Anyone who took L2 before (or anyone who knows someone who did) know how computationally intensive this could be covered on the exam? I’m working through Boston Society mocks from 2010 and the problem sets require quite a bit of computational work with the Black Scholes model. The formula is given in the vignette, as are all the variables, but you’ve got to run it through the equations to get an answer. (which takes time if you don’t have Excel). Any thoughts how to best prepare for this on exam day?
I don’t have my books in front of me but I don’t think actually knowing the exact details of the BSM formula are part of the LOS. I think you just need to know the Greeks and assumptions of the BSM model: i.e. European Options, no transaction costs, etc… If the question posed takes 5+ minutes to answer then it probably is not going to be tested.
Robert- the problem with BSAS test bank and other “old” exams are that some questions are outdated, like this one. This is not an LOS anymore, just knowing the greeks and what BSM is is (what Chuckrox said)
But I think it would be fair game if they gave you all the inputs, without the actual formula, and asked you to punch in the numbers.
I disagree and have confirmation from Schweser. This was an old LOS. Dreary Wrote: ------------------------------------------------------- > But I think it would be fair game if they gave you > all the inputs, without the actual formula, and > asked you to punch in the numbers.
Andrew, I don’t know about that particular problem, my comment is general, based on my taking this exam two times.
The LOS for reading 62 says “explain how an option price, as represented by BSM, is affected by each of the input values (Greeks)”. Take it for what it means, but it doesn’t say calculate or demonstrate so I take that to mean we just need to understand the Greeks and how they influence BSM.
thanks Chuck, amen to that