The Y-axis is the excess portfolio return and the X-axis is the excess market (or target) return, and it askes what's the portfolio's jensen's alpha. The regression was like y=0.45x+0.31. Of course I don't remember either b0 or b1 but just made up the numbers.

If I'm not wrong, in this question we had the risk free and the portfolio return, so the first step was to find/quantify the market return (about regression line), then to exercise the formula of Jensen's alpha.

Good luck to all of you, I have already found (quite sure) some false answers from previous posts (around 6 : e.g. 1.GBM : I used directly the random number and didnt transpose to N(0,1) random 2.persistence to long run volatility : I chose the answer with the less a+b --> greater gamma.... 3.probability that S will exceed some level : z=1 and then blocked....OMG 4&5.two qs they asked you to choose sthing related to hedge (options, DV01 were included) and what you should do in a future date: I didnt know how to start 5&6.thinking a solution.... so i picked the known method....random generator 25% probability to be correct and 100% probability not to lose time.... 6.ratio of the VaR with Delta: I think that I have chosen the smallest ratio 7.6% or 5.6%.... Additionally there were some qs that I'm not sure what were the correct but I hope they are correct 7.KRI:ROE 8.Credit Rating transition matrix & Credit Rating: A- 9.convenience yield & arbitrage : 109 10.PD and appropriate distribution : Exponential 11.Code of Conduct: similar or same with one of the GARP sample (i dont remember now the exact q) 12payoff of the fx forward :something like that.... 100000/fx... 13.relationship futures and forwards:Strongly negative correlation(we have discussed with David in forum...Thanks David!!! 14. Regression multiple : multicollinearity 15.Regression graphs: I have chosen the one with positive coefficient of independent and smaller error 16.Type I II: One increases and II decreases 17. t statistic and all other are past.... I hope the other do not follow the same distribution (Correct/false) with the aforementioned..... Good luck to all of you

Hi this is what I remember hope it will add value - there was two question both with charts one about positive correlation or something I choose D as an answer( 1+) and the other one 4 scatter plotter was provided asking in which one you will invest?? I chosed (A) the least dispersion and positive corr - One question asked for the U probability in binomial - Question about which one is not operational risk I remember it was the one that talks about credit loss or something - Risk management did not fail if .... I think it was if the firm sustained credit losses - one about the ERM code I remember I had chosed D yes it was violated as they were intentionally not using latest practices - one about the forward price ... metric ( it wa having 600$ and 90 as the conract size .....I felt something was wrong about the question anyway I think I chosed 54880) - one aw talking about the DV01 it has two questions DV01 and another about Convexity I think the answer was - 22 don't remember but is it righte to say (- xx) about Convexity or just we name it negative Convexity but to write (+xx) -The first question about binomial tree I did not know where I have done wrong I did not get answer - one requested covar. was it so direct??? or they got me in this ques. As they provide corr and the std A and std for b - SWAP fixed for floating and $ and MXN (100M fixed 4.5 discounted 6months libor 1.6 and floating 3 discounted 1.6+ libor of 1.6 exchange rate 12.5) I think the answer was receiving 100k in first 6 months not sure - one talking about forward prices and provides two scenarios asking in which there is arbitrage profit I think I chosed bothas in the first the F<s exe rt and the second the F>S exe rt - one about BSM assumptions I don't remember the choices or the answer - one about multi regression analysis assumptions I thought the righte one was independent is (homkadastick) - one about regression formula asking which answer is right I think I chosed the answer that talks about if x change by 1000 unit hen y will change by ... - one about delta approximation var $ at 95 % Delta .6 , 1000 option I think 600x price price diff. x 1.65 x std - toward the end question asking the call price I thought it was direct - one about forward price no arbitrage I remember it was $109 based on s exe r+storage- cinv t <= F<= s exe r+ storage t -- one about exchange clearing process to ensure ... I think I picked the answer which talks about daily marking to market maybe it was A - one about the second year spot rate for 2 year Bond I think it was 5.3% - another one about the second year spot three years provided .. - long run volatility (not variance ) I hope my answers was right .....

Hi Muthabdalla, about this one, maybe I'm not right, but I chose that one with negative correlation, because only in this case we've the minimum variance(risk) portfolio without doing trade off with returns. Thx in advance if you have another explanation ...

