1. Price of 1st to default vs Price of 2nd to default. Correlation decreases and which of the following is correct?

Ans: value of 1st to default CDS increases. 2. Why BSM is not used to value fixed income securities? Ans: It doesnt account for the fact price of FI secs becomes face value at matur ity. 3. Spot rate for 2 years was given. and yield for 2 years was also given in a ta ble. We are asked to find the PD over the 2 years? Ans: I used (1+rfr)^2 = (1-PD) (1+ytm)^2 and got 9.4 as ans 4. Calculating credit spread given r.f.r, RR, Yield etc. Ans: we need to first find PD using (1+rfr) = (1-PD*LGD)(1+ytm) and then use the multiply PD*LGD to get credit spread. Ans is 5.x 5. One question on Allied irish bank. which of the following is the major reason for collapse? Ans: Inexperienced supervisor (I thought "he took adv of inexperienced control p pl" is also close) 6. Common cause for U.S and Irish crisis : Ans: performance related pay 7. A took 1000 long position in stock ABC and 1000 short position in XYZ and oth er details reqd for VAR calculation are given. Combined portfolio var was asked. But correlation between long positions was given as 0.75(??) So we should take it as -0.75. Ans: 86 M 8. Liquity Correction was asked as last question given mean spread and its volat ility. Straight forward. 9. Total Market charge was asked given 60 day avg VAR and Stressed VAR and previ ous VAR and SVAR. Ans: 256 M 10: one question of Convertible arbitrage strategy. Two options are very close 11. Managing tail risk: again two options are close: Ans: invest in strategy whi ch is negatively correlated with tail risk. But I marked move off the optimal fr ontier which is wrong. 12. CVA question Ans: A's credit exposure increases and its CVA will decrease 13. There are atleast two questions on Correlations and copula where two of the choices are very close 14. 2 questions (40 and 41) were asked on Merton based model given a table 1. One based on Value of equity can be replicated (or sth similar) Ans: D (dont remember the options) 2. DD is given and PD is asked. Ans: 1.25% 15. Two stocks and their holding details, daily volume, percentage they intended to sell daily were given. and liquidity duration was asked. Ans: 9 days 16. some question on up-and-out barrier option 17. 100 call long and 1oo more call and 300 long forwards were taken and VAR was asked. Similar to the one in the practise exam. Need to find delta of the portf olio and then find the answer. 18. KV01 for 2 yr rate is given and change per 100 is also given. What is the po sition that need to be taken was asked. Ans: -465.12 19. Duration of IO stip is asked indirectly. 20. Which of the following amounts to collateralization. I chose the answer "ori ginators set aside cash for losses". I know it is CCA. but all other options are definitely false 21. One question on RAROC? Ans: Reject the project becoz ARAROC is lesser than m arket premium 22. why Sharpe Litner was rejected? Ans: avg return is flat 23. Atleast two questions were there on dependence/correlation and copula. 24. One table with maturity, coupon, Compounding frequency were given and four o ptions were given for us regarding macualays duration and DVo1 to choose the cor rect Ans: Actually none seems to be correct. I marked ans D: DVo1 25. CVAR calculation was asked given all the details. 26. Atleast 3 questions were based on hedging concepts. For one question we need ed to find beta using correlation, volatility of A, volatility of Portfolio etc.

