Exam Feedback FRM Part 2 (November 2014) Exam Feedback

[krenate]

My answer chosen was OTM with oil producer. The reasoning is such OTM put, means that we are betting on oil price go down, but our counterparty's financial and credit position is directly related to the growth of oil prices. So in case of huge price drop, we would be elegible to earn huge profits, but our counterparty might be bunkrupt by that time. Oil refinery as pointed above, benefits from price drop, so no WRR here.

WWR increases counterparty risk, which is why I have marked oil refinery..

 

[Sabit Rahimov]

I found the exam brutal. I agree with someone else that the questions were worded in a very confusing way. There were 5 or 6 questions on the CSA, and I haven't done all of the BT questions, but neither the GARP, Kaplan, nor BT questions (the mock exam ones) covered this, so I lost a lot of points--I didn't really go over that one in much detail in my revision.

For the RWA question (it was one of the first 5 or so questions) the market risk was already given in RWA form, but the op risk and credit risk were given as the capital charge. I divided the credit risk charge by 8%, but for op risk, I thought the capital charge is 15% of the average of the last 3 years of income, so for that one, I divided by 15%, and I did not get any of the answer choices, though one of the answer choices was something like 1135, and I got 1315. This must mean I did it wrong, but were all of the capital charge weights supposed to be 8%? There was one answer that matched that (choice d, I think), but I'm pretty sure the op risk charge was different, so I didn't pick that one.

I do not remember reading about variance vs volatility swaps anywhere. (And I was using the GARP book, the schweser, and BT)

There was a question about a HF with high returns with an 18-month lock in period where they are only accepting new investors for the next 30 months. I think I put that the 18 month lock in period should cause alarm, but is it normal for all hedge funds? I didn't pick that answer because it seemed extreme (normal for all hedgefunds, rather than "some", etc).

Hi,
Regarding the variance and volatility swap concept, just follow the exotic options topics, at the end of the chapter, it has been explained.

 

[Tanya Vasileva]

WWR increases counterparty risk, which is why I have marked oil refinery..

I agree with you

 

[Tanya Vasileva]

I agree with you

I think this was very tricky question

 

[krenate]

Unfortunately, more than 50% of questions were tricky and after months of pteparation it hurts extremely

 

[Ank]

Unfortunately, more than 50% of questions were tricky and after months of pteparation it hurts extremely

Totally agree with you

 

[ShaktiRathore]

Garp questions were tricky that means passing score would go down.questions were straight and simple testing the basic cincepts when i gave the exam in 2012.but seeing tricky qs is interesting.
Thanks

 

[hamu4ok]

Unfortunately, more than 50% of questions were tricky and after months of pteparation it hurts extremely

I'm probable one of few who didn't find this exam too tricky (or perhaps I took too many antistress pills right before it?)
There were tricky wording in some question, but overall for the prepared candidate with the solid reading base and who had obtained a general sense of risk management, I'd say the exam was fair one.
I might be too optimistic, in one month or so we'll find out.

 

[krenate]

I'm probable one of few who didn't find this exam too tricky (or perhaps I took too many antistress pills right before it?)
There were tricky wording in some question, but overall for the prepared candidate with the solid reading base and who had obtained a general sense of risk management, I'd say the exam was fair one.
I might be too optimistic, in one month or so we'll find out.

Dear Hamu4ok I am glad that you did well...and, yes, we find out....

 

[monumonumental]

I am quite irregular on this forum...but still i would like to request moderators like David and others to guide us on the level of difficulty of this year's FRM part 2 exam based on questions posted in this thread.

 

[krenate]

I am quite irregular on this forum...but still i would like to request moderators like David and others to guide us on the level of difficulty of this year's FRM part 2 exam based on questions posted in this thread.

dear monumonumental, you have passed for sure...however, the exam was tough....

 

[monumonumental]

dear monumonumental, you have passed for sure...however, the exam was tough....

Thanks...but i am not as confident as others on this forum..

