Exam Feedback FRM Part 2 (May 2014) Exam Feedback
- Thread starter David Harper CFA FRM
- Start date
Hi @Johson, I think it was spot 90 and then you had long 80 calls (multilpier 1) with strike 70, another x number of long calls with strike 110 and then 80 long forward 1 month, var 99 and daily vol 0.0157%
I am not positive about the solution...my thoughts: long calls in the money, they have a 1 delta, so position is 90*80 = 7200. The x number of calls out of the money, value 0 as delta is 0, and the long forward another 80*90= 7200, so var 99 = 2.33*0.0157% * (7200+7200)...any feedback?
I am not positive about the solution...my thoughts: long calls in the money, they have a 1 delta, so position is 90*80 = 7200. The x number of calls out of the money, value 0 as delta is 0, and the long forward another 80*90= 7200, so var 99 = 2.33*0.0157% * (7200+7200)...any feedback?
Yes, I agree with the ES 95% is approx equal to VaR 97.5% although after the exam I though that perhaps there were no decimal vars in the HS so it was not that simple, anyway I decided for the 97.5%
The var after 10 days, I think you got rid of 3 returns and one return with 90 days became 100 days old and just get the 95% var
What about the stress var? first table 99 var as opposed to 99.9 table, and then just add max of last day var or 3 x 60 day average plus max of the last stress var or 3 x 60 day average, i think it was 410
The var after 10 days, I think you got rid of 3 returns and one return with 90 days became 100 days old and just get the 95% var
What about the stress var? first table 99 var as opposed to 99.9 table, and then just add max of last day var or 3 x 60 day average plus max of the last stress var or 3 x 60 day average, i think it was 410
About the Market Capital charge, the t-1 VaR was 120 and the average over the last 60 days was 45 with a multiplier of 3, which means that VaR was 135 (45*3>120). In the case of SVaR, the t-1 was greater than the (60DayAvg*multiplier), but I do not rememer the exact number.
The correct answer for the ES95 was definitely VaR97,5
Another question was the one related to what RWA figure was to be reported under Basel, and it gave the Credit IRB RWA, Total Credit, CVA Capital Charge, Market Capital Charge and Operational Risk Capital Charge. I was not sure about this one, but I multiplied the Market and Operational Ks by 12,5 and added it to the Credit RWA provided number. I think it was option D.
There was also a question on RDA, asking about its goal (I think). I cannot remember the possible answers, but I think I answered that reports/data had to be promptly available both in normal and under stress circumstances. Another option was that reports had to be the same accross departments and geographies, which do not, and I do not remember the other options but they did not look good to me at that time.
The correct answer for the ES95 was definitely VaR97,5
Another question was the one related to what RWA figure was to be reported under Basel, and it gave the Credit IRB RWA, Total Credit, CVA Capital Charge, Market Capital Charge and Operational Risk Capital Charge. I was not sure about this one, but I multiplied the Market and Operational Ks by 12,5 and added it to the Credit RWA provided number. I think it was option D.
There was also a question on RDA, asking about its goal (I think). I cannot remember the possible answers, but I think I answered that reports/data had to be promptly available both in normal and under stress circumstances. Another option was that reports had to be the same accross departments and geographies, which do not, and I do not remember the other options but they did not look good to me at that time.
The question said that you had 8% CT1, but no other Tier 1 or Tier 2 Capital, and what could happen to the entity.
I picked option A), because I considered that it did not meet the countercyclical bufer and thus its dividend policy was restricted. I discarded the 9,5% because it fell in between of the 8% and 10.5%, although I cannot remember the comple text.
In any case, this was one of the questions I was not confident about.
I picked option A), because I considered that it did not meet the countercyclical bufer and thus its dividend policy was restricted. I discarded the 9,5% because it fell in between of the 8% and 10.5%, although I cannot remember the comple text.
In any case, this was one of the questions I was not confident about.
The question said that you wanted to obtain higher VaR.
Apart from the two options provided, which as it has been explained were not correct, the other ones were to use bootstrapping and increase the confidence level
At first I chose bootstrapping, because when doing this you create random samples of historical data and it is more probable that you would end up with lower (older) returns in your samples.
