Exam Feedback November 2018 Part 2 Exam Feedback

[IonMunteanu]

With regards to OC and insurance...wasnt it specified as internal credit enhancement?

 

[kb2412]

Pool insurance makes sense theoritically, until we saw how the monoliners handled the situation during the financial crisis was.

It is confusing. While pool insurance protects entire pool and all senior, mezzanine and eq., OC will typically protects Senior tranche. So according to me since qs qas directed to senior tranche, answer should be OC

 

[rtiwar17]

With regards to OC and insurance...wasnt it specified as internal credit enhancement?

Yes, I think they mentioned internal Credit enhancement.

 

[FreemanMI]

Hi everyone, I saw that all of you picked the fatter tails for the QQ plot...but i chose thinner...
Wasnt it the same as the graph below? Or I guess I did not fully understand the topic... thanks in advance

 

[IonMunteanu]

Yes, I think they mentioned internal Credit enhancement.

ok then....so I guess my choice for OC makes sense then...because I wouldnt have chosen it if they dint mention internal credit enhancement...

 

[kb2412]

I chose asking for reports on fund performance...

It's manager investing sizable portion in own fund

 

[shailthakker]

Hi everyone, I saw that all of you picked the fatter tails for the QQ plot...but i chose thinner...
Wasnt it the same as the graph below? Or I guess I did not fully understand the topic... thanks in advance
View attachment 1852

No this is the reverse graph

 

[shailthakker]

The question meant particularly for the senior tranch. Pool insurance is for all the tranches. waterfall is aimed just at the senior tranche

 

[kb2412]

Any one remember that culture one with Lehman Brothers and AIG? I feel like both seem to be correct.

same here. I wrote AIG though as final answer

 

[FreemanMI]

No this is the reverse graph

Ah...ok I see. I am not sure why I chose thinner tails then, beause I saw that the negative returns in the tails are much lower, the same as for the up tail. Then I might have been veery unattentive. thanks

 

[kb2412]

I think it was 1,09%, since you had to calculate the Annualized Default Rate out of the PD given by the hazard rate.

How you calculated? PD = spread/1-rr ... then ?

 

[Navneet02]

Yup me too...

Why it can’t be a concentration risk?

 

[kevolution]

What do you think cutoff will be for this particular exam?

 

[Navneet02]

What do you think cutoff will be for this particular exam?

40+ is going to have good chances

 

[haziqnazri]

I'm genuinely curious now that quite a few people mention OC protects equity tranche.

From my limited exposure to the relevant products, OC kicks in when senior tranches's OC ratio (aka principal coverage) falls below a certain threshold, at which point the payout to equity tranche gets diverted to the senior tranche to either purchase more collateral or (partially) pay off the senior tranche, in order to bring the OC ratio back.

This is a part of the waterfall structure. The OC would first protect the Equity tranche up until a breaking point where the losses are more than the overcollaterisation and start eating up to the waterfall structure. I answered waterfall structure as the question clearly mentioned protect the class A throughout the lifespan of the securitisation (Pool insurance is true but does not protect throughout the lifespan - only kicks in if the level of defaults are very2 high etc; what if default are not that high)

 

[QuantFFM]

This is a part of the waterfall structure. The OC would first protect the Equity tranche up until a breaking point where the losses are more than the overcollaterisation and start eating up to the waterfall structure. I answered waterfall structure as the question clearly mentioned protect the class A throughout the lifespan of the securitisation (Pool insurance is true but does not protect throughout the lifespan - only kicks in if the level of defaults are very2 high etc; what if default are not that high)

I just think this question was one of the bad ones because it allows much dicussions as we see...

 

[jbejarjimenez]

Even with the books in front of us we are not able to answer that question. Having said that, and as far as I can see from the notes Waterfall is a feature of the securitization process and not a credit enhancement, that's why I picked OC.
Very very difficult exam, hopefully the cutoff score will drop too, otherwise...

 

[Navneet02]

The exam was tough and tricky. I wonder few of the candidates saying that it was an easy one then either they don’t understand anything or they are simply genius.
I am a re-taker with good amount of studies this time and if I have to compare the exam from May this is really a trickier one.

