All things 8V... [Archive] - Actuarial Outpost

08-01-2002, 08:54 AM

So this is my idea: If we have one big 8V thread and keep near the top of this section, hopefully it will get more consistenet traffic. Yes, people will have to wade through it to find what they need, but perhaps we won't be as redundant in our efforts and perhaps minor things will get better attention. If a topic really takes off, we can start a tangent thread and link it back. Here's what exists so far.

Study progress survey (http://www.actuary.ca/phpBB/viewtopic.php?t=5710)
Formula Sheets (http://www.actuary.ca/phpBB/viewtopic.php?t=5328) and this thread (http://www.actuary.ca/phpBB/viewtopic.php?t=4871) was originally just about study notes, but also has discussion of the formula sheets.
Responsible for Appendices? (http://www.actuary.ca/phpBB/viewtopic.php?t=4911) Yes.

Temple Seminar (http://www.actuary.ca/phpBB/viewtopic.php?t=4916)
Study aids (http://www.actuary.ca/phpBB/viewtopic.php?t=4449) also here (http://www.actuary.ca/phpBB/viewtopic.php?t=4041). They are bad.
There was one unanswered question there. Papa (IIRC) asked,"I wanted to make sure I didn't lose a few pages on the Algorithmics Note (Note 118). Does it end at page 74?" Mine does. Anybody know if that's how it's really supposed to be?

Specific syllabus questions:
Hull Ex. 13.10 (http://www.actuary.ca/phpBB/viewtopic.php?t=5252)
Hedge ratio vs delta (http://www.actuary.ca/phpBB/viewtopic.php?t=5209)
SN 110 equity/duration paradox (http://www.actuary.ca/phpBB/viewtopic.php?t=5003)
SN 103 Typo (http://www.actuary.ca/phpBB/viewtopic.php?t=5621)

And, important to note, a study group (http://www.actuary.ca/phpBB/viewtopic.php?t=5188) does exist. Contact CDL if you're interested in joining.

To make this thread a little easier to use, I suggest using a bold subject at the beginning of your post any time you are introducing a new topic for discussion (basically, any time you aren't responding to the post exactly previous to yours). Any other suggestions? I can edit this message to add organizational info to this first post.

Happy studying!

08-01-2002, 09:01 AM

Financial Economics (Panjer) Ch 9 Problem 9.5

As I've noted elsewhere, I'm working kind of backwards through the syllabus. Panjer's practice problem 9.5 seemed like an excellent exam question, but there is no solution anywhere. I thought when all of us are a bit farther through the syllabus, we could all maybe come up with our own answers and compare. Just something to keep in mind for later.

Dinklefwat

08-01-2002, 04:55 PM

On pg 484 of Hull (in CH. 13) is there a typo in the fourth node (near the top of the page)? The four nodes are given as
(S1u1, S2A)
(S1u1, S2B)
(S1d1, S2C)
(S2d1, S2D)

It seems like the fourth node should be (S1d1, S2d), otherwise stock 1 will be at a price that's a function of stock 2 but not stock 1, which seems incorrect. Any input?

And on a related note, does nayone know if errata for this book is available anywhere?

Dinklefwat

08-01-2002, 05:00 PM

Another item I noticed that seems like it could be incorrect is in Hull Ch. 19, eq. 19.17. Should both of the terms on the RH side of the equation be multiplied by f? The reason the equation seems odd to me is that farther up on the page it gives analogous equations for real-world and risk-neutral world situations, and for both of these equations, both the drift term and volatility term are multiplied by f. Can anyone explain this? Thanks.

08-02-2002, 11:05 AM

Pg 484 of Hull (in Ch. 18) typo:
I agree with your assesment.

Hull Ch. 19, eq. 19.17:
I agree on this one also. I think they confused the two kinds of equations, df=... and df/f =...

I don't know of an errata for this book.

Axsuetarian

08-05-2002, 02:53 PM

SN 119: Handbook of MBS, Chap 18 "Effective PAC Bands/Collars"

Can someone explain the following to me.

