adalfu Wrote: ------------------------------------------------------- > that was my 1st PM question… it was maximize, so > either b or d, and i picked the more complicated > formula with the “m” factor in front of “ln(v)”… > it was something like mln(v) - Sum(…u/v) > something > > that was d? I chose b. v has a subscript i, it shouldn’t be taken out of the Sum.
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Dude, what are you talking about? How does it make any sense for constant to be 100%? It doesn’t have to be 100% since this is a stock state that is economy state dependent, i.e. increase, constant, decrease have to add up to 1 under each state of the economy (up, down, and neutral), not the ups=1 constants=1 and decreases=1 when you add up all their probabilities across the three states of the economy.
i didnt have time to do this one, but thur deduction i was able to eliminate 3 of the answers… did anybody do the same ??
@monki: You are a regular Sherlock Holmes if your deductive skills are that good, but I thought that if you eliminate all the wrong answers and conclude that the only remaining answer must be true you are part-taking in inductive reasoning, not deductive.
I worded that wrong.
If I remember correctly, the stock was constant 10% of the time if the economy was good. If economy was nuetral, the stock was constant 20% of the time. And I assumed the last bullet point meant to say that if the economy was poor, then the stock would be constant 70% of the time. So since they tell you that the stock was constant, and you need to solve for the probability that the economy was nuetral, given the stock was constant, I assumed it was 20%, because 20% of the time when the stock was constant the economy was nuetral assuming that 70% in the last bullet was meant to mean constant.
I second Rydex. I got ~20% for that question. Also, I chose 3 out of 4 for the ethics question.
Yeah, I did not think that the GARP can suspend you and would take away the use of FRM while on suspension. Has anyone confirmed their practices. I will try.
Ethics question, correct answer was all 4. Straight from Garp code of conduct. Damnit. Applicability and Enforcement Every GARP Member should know and abide by this Code. Local laws and regulations may also impose obligations on GARP Members. Where local requirements conflict with the Code, such requirements will have precedence. Violation(s) of this Code by may result in, among other things, the temporary suspension or permanent removal of the GARP Member from GARP’s Membership roles, and may also include temporarily or permanently removing from the violator the right to use or refer to having earned the FRM designation or any other GARP granted designation, following a formal determination that such a violation has occurred.
w00t, one for sure i got right then… now for the other 139 problems… hrm
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here is the list… 1. Gold forward arbitrage with continuous yield (2%) and Rf (4%). The future price was lower that the computed one. What should be done to “gain” the arbitrage? 2. One BII market risk capital charge computation, be careful daily var was 95%. So we had to convert to 99%. 3. Currency forward arbitrage (Rf and time provided) 4. Volatility smile descriptive question (currencies and equities) 5. Maximum likelihood (you should take the log and tell what to maximize/minimize) 6. No Poisson question 7. Easy Binomial: What is the prob that a student has less than 8 answers right if he answers randomly a two possibility answer test with 20 question. You did not have to compute but just to say how to compute. 8. Several questions that required put/call parity (including S*exp(-y*t)) 9. Several questions on option combinations (butterfly spread) 10. One greek question 11. No TRS question 12. Several CDS questions (impact of correlations) 13. Lots of var questions 14. Not too many questions on BII compared to var questions. 15. One Tier1 and Tier2 BII computation 16. Model risk question 17. One UBS (easy) question 18. Why stress testing var 19. Indirect question on backtesting var 20. One easy swap computation (2 years remaining, Libor against 8%) 21. One easy question on interest rate: Which one is higher? They gave yearly, monthly, quarterly and continuous numerical values. The answer was continuous. tongue laugh 22. Several questions on linear regression: Compute R^2. Beta has bad t-stat and the strategy is to be market neutral -> what can be concluded? 23. A few questions on IR, Sharpe and Treynor ratio. I was confused by one because they were calling the tracking error, the systemic volatility or something like that. 24. One portfolio credit risk model question 25 One very easy question on matrix transition: Which statement is incorrect? There was a line with BBB down grade proba > 80%… 26. No rating question 27. Difference between CDO and MBS (I answered the tranching) 28 CDS question on price of first to default versus second to default. 29. No moral hazard question 30. One SPE usage question. 40. No inverse floating question 41. A few modified duration question. (DeltaV = -D* * V * deltaY) 42. Which obligation has negative convexity: good to see easy question and not time consuming. red face 43. An easy proba computation: z-proba of not been between 1 and 1.5 or something like that. The z table was provided for each test on the first page. 44. P(A|B) computation: I had P(A and B) by using P(B|A) but I did not have the time to compute P(B) because the text was long and I needed at least 5 minutes to recompute. This is a typical question when I lost point because I had to avoid loosing time. red face 45. One easy question kurtosis: The normal has lowest proba of extreme value than 4, 8 kurtosis distributions. 