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Exam Feedback May 2016 Part 2 Exam Feedback

#41
For duration mapping and var, i chose that var would decrease due to higher rates since duration is lower if yields are higher. Therefore if duration is lower than var shld be lower too no?
 
#42
For duration mapping and var, i chose that var would decrease due to higher rates since duration is lower if yields are higher. Therefore if duration is lower than var shld be lower too no?
I agree.

Also as spot price increases, delta of both call and put increase(less negative). I am pretty sure about the question.

Lastly I also got 8.8% for hurdle rate. Theres a formula which is weighted avg of rates between preferred and common eq
 
#43
As spot price increases Call delta increases and Put delta decrease.

I have a book, "Options : Pricing, Greeks & Strategies: A GUIDE FOR OPTIONS BASICS "
The Book says that If spot price increases, Call delta increases and Put delta decrease.
Because Call premium increases and Put Premium decrease.
 
#45
Options : Pricing, Greeks & Strategies: A GUIDE FOR OPTIONS BASICS

Put delta "-1" is better than "0"

As you see, put delta -0.71 .. - 0.61 .. -0.48

Put Option : If Spot price decrease, Option is exercised (In the money option)
 

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#46
Bro, put delta decreases in magnitude but increases in real terms. I think author meant in magnitude. Imo GARP trying to trick us. I still think I am right lol but I may be wrong. Somebody can confirm
 

Mkaim

Well-Known Member
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#51
London whale - I chose ignored or increased risk limits
Cyber security - I guessed "identify" critic risks
Distance to Default - I also chose BBB-/BB.
Delta call Delta put - I chose delta for call increased, delta for put decreased
About exception problem ...2.33 critical value accept or reject? I chose fail to reject. I think I arrived at a stat if 2.22 or so.
For the option one, I chose both would increase. My crappy logic (potentially) was that as the call becomes more in the money the delta would increase (deep in the money calls have a delta of close to 1) and the delta for put would deviate away from -1 and towards 0 (as deep in the money puts have a delta of -1). Again, I could be overconfident with this one.
 

Mkaim

Well-Known Member
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#52
I also chose 8.8%. Why u guys are saying it shld be 12?. We were not suppose to include the cost of the preferred shares?
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I also chose 8.8%, not sure if it is correct.
I searched online, and found that hurdle rate should be at leaset "cost of equity", should preferred stock be excluded??
IMO - Preferreds should be included as they are a form of equity - Schweser includes them I think. Picked 8.8
 

Mkaim

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#53
Chose 8.8% on the RAROC hurdle as well..crap..
The question on excess spread and overcollateralization..was that about the benefits of implementing a stepup margin?

The more i see the questions on this thread the more worried i am
Think i should avoid BT for the next month lol
I think I picked the step up margin as it forces the issuer to refinance - Form of credit enhancement. Don't remember the presented scenario but could be wrong.
 

Mkaim

Well-Known Member
Subscriber
#54
There were roughly 5 people who didn't turn up in our room and 2 left very early - midway in exam. These people give me hope :p :p ....
On my end, there were about 6 to 7 empty seats with tests on the table ( no shows). IMO, I would rather have them take the test and help me out - pretty devious idea.
 

Mkaim

Well-Known Member
Subscriber
#55
1. Does anyone remember Distance to Default problem?

S=20
X= 7+ 0.5x7 = 10.5
Volatility = 28%
R = 5%(???)
T = 1

So...DD = 2. 34

answer was " D. BB/ BBB- " (2.2 ~ 2.5)

right or wrong?


2. Does anyone remember Credit Var(number 2) problem?
I hated this question - it set me back 5 minutes.
 

GioKe

New Member
Subscriber
#56
Difficult exam. Tricky. More quant than expected. Much more difficult than part 1 Nov 2015. It is up in the air for me. Short on time. Guessed a few. Got super turnt at the raptors game. (Game 3 yeeeee!) Going to bed. Mad hangover tm morning probably.
 
#57
I found the paper difficult. More quantitative questions and most of them were lengthy. It occupied the entire 4 hours.

Additional questions I could recall -
Question on SMM and PSA pre payment for mortgage.
Preferred rate for derivatives.
 
#58
I found the paper difficult. More quantitative questions and most of them were lengthy. It occupied the entire 4 hours.

Additional questions I could recall -
Question on SMM and PSA pre payment for mortgage.
Preferred rate for derivatives.

Totally forgot the prepayment thing so just pure guess, I chose D, 1.05 something...
 
#59
There was a question with a graph where A had a higher slope and then declined while B had a lower Slope that stayed constant. And we were asked to choose the correct option: 1. Implied probability in second year for B is higher than A 2. Initial cost of CDS for A is higher than B. I chose #2. But 1 and 2 both seemed likely.

On the case study there was the NSFR and CoCo question. I chose CoCo.

Question on Expected Shortfall. Quite straightforward. Last question on Normality assumptions in Risk Management: 1. 97.5% Var is 95% 2. Unlike KMV merton relies on Cumulative probability. I chose #2.
 
#60
There was a question on ho Lee drift model. And what drift would give a 0% interest in lowest node. Question on WCDR for Credit Risk. On Portfolio weight using TR and sd the answer was 6,400,000.
 
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