"Early PAC tranches have higher effective upper PAC bands and thus, extra contraction protection than stated in the PAC Bands.

Late PAC tranches have lower effective lower PAC bands and thus, extra extension protection than stated in the PAC Bands"

08-05-2002, 04:10 PM

Sorry, not there yet Ax. Maybe someoneelse will take that or I might be able to get back to you in a week or so.

Do you have a page number for that? Chapter 18 is pretty big.

Meanwhile, anybody else gotten the typo-revised case study? That was awfully nice of them. :shake:

failed8v

08-05-2002, 04:42 PM

....

Axsuetarian

08-05-2002, 05:17 PM

looks like pgs 307-308

08-06-2002, 08:46 AM

Revised Case Study

Seriously, I got it in the mail yesterday. It's got a page at the front with 43 changes (provided so we can see that none of the changes are "material") and then there's a fixed copy of the case study. The letter said the fixed version is the one you'll see on the exam.

08-06-2002, 09:20 AM

SN 119: Handbook of MBS, Chap 18 "Effective PAC Bands/Collars"
"Early PAC tranches have higher effective upper PAC bands and thus, extra contraction protection than stated in the PAC Bands.

Late PAC tranches have lower effective lower PAC bands and thus, extra extension protection than stated in the PAC Bands"

Let me give this a shot. In Ex 4, pg 307 they show the two collars. Their intersection determines the payment schedule. If the actual payment speed is between those two collar speeds, the PAC can pay off the way it is supposed to. If reality is too fast or too slow, it will "break" the PAC.

Now, they take that payment schedule and break it up into several little PACs (really tranches). Each of these tranches (mini-PACs) could be described by its own set of two payment speeds (outside of which it would "break"). In Exh. 5, they try to show how the 3rd and 4th tranches are tangent to two higher top speeds. These are the speeds that would break those early tranches. They are higher than the highest speed for the PAC as a whole. Hopefully I've just explained the first statement you made. Similar arguments can be made in the other direction for the later tranches and the lower-bound payment speed.

To reword your statements, I would say:
Early tranches fall within the limits of even higher payment speeds than the stated (overall) PAC limit. This provides extra protection against contraction (early payments) then the protection provided to the PAC as a whole.
Later tranches fall within the limits of even lower payment speeds than the stated (overall) PAC limit. This provides extra protection against extension (late payments) then the protection provided to the PAC as a whole.

As I haven't done that chapter yet and am going from my recollection of what I learned for Course 6, I would appreciate any comments or corrections.

failed8v

08-06-2002, 12:15 PM

...

Dinklefwat

08-06-2002, 12:18 PM

I think the key is that the PAC collars change over time w/actual prepayment experience. The Fabozzi book on the course 6 syllabus explained it pretty well. In order to get a feel for why different types of prepayment experience cause the effective collars to be different from the stated collars, you need to look at each collar separately.

For example, consider the top collar of a particular tranche. Payments above this collar will cause it to decline and payments below it will cause it to rise. If you look at each collar in this way, you can see why a particular prepayment experience would cause a certain type of collar drift.

08-07-2002, 08:49 AM

SN 317 GIC Example

For anybody who hasn't gotten to Girard's Cost of Capital paper (which I'm assuming is most of you), it's friggin' ugly. If you're using Actex, Bensics organization of the first couple sections is really a lot better than the actual paper's. Somewhere in the middle it got too equation-ified for me to comprehend. But to try to salvage some understanding, I decided to work through the last section "A GIC Example" to get a feel for some of the math.

On page 19, I understand how to get all the numbers in Table 5, but on pg 20 I'm stuck on Table 6. I can get the first column and the last two, but does anybody know how to calculate "PVI for MVA" and/or "PVI for FVL*"?

Thanks.

Papa

08-07-2002, 10:00 AM

Quote:

SN 119: Handbook of MBS, Chap 18 "Effective PAC Bands/Collars"

Can someone explain the following to me.