Let me give the tricks where candidates could have fallen flat where they found the questions simple and missed out the tricks. I m simply marking my answers and can be caught wrong in those tricks as well.
1. Question on marginal PD: answered marked was 4.69 and 4.65, vs 4.69 and 9.**
2. Question on CVA, marginal PD was the trick and 2 year PD should be t-(T-1). Ans was .40** vs .48**
3. VaR Question on 3 securities,perfectly correlated so simple weightage should be taken. Rather than daunting standadard deviation formula. Ans was 440000
4. Constant lambda: 0.8 Defuault probability was within 3 years. Within was the key. Ans 21.3 vs 6.8( who calculated directly 3 year default .92*.92*.08)
5. LVar: exogenous 92750 around
6. Raroc: r= 5% ,though this was not simple
7. Portfolio allocation strategy. And 0.6 ( weight difference * benchmark return
8. 2 Credit var simple questions : Ans 6 and 30 around
9. Hedge through DV01 in real and Nominal yields :ans 40.1 (simple question, hell lot of language made it complex)
10. NSFR: 4 in equity and 4 in retail
11. Holee Model: 1.79%
12. Log Var : I marked 34k around option , wasn’t getting exact ans might be I used z value as 1.65 instead 1.645. Though answer could be 32k as well.
13.IRrootBR: managers performance X:5
14. SMM I dint get it right
15. Incremental VAR : I didnt the right answer I marked answer something like 38765
16. 2 ES VAr questions : one should be divided by 9(n-1),where Var was sliced in 10 pieces. 2nd one was simple one
17. Question on Basel 2.5 , summation of on max 60 day MVaR and SVAR. I don’t remember the answer I marked B option.
18. Binomial tree to calculate zero coupon bond price
There were 3 more questions on Hazard rate , PD , credit spread.
So, 25 were numerical which is around 33%.
Theoretical questions were confusing and lengthy.
I remember few
1. On graphical : Frown and fat tails were the answers.
2.US dollar strengthens: I marked widen basis spread result in cost of borrowing
3. ECl was easy one :

 

[jaivipin]

The exam was tough and tricky. I wonder few of the candidates saying that it was an easy one then either they don’t understand anything or they are simply genius.
I am a re-taker with good amount of studies this time and if I have to compare the exam from May this is really a trickier one.

Let me give the tricks where candidates could have fallen flat where they found the questions simple and missed out the tricks. I m simply marking my answers and can be caught wrong in those tricks as well.
1. Question on marginal PD: answered marked was 4.69 and 4.65, vs 4.69 and 9.**
2. Question on CVA, marginal PD was the trick and 2 year PD should be t-(T-1). Ans was .40** vs .48**
3. VaR Question on 3 securities,perfectly correlated so simple weightage should be taken. Rather than daunting standadard deviation formula. Ans was 440000
4. Constant lambda: 0.8 Defuault probability was within 3 years. Within was the key. Ans 21.3 vs 6.8( who calculated directly 3 year default .92*.92*.08)
5. LVar: exogenous 92750 around
6. Raroc: r= 5% ,though this was not simple
7. Portfolio allocation strategy. And 0.6 ( weight difference * benchmark return
8. 2 Credit var simple questions : Ans 6 and 30 around
9. Hedge through DV01 in real and Nominal yields :ans 40.1 (simple question, hell lot of language made it complex)
10. NSFR: 4 in equity and 4 in retail
11. Holee Model: 1.79%
12. Log Var : I marked 34k around option , wasn’t getting exact ans might be I used z value as 1.65 instead 1.645. Though answer could be 32k as well.
13.IRrootBR: managers performance X:5
14. SMM I dint get it right
15. Incremental VAR : I didnt the right answer I marked answer something like 38765
16. 2 ES VAr questions : one should be divided by 9(n-1),where Var was sliced in 10 pieces. 2nd one was simple one
17. Question on Basel 2.5 , summation of on max 60 day MVaR and SVAR. I don’t remember the answer I marked B option.
18. Binomial tree to calculate zero coupon bond price
There were 3 more questions on Hazard rate , PD , credit spread.
So, 25 were numerical which is around 33%.
Theoretical questions were confusing and lengthy.
I remember few
1. On graphical : Frown and fat tails were the answers.
2.US dollar strengthens: I marked widen basis spread result in cost of borrowing
3. ECl was easy one :

How do you remember that many questions ? I do not even remember the answers.

 

[skspanda]

How about the asset allocation calculation, what was the answer in that?

I forgot the exact one that I chosen, It might be .6 or .2