Just completed part 1, its challenging in terms of completing all 100 qns within 4 hours, where each qns are done with clear confidence and working e.g. 2qns on 2-steps bionomial American & European option valuation

Did guessed for a few questions which

GARP did a very goob job spreading out all the questions throughout all reading materials ! Reflected the proportion of marks allocation well! Thumbs up!

Saw questions from new topics such as:

- insurance benefit and contribution plans, breakeven premium.. on top of SMM CPR from MBS

- bank optimal risk appetite (BK 1: FRBNY Economic Policy Review) where it depends on business model i.e. AAA- better than AAA

- no qns on exotic options, besides tricky qns on convertibility of callable bonds (sample paper 2017 has ki + ko = regular)

- stress testing scenarios: what can a CRO recommend within his job scope and responsibility? which methods in stress testing are most appropriate when almost all looks like one

along with ERM

(

**actually, if I recall correctly, many new questions from stress testing**)

My view on the type of qns:

- very fundamental where concepts are broken in building blocks and pieced together in ways that's novel and test your concepts thoroughly... e.g. rates relationship with putable bonds (put + bond), put call parity options on bond

- tricky qns/or those that i though were challenging:

1) Fermi "guestimate" qns missing some input which requires guessing...

e.g. given par, guess spot, which is + few bp higher than par

2) Compounding/Discounting kind...

e.g. forwards is PV of FV of strike vs. futures is FV underlying, forwards, futures DV01, Beta hedging

e.g. replication of bond's cashflow for same TTM (3 Yr) bonds but different coupon (given 5% coupon, find mkt value of 3% coupon)

3) Hedging kind...

e.g. A-L qns with multiple currency exposure and appropriate rates hedging, of course, be mindful of which curr the company is receiving and what curr is asked for in the answer

4) FX scenario qns...

e.g. hedge with forward 1y1y, and given 1y spot and forward 2y1y, which numbers spot or forward to use...

5) volatility term structure where current instantaneous vol is higher than long term variance, so would a contango changed towards backwardation as VIX mean reverts to long term variance? Or remain contango, or flatten, or become a hump/butterfly? (

6) cost of carry: storage cost given in absolute term than yield

7) bank capital requirement: unexpected loss rather than unexpected loss volatility formula....

8) is barbell or bullet YTM higher or lower given rexpective bonds duration, yield, coupon, term

9) CCP: objective T/F qns on mechanics...

10) FRA valuation: (float - fixed rate) x (time...) x Notional

11) regression: finding beta coefficient and intercept from SSE, SSR?

12) probability: conditional...

13) GARCH correlation forecasting (not volatility.. so covariance (r1 x r2))... tricky with qns like correlation is wrong and updated so what happens to beta? Eh, proportional in CAPM except risk-free rate is there? And, assumptions of MA invertibility, wold's theorem, AR stationary cov...

14) CAPM: quite a few questions on finding highest sharpe ratio possible.. and assumptions like can stocks be shorted? unlimited financing capital?

e.g. given 2 stocks, where one is negatively correlation but lower return, and the other has higher return but zero correlation

16) appropriate statistics for testing: excess kurtosis vs kurtosis

17) calculating PD and need formula of poisson pdf given average rate

18) many tricky questions on volatility vs variance scaling and scaling on standard deviation.. same for continuously compounding on forward rates derivation from par/spot/d(t)

e.g. VaR confidence interval: given 1 day 99% VaR, whats 20 days 98% VaR?

19) gamma-vega-delta hedging.. need to inverse gamma-vega matrix and solve for inverse to know number of underlying shares (gamma, vega=0) to hedge last free variable delta

20) country risk with credit rating and GARP COC

21) Didn't encounter any CTD bonds, nor AI/dirty/clean price... Swaps were simply comparative adavantage.. no loss valuation on default midway OTC swap exposure

22) Not much on duration or convexity... But there were qns on multi-factor hedging where tricky part is using T-bond to hedge zero-coupon bonds (rather than the other way) and residual lower term rate exposure are hedged with a mismatched 2 yr for 5 yr.. so expecting overhedge with 30yr, and 5 yr to offset 2yr rate exposure...

Many more which I cannot really remember... Till now, i cannot give myself a confidence interval of how many qns I answered right

Many tricky qns... but also many simple, give away qns (duration, convexity, financial disaster (barring, metallgesellchaft), multifactor shocks)

I think I failed because many calculated answers didn't tally

Its challenging (time constraint is a big challenge!!! so if you think a qns would take a long time, skipped it! But you cannot skip all!

Cheers!

J.

Singapore

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