"Early PAC tranches have higher effective upper PAC bands and thus, extra contraction protection than stated in the PAC Bands.

Late PAC tranches have lower effective lower PAC bands and thus, extra extension protection than stated in the PAC Bands"

I like the way "Me" reworded it. I also think Exhibit 5 on page 308 provides a visual for the first half of this statement. Think of the area of intersection under the two curves as payments made to PAC tranches as schedules. When the upper limit goes from 300%PSA to 370%PSA, the earlier trances are still under the curve and thus will still make scheduled payments. The later tranches will have early principal payment.

Good luck

08-09-2002, 09:16 AM

failed8V,

What's the deal????

More info is better than less. Why did you delete your messages? If you're going to do that, I'll have to start printing this thread every time you post so I don't lose what you're adding.

Dinklefwat

08-09-2002, 11:16 AM

Can anyone tell me how to arrive at the chart on p.184? Specifically, where does the middle node at t=2 come from?

I think they're using a combination of the two trees (one for operating mode "A" and one for mode "B") to make the chart, but this middle node could have come from either tree. In thid particular case, both trees give the same result for this node, but I think that's just a coincidence. Any thoughts?

Papa

08-09-2002, 11:38 AM

This is probably simple, but what is the difference between a tricky Z and a jump-z?

08-09-2002, 11:46 AM

Chart in Real Options, Ch. 5 pg 184
I think it is a direct result of the trres on pg 181. Both have the middle node at time 2 as A. If those two trees had conflicting answers, I think you would use the tree with the highest value at time 0. That is, you'd look at whether starting in A or starting in B had the better overall value and then use that tree.

Papa,
What paper/chapter are you asking about? Or is that just the set up to a geeky joke?

Papa

08-09-2002, 01:37 PM

There is probably a good joke there, but I was referring to Ch. 19 of SN119.

Papa

08-09-2002, 01:37 PM

Actually, it would be a bad joke.

Dinklefwat

08-09-2002, 03:05 PM

I don't have the SN in front of me, but I believe that "Tricky Z" is just a generic name (maybe even specific to this book) for different types of Z bonds that have odd features to them (including a jump feature). Jump Z is a particular type of Z bond that moves to a currently-paying status (i.e., it jumps) under particular circumstances.

I wouldn't worry about the "Tricky Z"...

08-13-2002, 03:51 PM

SN 119 Handbook... Ch 19

First, what does TAC stand for? ("T? Amortization Class")
(BTW, anybody got a good recommendation of what I could review from Course 6 to refresh my CMO knowledge?)

Second, I can understand how a Z will help stabilize the earlier classes in a sequencial-pay CMO or in a PAC. But Exh 11 (pg 336) shows that the Z's average life will be more stable also (more than a last regular CMO coupon class). Can anyone explain to me how that makes sense? It seems like you're getting something for nothing. How can everything get more stable?

Thanks.

I would agree that Jump Zs are a subset of tricky Zs. I would say other tricky Zs can be for the purpose of stabilizing/benefitting earlier classes (referred to in the chapter as a benevolent Z). OTOH, Jump Zs seem to be more about high returns in a low int rate / high prepmt environment (for balancing out the negative convexity of other MBSs).

08-16-2002, 08:25 AM

Hello, anybody out there???

Dinklefwat

08-16-2002, 11:18 AM

TAC stands for Targeted Amortization Class.

I was looking at the Actex manual for SN 8V-312-01, and on pages C-102 and C-103 of the Actex, there's a section on "Practical Considerations for Hedging EIAs" I can't find where in the source material this refers to. My copy of the study note ends at page F-11. Does anyone else have additional pages for this SN? Thanks.

08-19-2002, 09:09 AM

SN 312 EI Prods, Actex C102-3

I did that paper before I had my Actex so I haven't looked at the too indepth. My SN also ends at F-11. I know Actex contains an outline of a whole SN that isn't even on the syllabus anymore, so I would assume it's a problem with Actex, not your SN.

