Analysis of October 2013 Paper

[Edwin]

1) Ques_2, I had added under advantages the additional point that going for a future whilst not cancelling the forward means if prices rise again, the forward will pay-off hence the net payoff is hedged.

I thought this was an important comment, but neither ASET nor the examiners' report had it.

I thought the question was about closing the forward versus keeping it whilst selling futures and general 'futures vs forwards' comparisons should have been secondary even though equally worth mentioning.

2) Ques_5(i) asks to

Outline the metrics and approaches which could be used to measure and
monitor the sovereign default risk exposure of Domestic Insurance.

Suprisingly the examiners' solution focuses on metrics used to measure the exposre and less on those used to monitor it. I had the following additional points and would appreciate comments;-

• Monitor maximum counterparty to governments to ensure it is less than say 30%
• Monitor maximum sovereign exposure to the local government to ensure it is less than say 2/3
• Compile a counterparty report regulalrly monitoring the metrics above

3) Ques_8(ii) of suggesting a Copula, the examiners recommended a Clayton copula but then went on to say

Other answers were accepted providing that adequate reasoning for
the choice was given.

Following this ASET recommended a Gumbel and so did i? Don't know if this meant i was going to get some credit.

4) Ques_7 (v) I had an additional advantage being that the model reduces parameter uncertainty since the parameters are based on simulations.

For the disadvantages shown in the examiners' report I don't understand what the following comment means;-

It may not be possible to find an appropriate simplified regression which
will continue to give optimal or near optimal results