As for the confidence level, which was what I ultimately picked, it depends on the way they meant it or whether I understood the problem correctly: if they referred to confidence level as alpha, then increasing alpha decreases VaR (1-alpha) If they referred to confidence level as 95% VaR, then increasing this would obviously increase your VaR output.
I think I got it wrong.
Apart from the two options provided, which as it has been explained were not correct, the other ones were to use bootstrapping and increase the confidence level
At first I chose bootstrapping, because when doing this you create random samples of historical data and it is more probable that you would end up with lower (older) returns in your samples.
As for the confidence level, which was what I ultimately picked, it depends on the way they meant it or whether I understood the problem correctly: if they referred to confidence level as alpha, then increasing alpha decreases VaR (1-alpha) If they referred to confidence level as 95% VaR, then increasing this would obviously increase your VaR output.
I think I got it wrong.
I was just checking BT's Basel III questions and I found the following (underlined the correct answer):
B12.6. After Basel 3 is fully phased-in (e.g., January 1st, 2019), if national authorities have no (zero) countercyclical buffer requirement, what will be the minimum capital requirement including the conservation buffer with respect to (i) common equity Tier 1, (ii) Tier 1 capital and (iii) total capital?
a) 4.5% (CE T1), 6.0% (T1) and 8.0% (total)
b) 7.0% (CE T1), 8.5% (T1) and 10.5% (total)
c) 8.0% (CE T1), 8.5% (T1), and 10.5% (total)
d) 8.0% (CE T1), 10.5% (T1), and 12.0% (total)
The question stated that the entity had 8% of common equity, so the first requirement of of 7% would be met, but it also stated that they had no other capital, so the 10.5% total would be breached.
Furthermore, I found the following question (underlined the correct answer)
B12.4. Which is TRUE about the capital conservation buffer?
a) When a bank’s capital levels fall within this range, the bank can continue to conduct (operate) business
b) When a bank’s capital levels fall within this range, the bank is constrained (restricted) with respect to dividends, share buybacks, and discretionary bonus payments to staff
c) When a bank’s capital levels fall within this range, the bank is “severely restricted” with respect to conducting business (operations)
d) The bank can elect to draw down the buffer in normal times if competitive demands warrant, including the need to maintain market share
I believe that is pretty much what one of the possible answers were.
B12.6. After Basel 3 is fully phased-in (e.g., January 1st, 2019), if national authorities have no (zero) countercyclical buffer requirement, what will be the minimum capital requirement including the conservation buffer with respect to (i) common equity Tier 1, (ii) Tier 1 capital and (iii) total capital?
a) 4.5% (CE T1), 6.0% (T1) and 8.0% (total)
b) 7.0% (CE T1), 8.5% (T1) and 10.5% (total)
c) 8.0% (CE T1), 8.5% (T1), and 10.5% (total)
d) 8.0% (CE T1), 10.5% (T1), and 12.0% (total)
The question stated that the entity had 8% of common equity, so the first requirement of of 7% would be met, but it also stated that they had no other capital, so the 10.5% total would be breached.
Furthermore, I found the following question (underlined the correct answer)
B12.4. Which is TRUE about the capital conservation buffer?
a) When a bank’s capital levels fall within this range, the bank can continue to conduct (operate) business
b) When a bank’s capital levels fall within this range, the bank is constrained (restricted) with respect to dividends, share buybacks, and discretionary bonus payments to staff
c) When a bank’s capital levels fall within this range, the bank is “severely restricted” with respect to conducting business (operations)
d) The bank can elect to draw down the buffer in normal times if competitive demands warrant, including the need to maintain market share
I believe that is pretty much what one of the possible answers were.
This one should be volatility weighting. It was mentioned in the text that if historical volatility was 4% and current volatility is say 2% then the historical moves will be multiplied by a factor 4%/2% = 2.
Page 4 here: http://www.smartquant.com/references/VaR/var32.pdf
Page 4 here: http://www.smartquant.com/references/VaR/var32.pdf
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@Abhinav Agrawal , I am afraid that it is in fact just the opposite. A volatility weighting scheme divides past returns by the volatility that was applied then and it multiplies it by current volatility (it updates the volatility of past returns to account for present volatility). In your example, it would be 2%/4%= 0,5
It says exactly what I said.
It says exactly what I said.
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