SN 110 Eq durn paradox

Is it sufficient to say that the assumption of constant growth gives the DDM and FFM models the same result (just arrived at differently)

Put another way, is it true that

FV = FF*G*E becomes (r-k)/(rk) * g/(k-g) * E simply with the assumption of constant growth

Thanks in advance

I just looked at that SN last night. I would say that DDM can be expressed in terms of FFM by setting G=g/(k-g) and R = r. So you can arrive at the same result through these different ways of looking at it. I would say the DDM has two special assumptions: constant dividend growth rate and new and current business provide the same ROE.

08-20-2002, 03:53 PM

08-27-2002, 08:54 AM

Survey:

Well, how are you guys doing? Anybody through a first pass yet? I've got 6 chapters left (but a couple of them are really big) and I hope to get through them by Labor Day. Geez, this is a long road.

Dinklefwat

08-27-2002, 12:46 PM

I'm about where you are... I have the last 7 study notes to go, and I also was hoping to be done by the end of the week. It is starting to be a real pain to trudge through all of this stuff, but I just keep telling myself that if I put in the time now, I'll never have to do it again (here's hoping, anyway...)

08-27-2002, 04:27 PM

hunting

08-29-2002, 05:17 PM

Anyone else having trouble with the Real Options book? Chapter 4 is particularly annoying.

I can appreciate theoretical stuff like anyone else, but can't we save it for a less crucial time? Game theory in a two-company market would be pretty valuable if there were only two life companies in the world but somehow that doesn't seem entirely realistic. :argue:

Papa

08-29-2002, 11:19 PM

I agree with the unrealistic side of it, but in reading for what you need to know for a test, I would take another chapter of real options for a "no Panjer" guarantee

wondering

08-30-2002, 10:19 AM

08-30-2002, 10:39 AM

Anyone read SN 317-02 " Fair Valuation of Insurance Liabilities Using the Firm's Cost of Capital"? I found it was hard. And I had a lot trouble matching formula in that study notes with those ones in our formula sheet.

I agree that it was a very hard paper (not well-written IMHO). See my message about two-thirds of the way down the previous page. I've been trying to work through the GIC example. Any ideas?

hunting

09-01-2002, 06:50 PM

Speaking in general about the formula sheet, do you guys/girls have any ideas regarding how you will approach the formula sheet? I guess technically you don't have to memorize the formulas buy you still kind of do since you have to know what each is used for. So it's basically the same thing. So how should I approach this?

hunting

09-04-2002, 03:52 PM

Ok, that's ok if nobody has any advice. How about this. Does anyone know if there are formulas on the sheet that pertain to material that is no longer on the syllabus? I am having difficulty locating some of the formulas in the material.

Thanks!

09-04-2002, 05:16 PM

Hi, hunting.

There are a couple links in the very first message of this thread that talk about the formula sheets. Personally, I plan to go thru the formulas as soon as I get thru all the source material a first time. Hopefully by next week I'll have a better response for your questions.

At first glance, it seems like there are a lot of papers with formulas in them that are not in the cheat sheet at all. Meanwhile, some formulas are repeated in the cheat sheet. I plan to go thru the list and figure out where every formula came from. Then on my second pass thru the material I'll be able to figure out which ones I need to memorize, which ones are already there, and which ones I'm going to ignore.

Feel free to send me a private message if you want to discuss this more extensively. In particular, if you would want to tell me which formulas you're having trouble locating, I'd pay particular attention to trying to find them and let you know if I did.

Happy studying. :wink:

09-04-2002, 05:22 PM

Forwards vs Futures

Ok, right now I understand that futures are the standardized, daily-settled version of forwards. But in an hour I'll be confused again about which one is which. Does anybody have a good memory trick for keeping them straight?

