Exam Feedback November 2019 Part 1 Exam Feedback

[Maggie3344]

does anyone remember what the last questions were in the blue book about sortino and sharp? i thought they wanted to know how they were related and i had no idea

You need to calculate the sharpe ratio of three companies and eliminate the one below 50 and compute sortino ratio. The highest SR implies best performing company.

 

[randrema]

does anyone remember what the last questions were in the blue book about sortino and sharp? i thought they wanted to know how they were related and i had no idea

I had the blue book but it was not sortino ratio but chosing the highest Information Ratio after eliminating Sharpe Ratio below 0.5.

 

[Soraya]

In that question ,u should use the portfolio with the highest information ratio.

 

[JamesVU2000]

You need to calculate the sharpe ratio of three companies and eliminate the one below 50 and compute sortino ratio. The highest SR implies best performing company.

ok thanks.

 

[Fisuca]

You need to calculate the sharpe ratio of three companies and eliminate the one below 50 and compute sortino ratio. The highest SR implies best performing company.

Yes, i remeber excluding choice b

 

[Anna_M]

I thought Part 1 was easier than the BT prep.

The other one was the one-step binomial, European put. Index was 3300, would either go up 5% in 6 months or down 10%. Strike of put was 3200, Rf was 2%. Either I am totally missing something or none of the choices made sense.
.

Me as well! Was really confused, since I was very confident in my calculation of this "simple" (as I thought) thing and didn't find it among the answers :-( Read the question several times, recalculated.... No chance.

Also, exactly as someone mentioned above - got 113 and should choose among 60.XX, 60XX, 60X, 167.XX

At least we both calculated it in similar way :-D

 

[stevoDE]

Few more:
- Calculate position delta of an option portfolio (think there were 4 options)
- Calculate gain/loss on a beta hedged portfolio.
- P value - reject or accept null

 

[randrema]

I personally found the exam to be having more quantitative questions than qualitative, maybe because I spent more time in solving the multi step questions rather than thinking about the theory queries.

I had the red booklet and there was an option strategy question in there which specifically mentioned that the investor wants to have a positive payoff if the underlying price is within a specific range. I might be wrong but thatswhy I marked the option to be butterfly. Is there anybody else who marked butterfly ?

Also does anybody remember a question on Network Risk? I left the topic from my revision time and couldn't really make an educated guess to that. I selected the option on CVAs not sure if it is right.

For the SIC/MSE question I marked SIC is asymptotically efficient. This statement is written in Schweser notes, I thought MSE is consistent as the formula is SSR/n where n is in the denominator. so n inc ==> MSE dec.

Akaike is asymptotically efficient, not SIC

 

[DmitryRBS]

Don’t think it was as hard as people make it sound, but I do think it was harder than the GARP mocks (which is super annoying). Indeed some questions were easier than expected, for instance the UL question asked to calculate standard deviation of pd (which is simply p(1-p) from Book 2) as opposed to the entire UL computation which requires memorising the longer formula; and the only question on binomial tree was just 1-step, not 2-step (the mock one is two step and American option which takes a lot more time and focus).

Also I do agree the time pressure was a factor. GARP mock I was able to do in under 3 hours, whereas the exam took nearly 4 leaving almost no time for double checking any answers. Some questions weren’t hard but just burned a lot of time, e.g. a question on convexity of a portfolio wasn’t hard but I skipped it initially as it would waste a lot of time. If people weren’t familiar with the calculator functions (data and stat functions) they would also struggle with calculating covariance of a dataset - which I think is unfair - after all this exam should test knowledge of risk, not knowledge of calculator functions.

Also filling in the answer sheet takes surprisingly long time which I didn’t account for when practicing.

Finally - at least in my location - the instructions were not read out clearly. As a result I thought only one answer sheet (out of two) needs to be filled in (I thought the other one was a spare or back up or something in case the fist one is messed up which makes sense if erasers are not allowed). So last 5 min I asked the invigilator (who didn’t even know and had to ask their superior) and then panicked and filled in the other one too. So whereas others had their answer sheets together, mine were separated. Not sure if that could cause any problems?

 

[tweakpun]

@smit7581 Mine was a blue booklet. The trader was actually gaining..with the drop in value of the commodity..(put option or something)

The margin was asked post 2nd day of trading...
I’m pretty sure it was 0...



Any chance of cutoff marks to pass the exam in 55-60 range..?
I can’t say I can predict my marks with any sort of accuracy at this juncture....

What was the answer to the hypothesis test question?
The t-value/z value were given in the options..
I had marked C/D...Not sure..t value>critical value something something...

And yeah, the binomial option pricing question,
it pretty much seems to be erroneous...113 something was the answer, which seemed to be afar from the choices given..anyone got 60.xx as the answer?

 

[Sixcarbs]

Me as well! Was really confused, since I was very confident in my calculation of this "simple" (as I thought) thing and didn't find it among the answers :-( Read the question several times, recalculated.... No chance.