Ans: 120 27: Equity swap question was given. And the equity value increased and the net o utflow was asked. Ans: -4.25 i think (not sure) 28: Mortage pool is structured into two tranches A and B. Coupon payments for mo rtgage pool and tranch A were given in a table. And Coupon payment for Tranch B was asked. Simple Math. Ans: LIBOR + 88bp 29: 4 securities A, B, C , D were given with the value of the collateral.Which o f them is more subject to liquidity risk or sth like that. Ans: C (by percentage wise, its was the one which was least collaterlalized) 30. One question on model risk. David's notes helped me here. There were few poi nts like ignoring small errors etc., adding complexity etc.. 31. CDS valuation. They made it tricky. But actually it was simple. They said th e default occurs at the end of the year instead of half year through. While calc ulating I guess we just need to ignore pv of accrued payment in the event of def ault. I dont remember the answer though. 32. Option on Fixed income security. The probability of upmovement or downmoveme nt was not given. So I assumed 0.5 each. and the price of 1-yr european call opt ion was asked. My answer dint match any answer choice. So I choose a) 3.94 33. One question regarding tails of all distribution was asked. 34. One question on LCR. Ans: BASEL requirement is 100% and they dint meet the r equirement. 35. What does PE do for financing? Ans: They raised subordinate debt at higher yields. 36. One on Prepayments and Strips. 37. Question on EL and UL. Ans: unexpected loss of the portfolio will always be lesser than or equal to sum of the individual portfolio 38. Similar concept was tested in operational risk too. Ans: Total operational risk across various risks cant be greater than sum of all the risks in individual Business unit. 39. For modelling frequency, which distribution do u use? Ans: negative binomial 40. One question on exception at 99% confidence interval for 2500 days. What is the maximum no of exceptions allowed without rejecting the model at 95% C.I? Ans: I marked 35(??) 41. One on CLN. If the correlation between reference asset and CLN issuer change s, how will the value of CLN will be affected or sth like that? 1. Reasons for variance swap over volatility swap 2. 200 stocks regressed - 200 alphas, 25% residual risk, 8% information coeffici ent - How many alphas <-4%, >4% 3. Icelandic crisis - what happened after mini crisis at 2006 4. What would constitute high quality liquid asset for LCR - AA S&P 500 stock, u nsecured A+ industrial bond, Some MBS .. 5. Which risks aren't treated under pillar 2 economic capital - CCR, IRRIBB, dep endence in credit risks, liquidity risk - another one similar about funding liqu idity risk (whether or not it's treated under pillar 2 if I remember correctly) 6. Signals for a financial crisis in the next 2 years - credit-to-GDP +5% and ch anges of -/+ 10% or none to equity prices Exam wasn't bad, had a good mix of questions and topics, however it had too many questions involving trading strategies (straddle/butterfly/bull spread etc) for my liking. Hardly any duration/convexity questions. Standard credit transition matrix, question was in regards to a 2 year default. Expected loss and Unexpected loss were requried to be calculated There was one poisson and binomial probability question, no exponential distribu tion.

A few questions regarding you to understand the basic layout of a futures exchan ge and how it is processed One/two questions on limit orders (stop loss, market order, limit order etc) Relationship between futures and spot price relationship (graph question) 2 binomial questions Interest rate currency swaps put call parity as always BSM model, given N(d1) and N(d2). There was a change to these figures as dividen ds were paid out. Or something, I can't remember this question too well (was abi t thrown off here). Estimating future volatility using EWMA (the ones where you are given lamda and volatility, plus todays and yesterdays price in order to calculate the asset ret urn) VAR as usual Duration hedge (I think!) Cheapest to deliver finding the intermediaries return in a swap rate (i.e. the banks basis point gai n) Minimum variance hedge ratio CAPM wasn't really tested, just one theoretical question. And one instance in wh ich the Sharpe ratio was tested in a qualitative sense Role of a corporate trustee in corporate bonds Day count conventions mixed in with a fixed/libor swap Calculating TSS through R^2 and ESS (indirectly) 2 case study questions, one about metagesellchaft (I can't spell this lol) and o ne asking for a comparitive lesson learnt from Barings and Kibber Peabody. Defining basis risk and credit default There were obviously more, but this is what I can remember right now off the top of my head. All in all, there wasn't anything that threw me off (maybe a few, b ut a minority) and was all pretty standard as long as you had covered all the to pics. I probably knew about 50% of the paper, 25% I got down between two choices and the other 25% I had to guess as I didn't have time to cover all the topics (such as strips/straddles/butterfly spreads etc). Not great stats but I'm just g lad it's all over, for now! Until Jan 2013! ;) Also had a z table in the paper In addition to what mani had mentioned 1. Calculate correl coeff given yester days covariance and lagged return for bot h assets.. Also todays vol for both assets given 2.cal Culate capital for loan loss reserve given o/s,ugd, pd, lgd, lgd var 3.den 3 ques from binomial pricing 4.4 ques related to var and application of variance formula-one was sitter. Conv ert 95% 1 day var to 99 % 1 day var 5 duration hedging. 2 ques on hedge ratio /min var hedge ratio 6.not much of bonds this time 7.one easy garp code of conduct 8. Two ques from stultz risk management 9.calendar spread.straddle. 10.question on sovereign risk Stress test Will post more My memory is quickly fading, so let me few more things before I forget: I found early questions were quite difficult compare to the later ones, so I ini