The main problem for me is that I remember a lot of words by their first letter, so f & f was hanging me up. Just to share what I came up with:

Forwards were invented first as a way of hedging. Then later on (in the future) they made more standardized, easy-to-use versions.

hunting

09-05-2002, 01:21 PM

Me,

Thanks for the response. On pages 19-21 there are a bunch of formulas which I now know came from Panjer Ch 7 which they did not take off the formula sheet even though they took this chapter off the syllabus.

I cannot locate a majority of formulas on pgs 28-29.

Also, the bottom of pg 29 - top of pg 33 appear to be formulas from vair valuation of insurance liabilities, but boy are they screwed up. I can't even reconcile them with those from the article.

Let me know if you have any luck. Keep up the good progress as far as the reading goes. I struggled, but am mostly there, with only the case study left. I plan on taking a long time with that one.

Later.

Dumfounded

09-05-2002, 05:05 PM

Investing for Equity index Annuity Example on page F-2 of 8V-312

Why should I purchase the a call with a strike price of 113.361% of the begining index value? It seems that I am only conerned if the index rises 38% (11,069/8,000-1), which is the rate if the index would bring the $8,000 above the $11,069, the par amount in the zero coupon bonds.

Also, who is the CDL referred to at the top about a study group?

failed8v

09-06-2002, 01:40 PM

Dumfounded

09-06-2002, 03:05 PM

Also, the bottom of pg 29 - top of pg 33 appear to be formulas from vair valuation of insurance liabilities, but boy are they screwed up. I can't even reconcile them with those from the article.

I don't have my formula sheet or that study note on me, but try chapter 1 of The Fair Value of Insurance Business. This chapter was on the exam last year, but removed this year.

09-06-2002, 03:43 PM

Me,

I cannot locate a majority of formulas on pgs 28-29.

Later.

The best thing would be to ask E&E 8V committee about it. If more people ask, they might at least post a smug reply. I asked, I did not get a reply
other than ``we are using last years formula package''.

Now I think I should not have asked them, they think that I am inefirior since I did not memorize and write enough to pass in one sitting.
I think it's good you asked them. We all probably should. If anything, it might get them to improve things for next year.

Investing for Equity index Annuity Example on page F-2 of 8V-312

Why should I purchase the a call with a strike price of 113.361% of the begining index value? It seems that I am only conerned if the index rises 38% (11,069/8,000-1), which is the rate if the index would bring the $8,000 above the $11,069, the par amount in the zero coupon bonds.
If someone gives you 10,000 and you're going to give them 80% participation on the S&P 500, you'll owe them 80% of whatever the S&P 500 went up creditedd on their 10,000. For example, say the S&P went up 15%. The policy holder will get 10,000*.15*.8 = 1,200. Their total value will then be 11,200. This is more than the 11,069 you'll have from your bond investment.

Your 138% strike looks like you're doing 100% participation on 80% of their funds. It's the other way around -- 80% participation on 100% of their funds.
Also, who is the CDL referred to at the top about a study group?
CDL is a person registered on this forum who's taking 8V. If you click on that link in the first message, you'll go to the thread started by CDL about the study group. If you click on the "email" button at the bottom of her first message, you should get an address to contact her.

Dumfounded

09-06-2002, 05:22 PM

Me,
Thanks for the reply on EIA.

If the payment is based on the $10,000 premium provided(not 80% of the $10,000), why does the study note state the notional amount on the call option should be $8,000? This seems like I would be short the increase in the S&P on the $2,000.

09-06-2002, 05:44 PM

SN 312 pg F-2
Me,
Thanks for the reply on EIA.

If the payment is based on the $10,000 premium provided(not 80% of the $10,000), why does the study note state the notional amount on the call option should be $8,000? This seems like I would be short the increase in the S&P on the $2,000.
From my first response:
For example, say the S&P went up 15%. The policy holder will get 10,000*.15*.8 = 1,200. Their total value will then be 11,200. This is more than the 11,069 you'll have from your bond investment.