In the binomial tree the right answer was not 10 for the value of the put, don't forget to multiply by the probability of down move : P(down) x 10

IF this the depth till which u had to go to get the answer..man....This is the best question in the entire set !!

Hi David, In one of the question they asked about Convexity, my calculation reach -22. Choices given includes a) -22 , B) +22. C) .... . I thought it makes since as soon as the increase in the bond price is more than the decrease then it is possible if yes then Is it righte to say -22 or we say + 22 but we call it negative Convexity. Thanks and have a nice day,

Hi muathabdalla, The convexity measure C = 1/P*(d^2P/dy^2) = 1/P*[2nd derivative of price w.r.t yield] so, unlike say VaR, there is no semantic reversal; e.g., +22 is positive convexity, -22 is negative convexity. We would not refer to +22 as negative convexity. We utilize the negative/positive convexity measure (C) into an adjustment (in the Taylor) where change in price (%) estimate = -D*yield_shock + 0.5*C*yield_shock^2, where [0.5*C*yield_shock^2] is the convexity adjustment and we can observe this term will maintain the directionality of the C measure: positive convexity (+C) will always imply a positive convexity adjustment, negative convexity (-C) will always imply a negative convexity adjustment (as the yield shock will always be positive!). For a given shock (e.g., 10 bps or 50 bps), if the increase in the bond price (i.e., price change given yield shock down) is greater than the decrease (i.e., price change given yield shock up), this reflects a typical (no embedded options) bond with positive duration and positive convexity. An MBS (our proxy for a bond with neg convexity), at the point of neg convexity, exhibits the reverse: the price increase, for a given shock down (-x), is LESS than the price decrease for the same shock up (+x). it's common to confuse duration with neg. convexity, but both bonds (all bonds except IO strips) have positive duration such that lower yield --> higher price. An MBS exhibits the negative convexity during positive duration. I hope that helps, I have no idea what it says about the exam question! Have a nice day yourself,

smaelaba@yahoo.fr said: ↑ In the binomial tree the right answer was not 10 for the value of the put, don't forget to multiply by the probability of down move : P(down) x 10I think the question was about the option after the stock moves down to a of 40. So after it moved down with percentage of 100%. So i dont see why you should apply a probability here and just use its intrinsic value of 10. Wouldnt that be enough of difficullty?

What do you think David? the question was: At the money put with 1 year maturity, we use two step tree. risk free rate is x% and the tree was given: What's the value of the put in 6 months (end of first step)? -----------> 72 ----------> 60 (Put value = 0) -----------> 48 50 ----------> 40 (Put value= 10) ------------> 32 Present value of 1 year put was less than 10 for the down movement after 6 months, so Max(50-40; 8.xx)= 10

Oups, this will be more lisible: At the money put with 1 year maturity, we use two step tree. risk free rate is x% and the tree was given: What's the value of the put in 6 months (end of first step)? 50 ---> Up 6months 60 --> Up 1 year 72 --> Down one year 48 50 ---> Down 6months 40 --> Up 1 year 48 --> Down 1 year 32 Present value of 1 year put was less than 10 for the down movement after 6 months, so Max(50-40; 8.xx)= 10 for the value of the put in 6 months, do we multiply or not P(down) x 10 ??

You multiply by the appropriate risk neutral probability, less you be violating the Radón Nikodÿm derivative and Girsanov's Theorem

hahahahahaha..Seriouosly.... "Radón Nikodÿm derivative and Girsanov's Theorem" Believe me guys - I am hearing this term for 1st time in my entire life ... .. I must admit that Aleksander Hansen is Aleksander, The Great as far as preparing for the exam is concerned.. You have to be the topper, atleast, in this group Man .... RESPECT !!

Yes, agreed, my only chance for passing is that Aleks IS an outlier when garp scores Any answer for the arbitrage-free futures price? As the answers were rounded, none of them were arbitrage-free... or did I miss anything?

it is in thread no. 45 as well, arbitrage-free fwd price, i also chose 109 as this was the closest but that is clearly not arbitrage-free....

May I ask a brief question. When we learn if we passed or failed FRM Part 1, does GARP provide any detail re how you did? Or do they just let you know if you passed or failed? Meaning do they give you some idea of how you scored in the various sections or how many you got right etc? I'm a CFA and when I took the CFA they provided good detail in terms of how you did on the various areas?