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There was a VaR question about a portfolio of 68 bond equally weighted, each 2 million worth. 6 defaults were expected and defaults were independent. What is VaR at 95%. Does anybody remember the question and its answer?
 

nikic

Active Member
There was a VaR question about a portfolio of 68 bond equally weighted, each 2 million worth. 6 defaults were expected and defaults were independent. What is VaR at 95%. Does anybody remember the question and its answer?
8. Credit VAR at 95%, 6 defaults from binomial model -> Answer = 6*2 - 2*68*0.04 = 6.56mil
 

nikic

Active Member
There was operation risk question something like this


There is a company XYZ that has operations in Africa. There Africa location is hit by a cyclone. Under what name this cost will company put on its balance sheet?

options were
Insurance cost from initiation till cyclone hit
The opportunity cost of losing the business due to a cyclone and needed to rebuild the business.
other two were clearly wrong


I am 100% sure the legal risk word was not there because once I saw this question one this that comes to my mind was legal risk is part of operation risk but strategic and reputation risk is not so I just check if in any option legal risk word is there;).. Pretty lame i know hahaha
Was it a cyclone or flood?

While I selected the answer that said the opportunity cost of losing the business (i.e. provision for such a loss), my understanding is, the answer to this should be the one which said "the cost to rebuild the business". Was "rebuild the business" within the same answer as "opportunity cost of losing business"? I thought they were two different answers.
 
For the friction question between the arranger and asset manager, does anyone recall the answers? Were two "adverse selection" and two more "moral hazard"? I can't recall what I marked but I just eliminated what didn't make sense.
I am pretty sure that the answer is adverse selection but I don't remember the correct solution
 
Yes the word conditional appeared, but it was clearly stated that there are no defaults in the first year. Hence it could be assumed that there is 100% survivability in the first year. Going by this definition, 10% appears to be a probable answer.
 

amit.m.sharma

New Member
Subscriber
During this May 2019 Part II exam, I managed with just the two pink pencils that GARP provided. But in Nov 2018 for Part I, I had to ask for at least two extra pencils, due to the much higher number of quantitative questions. Did anyone experience the same?

Also, I hope GARP will provide better pencils in the future, surely the cost is a minor portion of the total administration cost. These pencils are probably the cheapest looking I've known in my life :) At least provide ones that are not cylinder in shape that would roll off the desk so easily.
I got my pencils replaced as soon as I sat down. The pencils were sharpened on only one side, you couldn't see any graphite on the other side.
 
What the calculation of lognormal VAR with options of 414 and 416 ? The question was "which one is the closest to the Var level ?" The normal Var gave 416 and lognormal gave 387... so I pick 414... I am 99% sure I am wrong though
 

nikic

Active Member
What the calculation of lognormal VAR with options of 414 and 416 ? The question was "which one is the closest to the Var level ?" The normal Var gave 416 and lognormal gave 387... so I pick 414... I am 99% sure I am wrong though
Can't really recall...was it a direct application of the calculation? Did you have to calculate both the normal VAR and lognormal VAR? If it was a direct computation question and my answer matched....then I wouldn't have thought any more about it.

Was this referring to the lognormal VAR question where you divide the std dev by 252 days, or a totally separate question?
 
What the calculation of lognormal VAR with options of 414 and 416 ? The question was "which one is the closest to the Var level ?" The normal Var gave 416 and lognormal gave 387... so I pick 414... I am 99% sure I am wrong though
I can't remember the exact numbers, but in my calculation of the Lognormal VaR, I got one of the exact responses
 
What the calculation of lognormal VAR with options of 414 and 416 ? The question was "which one is the closest to the Var level ?" The normal Var gave 416 and lognormal gave 387... so I pick 414... I am 99% sure I am wrong though
I was getting a very large var number for this..choose the largest of all the options .. remember it was D (six digit number?..
 

nikic

Active Member
Was there any relatively simple question on marginal VAR or component VAR for computation? I'm trying to recall what are the questions we've missed out from the Investment Management section (should be 12 total).

We have the following:

1. Fama French 3 factor model -> Answer = small minus big
2. Portfolio construction techniques -> Answer = ???
3. Hedge fund -> Answer = merger arbitrage and large downside tail risk like equities
4. Hedge fund -> Answer = profit from dedicated short bias strategy
5. Hedge fund, on the changes following institutional investors joined -> Answer = ???
6. Risk budgeting, 80mil US equities portfolio -> Answer = Add 50 mil of US bonds to portfolio
7. Define Incremental / Marginal / Component VAR
8. Maximize sharpe ratio -> Answer = ???
9. On selecting the manager with the best performance, options were alpha, mogdiliani etc -> Answer = ???
10. Unsmoothing -> Answer: Lower sharpe ratio / higher standard deviation
 
Was there any relatively simple question on marginal VAR or component VAR for computation? I'm trying to recall what are the questions we've missed out from the Investment Management section (should be 12 total).

We have the following:

1. Fama French 3 factor model -> Answer = small minus big
2. Portfolio construction techniques -> Answer = ???
3. Hedge fund -> Answer = merger arbitrage and large downside tail risk like equities
4. Hedge fund -> Answer = profit from dedicated short bias strategy
5. Hedge fund, on the changes following institutional investors joined -> Answer = ???
6. Risk budgeting, 80mil US equities portfolio -> Answer = Add 50 mil of US bonds to portfolio
7. Define Incremental / Marginal / Component VAR
8. Maximize sharpe ratio -> Answer = ???
9. On selecting the manager with the best performance, options were alpha, mogdiliani etc -> Answer = ???
10. Unsmoothing -> Answer: Lower sharpe ratio / higher standard deviation
2. I think it was stratification...
5. Answer was to that hedge funds inline with institutional needs ( not remember the exact verbatim)
9. I am pretty sure it was treynor ratio as mentioned in the question that it is a fund divided into small funds..which clearly inline with the prerequisite for applying treynor..

There is one more question on market factor..can't recall exactly..
 
Was there any relatively simple question on marginal VAR or component VAR for computation? I'm trying to recall what are the questions we've missed out from the Investment Management section (should be 12 total).

We have the following:

1. Fama French 3 factor model -> Answer = small minus big
2. Portfolio construction techniques -> Answer = ???
3. Hedge fund -> Answer = merger arbitrage and large downside tail risk like equities
4. Hedge fund -> Answer = profit from dedicated short bias strategy
5. Hedge fund, on the changes following institutional investors joined -> Answer = ???
6. Risk budgeting, 80mil US equities portfolio -> Answer = Add 50 mil of US bonds to portfolio
7. Define Incremental / Marginal / Component VAR
8. Maximize sharpe ratio -> Answer = ???
9. On selecting the manager with the best performance, options were alpha, mogdiliani etc -> Answer = ???
10. Unsmoothing -> Answer: Lower sharpe ratio / higher standard deviation

For mazimizin the sharpe ratio i marked its already at its maximum at ratio of excess retuen to VAR was equal to a constant as per mean varuance framework this type equation automatically maxizmize the the sharpe ratio or ratio it is already at its optimum . I don't know if i am correct but i haved marked the option on the above lones
 
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