The S&P goes up the 15%, but you're only going to need 80% of that (the above-mentioned 10,000*.15*.8 ). But you can't (I don't think) buy an option that will pay only 80% of the S&P gain -- it's going to payoff one-for-one with the S&P over the strike. So instead of trying to get (10,000)*(.15*.8 ) you regroup it as (10,000*.8 )*(.15). That is, you have to do the 8000 of face on the option as your way of getting a fraction of the S&P payoff.

Meanwhile, your bond investment (for the guarantee) is based on the 10,000 (well, *90%. But that's a different story). So when you're considereing what strike you need (the 113.361%) you can't do the parsing as (10,000*.8 )*(.15), you have to think of it in terms of the 10,000 the policy holder gave you to begin with.

Does that make any more sense?

09-17-2002, 04:34 PM

Formula Sheet -- HELP!

OK, I've spent the better part of a week trying to understand this god-forsaken 35 pages of nonsense. Now I'm at wit's end.

Has anything besides the following been removed from the syllabus?
-Panjer Ch7
-Fair Value of Insurance Biz Ch 1

I found all the Panjer Ch 7 formulas on pp 19-21. From the above discussion, I'm guessing all the Fair Value equations on pages 29-33 are from FVoIB ch 1.

I recognize 4 formulas at the top of page 33 are from SN 311 (nevermind that they ignored a ton of other formulas from that sheet), but does anyone have a clue about the rest of 33, 34, and 35?

Also I got through the N=... on pg 28, but I don't have any clue about the rest of 28 or 29. I don't own a opy of FVoIB to know if this is all from Ch 1. Meanwhile, it seems like they ignored SN313 (among others). Can anybody help at all???? Failed8V, I'm guessing from your name that you've seen this last year; got any insights? Dumfounded? Anyone?

thanks.

[44 days and counting - yipe! yipe! yipe!]

[edited to add:]
I had a break through right after writing this!
*Pg 29 is mostly SN 307 (Dual Shortfall).
*29-33 = FV Ch 1?
*Top of 33 is SN 311(total return approach)
*bottom of 33-> end is the Algorithmics SN (mark-to-future)! Why it's at the end when the SN is numbered 118, I have no idea.

So that leaves:
*middle page 33? (LPM=...)
*bottom page 28? (dr=..., P(t,T)=..., B(T)=..., and some p stuff)
*Could someone confirm the FV Ch 1 stuff?
Thanks

wondering

09-20-2002, 10:52 AM

Any thought about SN 303 - "ALM for a going Concern?" I think it's very hard. And I can't find anything on the Formula Sheet.

chica

09-20-2002, 11:37 AM

SN317

Me - I am an 8F person, but this SN is on there, too. That GIC example stinks. I don't have it in front of me, but if I remember correctly, that Table 6 has its values calculated without any credit risk premiums (thetas, if I remember my greek symbols). The Table 7 does use them. I didn't quite follow why table 6 just uses r for the PVI values - it says it in the top of the second column of text on that page - something about modeling the credit risk stochastically or something (the other option to model credit risk). You should be able to match the values in Table 7 at the bottom of the page using the formulas for the PVIs. Hope this helps. Like I said, I don't have the note in front of me, so this is just by the tragic memory of spending way too long on this stupid problem. Hope that helps!

09-20-2002, 12:11 PM

Any thought about SN 303 - "ALM for a going Concern?" I think it's very hard. And I can't find anything on the Formula Sheet.
I started at the end of the syllabus, so I haven't looked at that one in a long time. I don't remember too much right now -- maybe someone else?

Actually, two formulas from that SN are in the formula sheet in the middle of page 28. Why they stopped with those two, I have no idea. I don't think I could take it if they were any more "helpful".

Hey chica, thanks for the tips on SN 317. I'd given up on it because nobody had responded, but I'll try to take another look at it this weekend.

Papa

09-20-2002, 01:21 PM

I agree those are the only two formulas I saw. I thought this material looked extrememly testable. I find it hard to believe they would give 34 pages of formulas and ask a question with other formulas. Then again, who knows.

09-26-2002, 04:29 PM

The middle of Page 33 is from Study Note 113, on the Downside Risk Framework.

