I have done a search and there a several answers to the interview questions. Yet, I propose that some of the more knowledgeable members answer these questions or those that have been through the interview process, or not. Perhaps one of the mods can make this a sticky and members can keep adding to it.
Here it goes:
What are the interview questions that were/are asked in the interview process for the following positions in Banking, Hedge Funds or Mutual Funds:
Investment Banking
Sales & Trading
Research Analyst
IT
Middle- or Back-Office
Capital Markets
Also add the company you inteviewed for, if you want. Perhaps one of the mods can make a database from this.
All will ask "why do you want to do this job"....as far as technical, I once get asked random math questions periodically..."so, jimbo I see you are interested in this, and you have a good gpa, and what's 63X37"
"what's the law of cosines"
"define duration"
"what is LIBOR"
"what is an interest rate swap"
"what is a recent lbo"
2331 (a^2)=(b^2)+(c^2)-2bc(cos(A)) Weighted-average maturity of a bond's cf London InterBank Offering Rate Derivative contract to exchange fixed cf for floating cf HCA,Burger King,Hertz
did i get them right?
It's more about the types of things to be prepared for.
How about this, another basic one. What are the inputs to the Black scholes model, and which is the one which is not directly observable. What is the difference between a normal and a lognormal distribution? what is skew?
Why would someone want to enter an interest rate swap?
what's the best approach to multiply numbers like that?
For me, just start off with 3 times 63 then add a 0 to the end to get 1890 (it's mentally less pressure to multiply something with a single digit number instead of multi digit...although they're the same). Then 7 times 63 to get 441, add it to 1890. Just make sure you remember the 1890 when calculating the second part.
there's an easier way, that can be applied to all those types of multiplication questions. 63 = 50 + 13 37 = 50 - 13 then, (50 + 13)(50 - 13) and the formula says (a+b)(a-b) = a^2 - b^2 thus, 50^2 - 13^2 = 2331
read a vault guide...trust me
Law of cosines? Did you actually get asked that? I don't see how whether or not you are able to recall high school maths is relevent.
It has implications for correlation.
as for the 63 x 37...I started with 60 x 40 and worked from there.
Oh, you mean calculating the variance of the sum of two non-independent RVs? Cool - i've done nothing but hardcore stats and probability for 3 years and have never seen/thought of that.
Is the normal vs lognormal and skew question
You would want to enter an interest rate swap when you have a comparable advantage borrowing long-term fixed and want to borrow short-term floating. The comparable advantage is based on credit ratings - a high rated company will get a lower long-term fixed rate b/c they are less likely to be downgraded. If a low-rated company wants to borrow long-term, their fixed rate will be higher in case they are downgraded so that the lender will still be compensated for the risk. Therefore, a lower rated borrower will want to enter an interest rate swap when they are interested in borrowing long-term.
I'm guessing that the unobservable input for B-S is volatility, but isn't that what the VIXX is used for?
But no the VIX is not useful for anything other than a broad gauge of equity market volatility. It is not useful for LIBOR options for instance, or bond options. Or even individual equity options.
What is skew?
That swaps are all based on companies that finance themselves fixed and want to receive in swaps to go back to floating? Then who takes the other side (ie wants to pay fixed, rec floating)?
Not trying to be harsh, trying to simulate an interview.
How many stop signs are there in America?
They were looking for a consulting type - how do you think answer.
I'd estimate the number per small city, and then extrapolate from there.
Well if a customer calls a bank wanting to pay the float, then the bank would pay the fixed. The bank can hedge this by receiving fixed and paying float in a swap with another bank.
EDIT: this is just for interest rate swaps which is the only thing i have studied, we did not cover total return or equity swaps
as an aside, a great case study for swaps is Rice Financial Products and their "synthetic bond refinancings"...if you can dig up some information on the Durham, NC swap you can see exactly how a financial institution can take one virtually no risk entering into a swap plus collecting a premium up front
who are natural payers of fixed and who are natural receivers? does a bank only layoff risk with other banks? if no banks are available how would they do it.
flow rates can hedge themselves quite effectively in general, taking only credit risk and basis risk.
you answered the questions quite well. you'd be in good shape for an analyst interview.
want to tackle the skew question? or normal vs lognormal?
Skew just refers to the directional tendency of the distribution. a distribution is skewed if the larger portion of the sample size returns values tending towards one side of the bell curve. a sample is skewed to the right if it has a flatter and longer tail on the right hand side the larger portion is pushed to the left hand side. i think its useful in the accuracy of the mean due to distortion, but I'm not positive. i haven't taken statistics in a while but i remember skewness as being a major problem with means so it might be better in some instances to gauge the mean against the median to see how skewed the distribution is.
have only taken one derivatives class, not too familiar with skew or the distributions
i'll take a stab at normal vs. lognormal though, something about options pricing and the normal distribution continuing to negative infinity, or am i way off base?
however, if you have any recommendations on where to brush up on those topics it would be appreciated
Not quite, BS assumes that stock prices follow geometric brownian motion, implying that they are distributed lognormally and that continuously compounded returns follow the normal distribution.
For a good introduction, read Hull.
I actually have Hull, but my professor pulls all material from his Powerpoints, so I have focused more on that - he focuses a little more on intuition rather than the hard math
If you have time, you should definately go through Hull. He gives very intuitive explanations (although this sometimes results in the book being criticised for its lack of mathematical rigour).
I think the intuition is the most important. You're in good shape for interviews. Skew refers to the fact that different strikes have different implied volatilities for the same underlying.
The questions and answers are far better than I thought would be posted on in here. Since most of the places I have interviewed are fit-oriented questions.
I do have a question myself for the above posters: are the higher level math questions indicative of derivatives and options jobs?
Hawtness is a state of being, not how you look like... I'm pretty, so pretty...
Granted I have never been in a derivatives interview, but since Jimbo works in that area and we were discussing swaps and options, then I would guess the answer would be yes
Hi guys, I just got shortlisted to be interviewed for the Lehman brothers mumbai- CDO pricing hub. I was hoping if somebody could tell what kinda preparation will help me and the type of questions i should be expecting.
You NEED to know financial statements inside and out. Interviewers will ask you 'if i change the amount of debt on X company what will happen across all statements.' Also know exactly how you get FCF and why. I'm sure you've heard of walk me through a DCF Model and you have to know WHY you do each thing and what each step means. Goodluck!
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