CT8 Sep 2006 Exam

So how did the rest find this paper?

I thought it wasn't straightforward, especially the last question! Could anyone get that?

What were the other questions u found difficult?

 

I thought this was tough and surely most people would agree ( I hope!). Hope I did enough to pass: I don't want to sit this one again!!

 

I know I got the last part of the last question wrong (although I now know how to answer it!), and also the last part of question 6 (it required Lagranians...).
However the rest of the paper was quite nice and bookworky, if surprising as to how many marks were awarded for definitions from the Tables (SDE for Vasicek, SDE for Geo. Brownian motion).
I'm annoyed with myself or getting those questions wrong, but they only account for 20% of the marks so I could still pass....

 

do tell!!!!!!!!!!!

 

Right here goes...
Assuming that you correctly demonstrated the pricing for the State-Price derivatives in the first part.
The new fee can be represented as:
0.1% x E(s1)
+0.4%x(C1+SPD1)
+05%x(C2+SPD2)
where C1 is a call-option with strike price S0, and SPD1 is a State-Price Derivative paying S0, if S1 is between S0 and infinity.
C2 is a call-option with Strike-Price U, and SPD2 is a State-Price Derivative paying S0 if S1 is between U and infinity.
SPD1 and C1 can be calculated directly (C1 is about 12p I believe).
Equate:
0.5%S0 = 0.1% S0 + 0.4%(C1+SPD1) + 0.5%(C2+SPD2)
=> C2+SPD2=(0.4%/0.5%)*(S0-(C1+SPD1)
Modify the Garman-Kohlhagen formula for C2 to include the value for SPD2 (from part iii). This gives us a formula relating U to C2+SPD2. Solve this formula for the given value of C2+SPD2, using interpolation.

There....
Wish I'd thought of it in the exam, I ignored the SPD's completely, and so got ridiculous answers.

Still annoyed about the lagrangian part of q6 though. Completely didn't see that.

 

rcruz - I used the same method. Not sure if the answer was correct but I got u=125, ie u=S0+sigma. Seems an obvious answer, so not sure if it's right or if there was an algebraic method of getting it.
It took me an hour to do that question, which seems a lot for 10 marks!

 

Don't think u need the Lagrangian for Qn6

Only need to consider two assets A and C.. I did it without the use of Lagrangian but the algebra was quite heavy though...

 

The hardest paper ever, for me.

I will not even bother to look at the result.

 

well I didn't get the very last question then though my equation was of similar form at the start
also I did attempt end of question 6 with a Lagrangian but it got very messy so that probably wasn't right also
still, we're discussing 16 marks here, plenty of other marks on that paper I should have picked up I guess but will it be enough I'm not sure

 

a quick glance at exam pass lists shows CT8 has an approx 50% pass rate
if you deduct (i) individuals who didn't do enough work (ii) individuals with poor maths skills then it doesn't look so bad

 

I found it very tough indeed. probably not the hardest CT8/109 exam ever, but definitely tougher than the April paper. I didn't use Lagrangians at all for question 6, though I had a feeling I was supposed to. I could do the first half of question 8, but could only make a token attempt at the second part. All in all, I'd say there's at least 25 marks lost from making little or no attempt at the question, bringing me perilously close to the pass mark! I assume everyone found it hard though. Quite a number of people in my exam centre left early, which is very unusual.
In question 1, was it sufficient to say that the semi-variance must be half the variance, because the normal distribition is symmetric, without having to work it out from first principles?

 

Dha, I firmly believe that they prefer us to point out that the semi-variance equals to half of the variance for a symmetrical distribution rather than to see us knowingly do the calculations again.

Erm...my question is actually, how do u guys check the passing rate? To the best of my knowledge, only the candidates who pass the exams get their names posted on the website...

 

Ryan: they also say how many entered and how many passed
I would have thought SV = 1/2 V because N(1,1) is symmetric would have been sufficient for the 2 marks they were giving for that question.

 

Thats my problem with this exam!
2 marks for something that simple.
In CA1 that would be worth 1/4. Its very confusing, makes you think you've missed something.
Hopefully I've picked up enough marks outside of questions 6 & 8.
I didn't get as far a getting a result in Q8, so I can't comment on Scarlett's S0+sigma. I missed out the State-price derivatives.
However, so long as it's just those 2 bits that I got wrong I should be ok!

 

Did anyone else think it was a nightmare?!

Having read all the comments so far, no-one seems to have found the paper quite as awful as I thought it was. I thought it was by far the hardest CT8 paper i've seen (having trawled through all the past papers in preparation for the exam). I thought Q8 was impossible to do in exam conditions with such limited time - although I doubt I could do it if I had all day. Please tell me someone else stuggled as much as I did!

 

Hi Ricegal,

Dun have to worry so much... I got misled by the Wilkie 1000 simulation question, thinking that they were talking about independency (directly from the Core Reading), then i figured after the exam that maybe they were looking for difference in longitudinal and cross sectional properties. Threw 6 marks away for nothing.

I guess if pple can leave exam hall early, then many must have found it tough and given up. Some candidates were not even writing in my exam hall!

 

oh that's another one I didn't answer very convincingly I fear
don't worry ricegirl, it was generally a struggle for me too and I felt I had prepared well for this one

 

Does anyone have any idea what the pass mark will be for this CT8.

 

I assume it'll be around 50-55.

What exactly was the answer for the Wilkie question? I kind of figured it was to do with longitudional/cross-sectional stuff, but i didn't know the answer so I just bluffed, just so the examiners could give me a mark for menetioning the right words! For the second part, asking when would the std dev. be the same, I just wrote that 'in a pure random walk environment'. I remembered that phrase from the notes.
That was actually a noticeable feature of the exam-very obscure bookwork.

 

The above is SIGNED & APPROVED as a correct description of the paper.

Hi5
16/9/06

 

Not sure if it was the hardest ever - Aprils wasnt much better. That said, I sat 109 twice and CT8 twice now, and that was the hardest paper I've sat by a distance. Some of the early 109 papers were maybe worse, but only because they were even more badly written, including a large question on state prices before they were in the syllabus.