46. Several EVT questions: one was to compute it with extreme returns provided. 47. One var question: 20 worst returns provided but unsorted. Find the var, It was 1% of 80 Million as far as I remember. 48. You decrease significance what happens to Type I and Type II probs. 49. One binomial tree call computation question that I failed. 50. One Monte Carlo simulation of GBM (mu was zero to be easier), sigma was provided You had to compute S(n+2) given S(n) e(n) and e(n+1). I also failed because I did not want to loose too much time on computations and I made a mistake in the contribution. 51. No Cholesky or interest rate model question. 52. One Ted behaviour (after Lehman episode) question. But there were two possible good answers as far as I understood. I answered that the it increases because there was a lack of liquidity (for me the fact that all bankers we scared of lending was a liquidity funding problem). 53. One or two linear hedging question (rho * sigma(S) / sigma(F)) 54. Concerning study cases, a single question on MetallGesellshaft 55. Two questions on basis risk. 56. A liquidity VAR computation: Normal distribution for return with mu and sigma, value of portfolio and spread value in dollar provided 57. One EWMA and one Garch (compute the long term vol for Garch) This has nothing to do with the exam. But it remembers my wife’s boss explaining to me that Garch has nothing to do with modeling heteroskedostaticity. As he is responsible for Market Risk Management, I should have suggested him to take the Garp exam. cheese 58. An interesting question on style drift versus leverage increase for HF. They were providing the fund returns and the benchmark returns. You could see that one manager increases leverage (same signs for returns) and the other was doing style drift. 58. Tracking error: 3 graphs were given with benchmark and fund returns. Tell which one has lowest tracking error. 59. Correlation: 3 graphs were provided. Which group of variables has the highest correlation? 60. An easy question on credit risk: Which operation adds CR: sell/buy options 61. One Merton question (that I failed) close to the one provided in Garp2009: Compute prob of default 61. Two EL and UL computations (PD, LGD, COM, sigma(PD), sigma(LGD) were provided) 62. Two questions on credit “modifiers” (Triggers, Netting, collateral, MTM) 63. No cat bound question 64. One Raroc computations (no taxes were involved and RC was provided) 65. One BS call/put computation N(d1) and N(d2) were provided 66. One interest risk reduction question (buy a cap, sell a floor, …) 67. One or two questions on MVAR, CVAR questions: Compute the global VAR if a fund is removed Compute an MVAR
How the hell did you remember those.
which reminds me… a) normal b) binomial c) negative binomial distribution d) possion which one can NOT be used to find probability of an event = #. i think i picked a) because the other 3 are discrete probability distributions, while normal is a continuous function. anybody else remember this one?
re 58) the TE lowest = c), which is the graph with the Portfolio’s return the same shape as the BM’s return, but shifted lower re 59) the R2 was provided in fine print in the chart… i believe one on an absolute basis, one was around 0.63 or something (but negative), and the other one was 0.61 (positive)… i picked the 0.61 as the “highest” even though the 0.63 one had the “strongest” correlation… i was confused with how it was worded. Also, I remember a RAROC question with the following choices: a) 2.6 b) 2.9 c) 3.x d) something higher than 3.x (4.x?) It asked for the lowest % possible on the interest charge of the loan so that the firm can still maintain a RAROC > 15%. I picked a.
I picked a for normal distribution because it also stated that the number of observations was small.
I picked a for the raroc as well, the correct answer was around 2.7 something. But it wasnt on the list, and you could not choose 2.9.
Lol, wish you had posted these in my thread raghavan. I will add all of these there, and provide discussion of what i put an why. Hope you will comment on my reasoning and what you put yourselves.
Let’s see if I can answer the binomial problem… With the stock going up or down 20 % a year, that is the volatility. The volatility then for 3 months is .20 / 4^.5 or 1.10. This is the U for 3 months. D is 1/1.10 or .9091. For the up probability: e^.12*.25 - .9091 / 1.10 - .9091 or .615. Down is then .385. To solve the two step problem, now use the above answer. The first step has an upper node of 55 and a down node of 45.45. The second pass has an up node of 60.60, a middle node of 50 and a bottom node of 41.31. The first pass upper node then has a potential value of (0 * .615 + 2 * .385) / e^ .12*.25. = .75. The first pass bottom node then has a potential value of (2 * .615 + 10.68 * .385) / e^.12*.25 = 5.18. However, this is an American option that can be exorcised early. Since the node is 45.45, this gives a option value of 6.45 by exercising early. The put option is now worth .75 * .615 + 6.45 * .385 / e^.12*.25 = 2.86