The bottom of 28 seems to be similar to a part of Chapter 21 in Hull - they are formulae remarkably similar to Babbel Ch. 3 from Exam 6, describing probabilities through a Trinomial Tree. Unfortunately, I can't find anything like them in the material, so they may be in a "defunct" chapter. Anyone else had any luck?

The one formula at the top of p. 29 looks like a measure of asset/liability mismatch, where H is the horizon and T_i and CF(T_i) are the cash flow by timing (presumably, y is the yield). Again, I can't find it in the syllabus, but it's similar to another book in the Exam 6 curriculum.

Hope this helps

09-26-2002, 05:42 PM

Formula Sheet

Hey thanks, BC! And I quote from the front cover of the formula packet:
... The formula package was developed sequentially by reviewing the syllabus material for each major syllabus topic. Candidates should be able to follow the flow of the formula package easily. ...

What a load of hooey!

wondering

09-30-2002, 01:54 PM

So, how is going? Have you start to memorize yet? I didn't make my own outline, just focus on Actex manual. Don't know it's enough...

09-30-2002, 06:29 PM

I started memorizing flash cards today. The good news is that I only have a month to learn them all. The bad news is that I've only got 120 flash cards, and I haven't started making flash cards for the study notes starting with "Mark-to-Future". Hoping to try to lock in the early material while still working on the later material...

A.S.A.

10-04-2002, 02:51 PM

Can anyone explain why the FV of taxes in table 6 in the Girard paper is
defined as

T/(1-T)(PVI for MVA - PVI for FLV)

I am wondering about the 1-T in the denominator. Thanks

10-04-2002, 04:24 PM

SN317
Can anyone explain why the FV of taxes in table 6 in the Girard paper is defined as

T/(1-T)(PVI for MVA - PVI for FLV)

I am wondering about the 1-T in the denominator. Thanks

Sorry, can't really help you there. If you understand any of the rest of that paper, more power to you. You could try posting this in the "8V & 8F" thread since 8F has that SN too.

Meanwhile, I have a different question:
Hull Ch 11 -- Dividends and early exercise of American options.
Can anyone explain to me why there are formulas Dn>..., Di>... for puts AND calls? Why would you exercise the call early? Are the inequalities different for calls and puts? I looked at Actex and my hand written notes and I just keep getting myself more confused.

(BTW, I'm half-way thru my second pass, creating the condensed outline - flashcards, actually - to memorize. But I really won't start memorizing until 2 weeks before.)

10-07-2002, 11:23 AM

<Edited to hide earlier careless mistakes>

Don't know the specifics of the Girard paper, but I would be inclined to look at the equation that spawned it. Often times, that comes from something like (no significance to any variables):

F = T*(F+P) => F = T/(1-T)*P

So what happens if you multiply everything through by (1-T) and then separate the "T" terms on one side of the equation and the non-"T" terms on the other side?

Also:

You exercise a call option early if the dividend about to be paid is greater than the "downside protection" value that distinguishes a call from a forward; conversely, you exercise a put early if the "appreciation value" of the intrinsic value is greater than the "upside protection" which distinguishes a put from a forward short position. I am deliberately trying to be "vague and intuitive" rather than mathematically rigorous because I am trying to stimulate intuition for this. If someone else is interested in showing the equations for this, more power to you.

Curiously, the REVERSE would be true for the (counter-intuitive) case of a NEGATIVE risk-free rate of interest. Then (ignoring dividends) you might exercise an American call early, but you would never exercise an American put early. I've never seen this possibility covered, not even in Panjer, but it's interesting from a theoretical standpoint and also helps explain the asymmetry between calls and puts - they are two sides of the same coin, but by assuming positive risk-free interest, we only get to see one side of the coin.

Another curious (theoretical) consideration would be "negative" dividends periodically adding value to the stock and the effect that they could have on option values - under negative risk-free interest and negative dividends, you would only want to exercise an American put just prior to a dividend or at maturity, while a call could be excercised optimally at any time. Under positive risk-free interest and negative dividends, you would never consider exercising a call option prior to maturity, but it might be optimal to exercise a put option at any time, and especially just prior to a dividend discontinuity.

