Exam Feedback November 2021 Part 2 Exam Feedback

[nc27]

I answered aRaroc reject. Hurdle rate 6.5. For CNY they already gave 7 defaults. So 7*2m is pd*ead at 95%. Just Multiply lgd.

Reject yes as greater than excess market return, hurdle I answered 8, for loans cvar no idea

 

[kawal_frm]

Reject because ARAROC less than RF. not because of market return. They gave that option to confuse(I might be wrong ,though fairly confident that I got the right answer!)

8? How come. beta was 1.2. Rf 2. Rm 7. So by capm rate of one equity = 8%. And another equity = 4% was given. So in any case weighted average can’t be 8.

I got confused with 2 numericals. Stressed EL one. Wasn’t sure it’s stress EL or stressed loss. Answered it as stressed EL.

Second IR 500 million fund with IR .69 and .58 with same 5% tracking error and some more info. Was completely clueless. As managers should get funds in ratio of IR which is 1.19. Only 2 options gave same ratio. So guessed option B. 35m and 28m. Option A was also same ratio. Not sure what correct answer is here.

Another one I did wrong initially. ES at 97.5% with sampling. Made mistake by taking 975th obs of 72mn. It has to be average of 1000 samples rather than 97.5% of average ES calculated at 97.5%
Corrected it to 44mn during revision

 

[nc27]

Reject because ARAROC less than RF. not because of market return. They gave that option to confuse(I might be wrong ,though fairly confident that I got the right answer!)

8? How come. beta was 1.2. Rf 2. Rm 7. So by capm rate of one equity = 8%. And another equity = 4% was given. So in any case weighted average can’t be 8.

I got confused with 2 numericals. Stressed EL one. Wasn’t sure it’s stress EL or stressed loss. Answered it as stressed EL.

Second IR 500 million fund with IR .69 and .58 with same 5% tracking error and some more info. Was completely clueless. As managers should get funds in ratio of IR which is 1.19. Only 2 options gave same ratio. So guessed option B. 35m and 28m. Option A was also same ratio. Not sure what correct answer is here.

Another one I did wrong initially. ES at 97.5% with sampling. Made mistake by taking 975th obs of 72mn. It has to be average of 1000 samples rather than 97.5% of average ES calculated at 97.5%
Corrected it to 44mn during revision

Yes for raroc I was not sure which one between C and D because both criteria of decision gave a reject it was confusing... and also for the hurdle rate you surely are right I have not practiced this concept enough :/

Now I just hope I can pass this exam :')

 

[kevalamin01]

To confirm, no one was able to see their part 2 score at the end of the exam, unlike in the part 1 exam in July where people reported they were able to see their score? I was able to see my Part 1 score at the end of the part 2.

Also thanks BT team, the practice questions were really very helpful, and I would recommend anyone taking the part 2 to do every single question, and every time you make a mistake/are unsure, put a snip of it in a spreadsheet, and come back to those questions and understand the answer.

 

[shuffleshoe]

I see that indeed people got completely different exams from some of the questions that have been posted here.

I would say mine was 80% qualitative and 20% quantitative. Actually might have even been more qualitative than that, because I actually can't recall having used my calculator for that many questions at all.

 

[kawal_frm]

I see that indeed people got completely different exams from some of the questions that have been posted here.

I would say mine was 80% qualitative and 20% quantitative. Actually might have even been more qualitative than that, because I actually can't recall having used my calculator for that many questions at all.

Some of questions were mix of quant and qualitative. Like I got one repo related question asking repo calculation and counter-party credit risk aspect which was qualitative.

 

[Paras Chhabra]

Reject because ARAROC less than RF. not because of market return. They gave that option to confuse(I might be wrong ,though fairly confident that I got the right answer!)

8? How come. beta was 1.2. Rf 2. Rm 7. So by capm rate of one equity = 8%. And another equity = 4% was given. So in any case weighted average can’t be 8.

I got confused with 2 numericals. Stressed EL one. Wasn’t sure it’s stress EL or stressed loss. Answered it as stressed EL.

Second IR 500 million fund with IR .69 and .58 with same 5% tracking error and some more info. Was completely clueless. As managers should get funds in ratio of IR which is 1.19. Only 2 options gave same ratio. So guessed option B. 35m and 28m. Option A was also same ratio. Not sure what correct answer is here.

