but the price change from convexity was negative since the yield delta is squared in that term and the given convexity was negative.

 

[aimjo]

i found many theory questions on book 1 ... why? i think it's more than 20%

Even I felt same..

 

[aimjo]

I think it was the option A, can't remember the exact value, but you have to calculate the average mean and the variance for the portfolio, to get Sharpe ratio,

Hope it helps

1.36 was the option A's value

 

[Bhandaripulkit]

I found paper was standard not easy or not so though , i did found it lengthy i was only able to complete 80 question aand blind gussed 20 . I am at least sure about 50 questions i marked are correct .
Can any one tell me about cutoff . People have written above it would be 70 75 , i gusses its to high .

 

[kylian.mbappe]

My memory isn't completely clear on the question at hand, but there was one apparently straightforward duration/convexity price change question that gave you both D and C. However, the C that was given was negative. I have no doubt that they would have had a dummy answer there to catch anyone who computed it as though the given convexity were positive. If I recall, the given yield change was negative, so the price change from duration was positive, but the price change from convexity was negative since the yield delta is squared in that term and the given convexity was negative.

Correct and the sum gave an increase of xx.85 if I remember correctly (choice C)

 

[Bhandaripulkit]

How did you do the question on Bayes related to ratings? the probability that both BB and AAA defaulted, something like that... i calculated bayes for both and then did the sum of probabilities. I found that probability on one of the answers, but i'm pretty sure it was not the good way to do it.

i guess we can do the same by using binomial approch i did the same and was able to find the answer in the options below just added the binomial probailites of 3 or two i don't excatly remember