 

[krenate]

Thanks...but i am not as confident as others on this forum..

In your place I would be sure....you have manage to score about 60% plus for sure...it is more than enough....bearing in mind that exam was extraordinary...you even can pass CFA if you collect more than 50% on each of the topics.... which is why, relax and take it easy...regarding myself, I am far away from confidence, because I am sure plus minus about 50%, the rest I really do not know...

 

[monumonumental]

In your place I would be sure....you have manage to score about 60% plus for sure...it is more than enough....bearing in mind that exam was extraordinary...you even can pass CFA if you collect more than 50% on each of the topics.... which is why, relax and take it easy...regarding myself, I am far away from confidence, because I am sure plus minus about 50%, the rest I really do not know...

Guys like Hamu have found the exam easy so nothing is certain..

 

[krenate]

The evaluation is based on the performance of others...I do not think, that there are so many guys like Hamu is....Enjoy your free time and stop worrying.....

 

[hamu4ok]

My answer chosen was OTM with oil producer. The reasoning is such OTM put, means that we are betting on oil price go down, but our counterparty's financial and credit position is directly related to the growth of oil prices. So in case of huge price drop, we would be elegible to earn huge profits, but our counterparty might be bunkrupt by that time. Oil refinery as pointed above, benefits from price drop, so no WRR here.

Helps to imagine the picture more clearly, if you put real persons in place of generic types of CP, so instead of oil manufacturer - you can say it is Russia (Saudi Arabia, USA) or in place of oil refinery say Germany (Italy, i might be wrong though). Why would oil manufacturer, be willing to buy oil from you (as in case of beeing in sell side of puts), probably because it would want to resell it at higher price to someone else (Russia does buy oild and gas from other countries to mix it and sell it then to Europe for instance).
Regarding the answer options.
Put is definately the right answer, the same is for oil manufaturer (vs oil refinery), but regarding OTM vs ITM I have second thoughts. Now cannot recall if both options were available seperately or combined, but if seperately, then ITM would be more close to WWR, as it is IN-THE-MONEY for us, but also means that our counterparty might be ALREADY experiencing some problems with lower oil prices, whereas with OTM this is still far away from today.
I don't remember which one I selected, though

I think we should forget about FRM exam and clear our minds before the NY eve.

 

[Sabit Rahimov]

definitely ITM put on oil producer much more logical! Perhaps, in some cases OTM put options might have higher WWR than ITM put. Also, there is a brief note regarding this issue in the scheweser notes. Generelly, ITM put represent WWR as opposed to OTM put.

 

[Sabit Rahimov]

Then I might be wrong

Sorry guys, in the official reading there is no explanation of how OTM put WWR may become much bigger than ITM put. I think there might be the case regarding the option premium that increases WWR as well. This is the case of CRASHAFOBIA, where investors expects large drop in the specific market, so as to hedge downside risk they buy OTM put. Consequently, as demand for OTM put increases, the premium paid for OTM put increases as well. This simple demand/supply rule. Therefore, it might be the case that the premium for OTM put is higher than ITM put. However, my answer was ITM put on oil producer!

 

[JacquesBBB]

Sorry guys, in the official reading there is no explanation of how OTM put WWR may become much bigger than ITM put. I think there might be the case regarding the option premium that increases WWR as well. This is the case of CRASHAFOBIA, where investors expects large drop in the specific market, so as to hedge downside risk they buy OTM put. Consequently, as demand for OTM put increases, the premium paid for OTM put increases as well. This simple demand/supply rule. Therefore, it might be the case that the premium for OTM put is higher than ITM put. However, my answer was ITM put on oil producer!

In the official reading, ithe example concerns a put on a stock where the conterpart writte the dedicated put on its own stock. In the exam, the underlying is the oil produced by the counterpart. I don t know if it makes a big difference.

 

[monumonumental]

So its 3 weeks since the exam is over and only 3 weeks are left for our results....i wonder how every one is feeling now..