tially skipped those questions. for example - the first question was tricky - risk measure that cannot be controlled by risk manager (this is not clear, so someone could fill this one) - pricing bond (so that no arbitrage opportunity exists by REPLICATING portfolio ) Also there were few graph questions such as - given spot curve, what would corresponding forward curve look like? - pick the scatterplot (of asset returns vs. market returns), I think we need to pick beta close to 1 - shape of the (efficient) portfolio possibilities curve (concave) There were few more qualitative questions for portfolio possibility curves, whic h was unexpected from my opinion, for example, - assume no short selling allowed, which of the followings are true (of two asse t-portfolio)? - if the correlation is -1, then it is possible to set up the port folio with zero-volatility (see figure 3-5 in Chapter 5, Elton & Gruber) There are many questions (several minor topics) which could be answered if candi dates solved BT's Practice Questions(Thanks a bunch to David :)), for example - puttable bond gives an advantage to the holders, so it would give lower yield - Monte-Carlo acceleration methods - answer was antithetic (change of signs) - Comparative advantage - what is FI's profit given table (to derive spread diff erential) as well as each party's profit by doing swap transaction using Comp. a dvantage - EWMA - computing correlation (as stated above) There were some lame questions - given yield in annual, semi, quarterly and monthly compounding frequency, whic h one is the highest? - I just converted all of them into continuous compounding - 3 decimal was not enough so I had to switch 4 decimals - last question supposed to be straight forward but somehow I messed up (calcula ted standard deviation (of normal dist'n with mean of zero) given 5-day data the n find the probability when it exceeds a certain value) Etc questions - Calculate conditional probability - one effective way is to apply Bayes' theor em - find the 'two'-tailed p-value given t-statistic( given sample size, act sample mean, and standard dev, hyp. mean, yes we do need to calculate standard error f rom given inputs) - find effective duration of PLAIN bond given price and yield table of CALLABLE bonds and call options - find (effective) convexity of Callable bond (above) - BSM assumption (I think the answer is security is perfectly divisible) - One GARP code of conduct question (regarding violation) from the 2012 practice exam (shown above) - How to measure operation risk when there is not much internal data? - I am not sure about this, I picked merge the internal data with the revelant external da ta - One question about net FX exposure (on-balance & off-balance sheet) - Given swap confirmation table, find the total # of transaction (i think paymen t frequency was 3month, so total was 10) - Few binomial-tree questions, all of them were 1-step - Questions can be easily answered by put-call parity - I think questions for option strategy was not tricky - e.g. define the right c omponent for Calender spread - APT - given sensitivity(b1, b2 and b3) of 3 sectors and expected returns (x1, x2, x3) which sector would produce the highest? - When slope of delta (Gamma) is the same for put and call? when they are ATM - Margin question - the amount of money can be taken out after 2-day settlement - Risk typology - settlement risk is credit risk

- intention to deliver - I think last notice day comes after last trading day (t here was a nice diagram from David... where was it?) - converting VaR - with different time horizon as well as different confidence l evel - find 99% Expected shortfall from 1000 day record (worst 20 is given, but the r ight answer was obtained by avg the worst 9 instead of 10) These lists are not complete (especially the market product and VaR) so hopefull y I can add more... RiskNoob