Questions related to risk measures:
1. How would you calculate Value at Risk (VaR)?
2. What’s wrong with VaR as a measurement of risk?
3. What is non-Linear VaR? How would you calculate it?
4. What is the parametric method of calculating VaR? What are its advantages?
5. What is the historical method of calculating VaR? What are its advantages?
6. Why would you calculate VaR using Monte Carlo simulations?
7. What are the challenges in calculating VaR for a mixed portfolio?
8. What’s GVAR? How can you calculate it?
9. What is the one-day VaR of a $50m portfolio with a daily standard deviation of 2% at a 95% confidence level? What is the annualized VaR?
10. What do you know about extreme value theory?
11. What is Expected Shortfall? How is it calculated? Why is it considered better than VaR? What are the disadvantages?
12. What are the strengths and weaknesses of historical simulation, Monte-Carlo simulation, and Variance-Covariance method in VaR calculation?
13. What is expected shortfall?
14. What is incremental default risk?
Questions on the yield curve:
15. What are the uses of the yield curve?
16. What’s the riskiest part of the yield curve?
17. What does it mean for risk when the yield curve is inverted?
18. What is the discount factor? How would you calculate it?
19. What is convexity? How would you calculate it? Why is it important?
20. What’s the relationship between coupon rate and convexity?
21. What’s the meaning of duration? Is it constant for all yields?
22. What’s the meaning of partial duration?
23. What are the limits of duration as a risk measure?
24. How would you decide which discount curve to use to value future cash flows from interest rate swaps?
Questions on quantitative concepts:
25. Can you explain the assumptions behind Black Scholes?
26. What’s a volatility smile? Why does it occur? What are the implications for Black Scholes?
27. What are the Greeks?
28. How are the main Greeks derived?
29. What do you know about jump processes?
30. Should you use implied standard deviation or historical deviation to forecast volatility? Explain your choice.
Questions on hedging:
31. What is delta hedging?
32. How would you hedge against a particular equity/bond under current market conditions?
33. When can hedging an options position mean that you take on more risk?
34. An option is at the money. How many shares of stock should you hold to hedge it?
Questions on particular products:
35. What is interest rate risk?
36. What is reinvestment risk?
37. How do interest rate risk and reinvestment risk interact?
38. Which bond has the greatest associated interest rate risk? A five year zero coupon bond? Or a five year bond that pays coupons?
39. Which is more volatile, a 20-year zero coupon bond or a 20-year 4.5% coupon bond?
40. A stock is selling at $90. A 3-month call with a strike price of $100 is selling for $3.105 with a delta of 0.329. How many call contracts are required to perform a hedge on 1,000 shares of this stock? Would they be bought or sold? What happens if the price of the stock falls to $50?
41. You have two options with the same underlying strike price. One has an exercise date in three months, one has an exercise date in six months. Which comes with the greatest risk?
42. What’s the maximum potential loss you could incur by selling a put on a stock?
43. What are the risks inherent in an interest rate swap?
Questions related to regulation:
44. How has Basel III changed the treatment of market risk?
45. What the implications of Basel IIIs new trading book rules for market risk professionals?
46. How could the Basel III treatment of trading books be improved?
47. How will trading businesses change as a result of Basel III capital rules for banks’ trading books?
48. What are the key requirements of the Basel stress testing framework? Are they sufficiently stringent?
49. Which extreme events should stress tests be taking into consideration now?
50. Why is Basel II blamed for precipitating the 2008 financial crisis?
Questions related to risk measures: