How to prepare for FT Market Risk interview?

11y

Best Response

Have a working knowledge of options and options pricing/risk factors. Understand delta hedging. Know bond math and duration and convexity.

You might get technicals on these things. Which bond has more interest rate risk, a 3yr zero or a 3yr coupon? Which bond has more interest rate risk a 3yr zero a 5yr zero? Suppose a desk buys a corporate bond from a client but wants to get risk-flat. Which risks does it need to hedge? How might it go about hedging those risks? What is the volatility surface? How do you find it/where does it come from? What is the volatility smile? Why does it exist? Given two options with equal strike price on the same underlying, one with an exercise date in a month, the other in three months, which is more valuable? What is VaR? How do you interpret it? What are the shortcomings of VaR?

mongoose

11y

Thanks. Is there a specific book/source I can use to prepare? I'm a Math major, so I don't know much about Finance.

11y

Value at Risk - The New Benchmark for Managing Financial Risk - Jorion

Borrow a friend's Investments textbook and skim the chapters on fixed income risk and pricing. Maybe look at options.

If you are not a Finance major they probably won't expect you to know too much about securities pricing, but since you are a math major they may ask you more detailed questions about multivariate calculus or matrix algebra, which you should be fine on.

mongoose

11y

Boothorbust:
Value at Risk - The New Benchmark for Managing Financial Risk - Jorion
Borrow a friend's Investments textbook and skim the chapters on fixed income risk and pricing. Maybe look at options.

If you are not a Finance major they probably won't expect you to know too much about securities pricing, but since you are a math major they may ask you more detailed questions about multivariate calculus or matrix algebra, which you should be fine on.

Thanks.

Economic Depreciation vs Accounting Depreciation

nontarget kid

Senior Gorilla

11y

Please post more technical questions.

Authored by: Certified Sales & Trading Professional - Executive DirectorCertified Sales & Trading Pro

11y

How do you find the variance of a portfolio of securities? What information do you need? If I have an equally weighted portfolio of two securities, one with a standard deviation of returns of 2, the other is 4, what is the standard deviation of the portfolio? Do you need more information to calculate? How would I calculate the duration of a portfolio of bonds from the individual durations? What are different measures of "risk" of a portfolio? What are the benefits and shortcomings of each? Assuming returns are normally distributed, what are the odds that one-day returns exceed one standard deviation from the mean? Two standard deviations? What is interest rate risk? What is re-investment risk? How do these two interact?

mongoose

11y

Boothorbust:
How do you find the variance of a portfolio of securities? What information do you need? If I have an equally weighted portfolio of two securities, one with a standard deviation of returns of 2, the other is 4, what is the standard deviation of the portfolio? Do you need more information to calculate? How would I calculate the duration of a portfolio of bonds from the individual durations? What are different measures of "risk" of a portfolio? What are the benefits and shortcomings of each? Assuming returns are normally distributed, what are the odds that one-day returns exceed one standard deviation from the mean? Two standard deviations? What is interest rate risk? What is re-investment risk? How do these two interact?

Thanks man. You have already done us a large favor by posting these questions. Is that book the best way to prepare for these? Do the Vault guides have answers to these questions.

(Not trying to be lazy here. I'm doing my research, but some answers are very difficult to find.)

Also, if someone knows the answers to these questions and has some time on their hands, could you please try them out.

Thanks.

nontarget kid

Senior Gorilla

11y

Thanks for the questions. We really appreciate it.

Authored by: Certified Sales & Trading Professional - Executive DirectorCertified Sales & Trading Pro

wallstreetjungle

Orangutan

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Floating Exchange Rates Causes

Madhumitha-Madhavan

Chimp

Bless your kind heart! Thank you for giving us an idea of how to prep for entry Market Risk positions!

LATAMpapi

Senior Neanderthal

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