Exam Feedback November 2019 Part 2 Exam Feedback

[anisapassfrm]

Anyone remember the question on exposure to ccp( T, U, V)?

I chose V

 

[DesNewman]

It was the reading, paper Central clearing and risk transformation from norges bank.

I studied this section from Bionic Turtle only and I don't think it was in there unfortunately

 

[milan_didwania]

There was a question about IR=0.45, BR=225 what is the correlation? I wasn't sure as the word 'correlation' threw me off, but I just calculated IC=IR/SQRT(BR)=0.003. Any thoughts on this question?

I have calculated the same way

 

[fahad Iqbal]

There was a question about IR=0.45, BR=225 what is the correlation? I wasn't sure as the word 'correlation' threw me off, but I just calculated IC=IR/SQRT(BR)=0.003. Any thoughts on this question?

Correlation between the actual and the forecasted value. The answer was B is 0.003

 

[amit.m.sharma]

It was the reading, paper Central clearing and risk transformation from norges bank.

Did the question say that the size of the trade was large compared to the daily volume traded? N^3/2 is applicable if we offload the position in parts. I remember the notionals being 50m and 100m but don't recall what product it was and if there was an increase in the horizon.
Sorry, my short term memory is not that great especially during times of stress.

 

[aksl]

Any idea about CPR and SMM question?
I also got confused about GEV and Pareto distribution question.

 

[Pciruna]

Agree with your approach, but .45/ sqrt(225) = 0.03.. which I believe was choice D on my exam.

 

[DesNewman]

Agree with your approach, but .45/ sqrt(225) = 0.03.. which I believe was choice D on my exam.

Sorry, I meant 0.03

 

[Detective]

Did the question say that the size of the trade was large compared to the daily volume traded? N^3/2 is applicable if we offload the position in parts. I remember the notionals being 50m and 100m but don't recall what product it was and if there was an increase in the horizon.
Sorry, my short term memory is not that great especially during times of stress.

I think they are right to use the formula, but the phrasing of the question seemed a little strange.

The source:
https://static.norges-bank.no/contentassets/432aa1c401a243f9b08a3f3aecd4c71d/working_paper_3_17.pdf
(P.12 in article)

So I think (100/50)^(3/2) ~ 2.8 is valid; these were choices I had:

A) 1
B) 1.4
C) 2.8
D) 3.5

The question said position size increased from 50MM and 100MM and that VaR increased 1:1 manner and asked what was factor increase of IM? [not sure on last part]

If it was factor increase wrt to VaR increase (which I don’t believe the question asked) then 2.8/2 = 1.4 could be the answer.

However, based on above I am mostly convinced 2.8 was the intended answer.

 

[amit.m.sharma]

I think they are right to use the formula, but the phrasing of the question seemed a little strange.

The source:
https://static.norges-bank.no/contentassets/432aa1c401a243f9b08a3f3aecd4c71d/working_paper_3_17.pdf
(P.12 in article)

So I think (100/50)^(3/2) ~ 2.8 is valid; these were choices I had:

A) 1
B) 1.4
C) 2.8
D) 3.5

The question said position size increased from 50MM and 100MM and that VaR increased 1:1 manner and asked what was factor increase of IM? [not sure on last part]

If it was factor increase wrt to VaR increase (which I don’t believe the question asked) then 2.8/2 = 1.4 could be the answer.

However, based on above I am mostly convinced 2.8 was the intended answer.

Thanks Detective.

 

[fahad Iqbal]

Sorry, I meant 0.03

Can you pls recall if there was only answer with .03 or do we have other similar choices

 

[fahad Iqbal]

I remember the answer was b

 

[DesNewman]

I remember the answer was b

I can't remember exactly, but I think the choices were 0.01, 0.025, 0.03, 0.04 - I wouldn't worry about the specific answer, because I think they change the question and answer order depending on the book colour you get, to minimize cheating?

 

[Pciruna]

ON the QQ plot question, I felt it was down to two valid choices. Apart from the one already mentioned above, why wouldn’t “ a QQ plot having a slope less than 1” imply heavier tails than a normal distribution- which is what the question was asking I believe?

 

[Pciruna]

As a normal distribution had a slope of 1 on the QQ plot.

 

[amit.m.sharma]

As a normal distribution had a slope of 1 on the QQ plot.

slope less than 1 would mean the variance of the data is less than that of the normal distribution.

 

[Pciruna]

slope less than 1 would mean the variance of the data is less than that of the normal distribution.

i see your point. Thanks. Wording was extremely tricky, I think I got tricked on this one. My rationale was that a slope less than 1, would imply heavier tails.

 

[mat.tschopp]

i see your point. Thanks. Wording was extremely tricky, I think I got tricked on this one. My rationale was that a slope less than 1, would imply heavier tails.

Less than 1 is presumably correct as it was stated student’s t-distribution which has heavier tails.

 

[Pciruna]

Less than 1 is presumably correct as it was stated student’s t-distribution which has heavier tails.

Exactly my understanding as well.

 

[deepee1992]

I think the slope would change throughout the QQ plot since both tails of the T-dist are fatter than the Normal? There's some helpful diagrams here: https://stats.stackexchange.com/questions/101274/how-to-interpret-a-qq-plot

Also had no idea on the scaling liquidity cost with VaR/notional.

The GEV question was worded very oddly--they appeared to include the u parameter (from GEV, which must be estimated) and the threshold level (from PoT, which is chosen) which I thought were mutually exclusive?