Also, exactly as someone mentioned above - got 113 and should choose among 60.XX, 60XX, 60X, 167.XX

At least we both calculated it in similar way :-D

Thank you, that problem still haunts me.

I remember the question exactly if anyone else is up for trying it now. 6 month, 1-step binomial, European Put. (Question #45 in the Red Book) Index is 3300, will either go up 5% in 6 months, or down 10%. Strike of put is 3200. What is put worth? I think Rf=2%.

 

[Detective]

Thank you, that problem still haunts me.

I remember the question exactly if anyone else is up for trying it now. 6 month, 1-step binomial, European Put. (Question #45 in the Red Book) Index is 3300, will either go up 5% in 6 months, or down 10%. Strike of put is 3200. What is put worth? I think Rf=2%.

Just tried it and got answer of 60.65, was that a choice?

I tried a “wrong” approach and got 167.06. How are you getting 113?

option price = e^(-r_f*t) [p*f_u + (1-p)*f_d]

where:
r_f = risk free rate
t = time to maturity
p = risk-neutral probability of up jump
f_u = value of option for up jump
f_d = value of option for down jump

p = (e^(r_f*t) - d) / (u-d)

where:
u = proportion of up jump (u > 1)
d = proportion of down jump (d < 1)

I am using:
r_f = 0.02
t = 0.50
f_u = 0
f_d = 230
u = 1.05
d = 0.90

I calculate:

p = 0.733688
option price = 60.6469

Note: this formula is in BT Part 1 Formula Sheet p.122.

 

[i.brahimtoor]

I got 113 for the above binomial tree question too. Probably spent 5 minutes figuring out what was wrong with my solution. Turned out I had calculated p incorrectly. Was your p=0.60? I think initally I used e^(-rt) in the formula. The negative sign was extra.

 

[Sriharsha]

Yes, i remeber excluding choice b

I got D as the answer (blue book), i am not sure if it is the right answer

 

[Venkat k]

Just tried it and got answer of 60.65, was that a choice?

I tried a “wrong” approach and got 167.06. How are you getting 113?

option price = e^(-r_f*t) [p*f_u + (1-p)*f_d]

where:
r_f = risk free rate
t = time to maturity
p = risk-neutral probability of up jump
f_u = value of option for up jump
f_d = value of option for down jump

p = (e^(r_f*t) - d) / (u-d)

where:
u = proportion of up jump (u > 1)
d = proportion of down jump (d < 1)

I am using:
r_f = 0.02
t = 0.50
f_u = 0
f_d = 230
u = 1.05
d = 0.90

I calculate:

p = 0.733688
option price = 60.6469

I think down move should be. 95(1/1.05) not . 90.

 

[Sriharsha]

W

Was ther any 61% option?i think I have marked that

Yes i also remember getting around 60%

 

[Venkat k]

Yes i also remember getting around 60%

There are three options with 60%. I think.

 

[Sixcarbs]

Just tried it and got answer of 60.65, was that a choice?

I tried a “wrong” approach and got 167.06. How are you getting 113?

option price = e^(-r_f*t) [p*f_u + (1-p)*f_d]

where:
r_f = risk free rate
t = time to maturity
p = risk-neutral probability of up jump
f_u = value of option for up jump
f_d = value of option for down jump

p = (e^(r_f*t) - d) / (u-d)

where:
u = proportion of up jump (u > 1)
d = proportion of down jump (d < 1)

I am using:
r_f = 0.02
t = 0.50
f_u = 0
f_d = 230
u = 1.05
d = 0.90

I calculate:

p = 0.733688
option price = 60.6469

Note: this formula is in BT Part 1 Formula Sheet p.122.

Correct. Thank you Detective.

I feel like a fool. I did dozens of these in practice with no problems, multi-step and all. But on the test, I did not calculate the p(up) and p(down), and I knew this formula [p = (e^(r_f*t) - d) / (u-d)] cold. I just kept saying to myself since it wasn't indicated it was 50/50. That's how you get 113.xx. Sounds like a couple of others omitted the same step.

That's the pressure of test day right there. Should have been a free answer for me. Ugh.

 

[malhotsu]

Me as well! Was really confused, since I was very confident in my calculation of this "simple" (as I thought) thing and didn't find it among the answers :-( Read the question several times, recalculated.... No chance.

Also, exactly as someone mentioned above - got 113 and should choose among 60.XX, 60XX, 60X, 167.XX

At least we both calculated it in similar way :-D

Exactly this question baffled me, I did the calculation 3-4 times, and couldn't get the answer, I even thought GARP made a mistake and did not print the correct answer

 

[malhotsu]

Also, there was a question about CEO being offered a bonus, either he can take the lump sum at the end of the first year or he can take it in 2 cashflows, 1st one after 6 months and remaining at the end of the year, I calculated 3-4 times but couldn't get the answer for this.