Another one I did wrong initially. ES at 97.5% with sampling. Made mistake by taking 975th obs of 72mn. It has to be average of 1000 samples rather than 97.5% of average ES calculated at 97.5%
Corrected it to 44mn during revision

Yup..i remember that question (IR and risk budget). Do u recall what the option A was and the target tracking error of the portfolio?

 

[kawal_frm]

Yup..i remember that question (IR and risk budget). Do u recall what the option A was and the target tracking error of the portfolio?

24m and 19m. Tev of portfolio 3.4%. Individual manager 5%. Calculate at 99%.

 

[nc27]

Yup..i remember that question (IR and risk budget). Do u recall what the option A was and the target tracking error of the portfolio?

You must get ir ratio = risk budget ratio, I took the option that gave closest ratio but they were not exactly equal... That was disturbing

 

[kawal_frm]

You must get ir ratio = risk budget ratio, I took the option that gave closest ratio but they were not exactly equal... That was disturbing

2 options (A and B) had ratio of 1.19. Other 2 ratio of 1. Just picked B at random.

 

[nc27]

2 options (A and B) had ratio of 1.19. Other 2 ratio of 1. Just picked B at random.

Yes exactly what I did (at random between A and B) ! for me this question will be discarded...

 

[Paras Chhabra]

2 options (A and B) had ratio of 1.19. Other 2 ratio of 1. Just picked B at random.

Yup now that u mention i think the first one was 20.98 and 19 odd..i took that option..thought it matched with the total risk budget (500*2.326*.034)..but yeah just had to match with the risk budget ratios
It would hv been better had they given the IR of the portfolio. That would enable us to get weights of each position and ultimately tbe risk budgets. Thats the correct way to do it rather than looking for the right answer among options.

 

[kawal_frm]

One question which I think they gave more info than required was price of call option on 6 month bond at strike of 987 and current 6m tree price 987.65.I answered 0.65

They gave tree for 6m and 1year.

I might be wrong. But why do we need 1 year tree for 6m option when 6m tree is given straight away.
In options , 3 out of 4 options were related to 1 year tree.

 

[nc27]

One question which I think they gave more info than required was price of call option on 6 month bond at strike of 987 and current 6m tree price 987.65.I answered 0.65

They gave tree for 6m and 1year.

I might be wrong. But why do we need 1 year tree for 6m option when 6m tree is given straight away.
In options , 3 out of 4 options were related to 1 year tree.

The thing here was to compute neutral probability first and then calculate the option price... I do not remember the answer

 

[kawal_frm]

The thing here was to compute neutral probability first and then calculate the option price... I do not remember the answer

Why do we need neutral probability. 6m option call should be straight 987.65-987.

 

[nc27]

The bond price given in the first tree was obtain using real world probability and discounting it with the 6 months spot rate... So I think that to compute the option price we needed neutral probabilities in order to respect the non arbitrage condition

 

[Bluefox21]

I had a question on implementing both Vasicek and CIR which I thought was tricky. Main issue was the question where it asked how much interest was due to the equity tranche. The correct answer was zero but that was not given as an option. Did anyone else have this question (essentially $150k residual has to go to overcollateralisation account first).

Otherwise, there were a few 50:50 questions on cyber-resilience. I felt it was going fine at the time but looking back had quite a few guesses. Also had the BCVA question which was very tricky and time consuming. Ended up just guessing that one.

 

[kawal_frm]

The bond price given in the first tree was obtain using real world probability and discounting it with the 6 months spot rate... So I think that to compute the option price we needed neutral probabilities in order to respect the non arbitrage condition

It’s 6 months bond price and 6 months call option. For 6 month tree there is only one spot price.so only one discount rate.

no matter what up/down probability you should end up at same answer. Be it 1%/99% probability or 50-50%.

These probabilities would have mattered if it was 1 year call option price as 6m discount factors for up and down post 6 months would have been different.

 

[nc27]

It’s 6 months bond price and 6 months call option. For 6 month tree there is only one spot price.so only one discount rate.

no matter what up/down probability you should end up at same answer. Be it 1%/99% probability or 50-50%.

These probabilities would have mattered if it was 1 year call option price as 6m discount factors for up and down post 6 months would have been different.

Not sure about that, We will see the results

 

[Hamam]

I think cut off should be 55+. Exam wasn’t difficult. It was very conceptual. For most question you could have easily filtered out 2 incorrect options.

There is no cut of per say, it’s purely based on how everyone did & then the cut off would be decided. This is completely out of our control.