Hope this helps.

Dinklefwat

10-07-2002, 02:22 PM

Does anyone know where the formulas on the bottom of page 6 and the top of page 7 come from? Thanks.

10-07-2002, 02:47 PM

The formulae from the bottom of page 6 and the top of page 7 come from SN-116: Measuring the Risk in Value at Risk

A.S.A.

10-09-2002, 10:31 AM

In the Z-bond chapter of Fabozzi's handbook of mortgage backed securities (right hand side of page 339 of study note 119) states that a zbond will outperform a treasury zero in a rising rate environment. I don't understand how accrual helps you. Any ideas?

failed8v

10-11-2002, 04:33 PM

I guess we can safely ignore NAIC rules etc in page c33-c39?

Earth Traveler

10-11-2002, 08:04 PM

I tend to sit for 8v in next year, could you guys tell me what study manual you are using and what's your opinion about your version?

10-13-2002, 02:10 AM

Earth Traveler, the only study aid I am aware of is Actex by Bensics. It's not very good, but it is far superior to nothing. Basically, I amended and modified it as I made my first pass through the material.

MNEMONICS
Anybody else working on any? I've only got a couple so far, but am going to have to come up with some good ones for the equity-indexed products study notes.

[sorry, I'm no help in answering A.S.A.'s of failed8v's questions]

10-14-2002, 01:44 PM

annabel lee

10-14-2002, 02:14 PM

me, I think this is one of our study notes too on 8F. I'd think that Type I is more expensive: suppose you invest a total of $1,000, split evenly over two funds, BigLoss and BigGain. At the end of the guarantee period, BigLoss has fallen to 1% of its value, so instead of $500 you're down to $5. BigGain has doubled, so your $500 has grown to $1,000.

If you have a Type II guarantee, the company has to make sure your ending balance is at least $1,000. Which it is -- it's $1,005, in fact. Cost to company: zero.

If you have a Type I guarantee, the company has to make sure that each of your two funds has at least $500. Which means they have to dump $495 into BigLoss for you.

For a Type II guarantee to pay out anything, there has to be a net portfolio loss. Type I only requires a loss in one fund.

10-14-2002, 02:21 PM

Agree with annabel lee.

10-14-2002, 02:55 PM

Thanks. That's what I thought at first, but then I saw something in Actex that seemed to be saying the opposite. But heck if I can find it now. Anyway, it's good to know I was initially thinking about it the right way.

hunting

10-14-2002, 05:33 PM

Rumors are now flying that ACTEX will have a new manual next sitting for 8V, with a new author. I am not sure what kind of response the current manual has gotten, but I am guessing that this means that it wasn't very good.

failed8v

10-15-2002, 01:09 PM

10-15-2002, 01:52 PM

SN 313

Variable Annuities: Type I guarantees =>with multiple funds, each one has a guarantee
Type II => funds are aggregated and subject to a single guarantee.

Which is more expensive and why?

thanks

I don't remember reading anything on this. It just says treatment of lapses differ in two types, and we could approximate Type II with Type I.
(it implies Type I is easier to hedge (could be more costly)).

Anabel Lee's simplified example is correct, but I bet one could come up with multi-period example where Type II is more expensive to issuer when you consider lapses (with an associated vetsing schedule).

Pls correct me If I am wrong.
I remember it saying something about how Type I could be used by savvy customers to get more out of the option benefit. For example they could lock in some upside return with a few safe allocations and then do extra risky stuff with the rest of their money since they are assured of no loss. The more I think about it, the more I think I must have just confused the names with the meanings - Tpye I makes much more sense as more expensive.

I'm not disagreeing with you, failed8v - I think you could come up with a multi-yr example were type II was more expensive. But I think on average (as opposed to specific cases) it won't be.

8Vwriter

10-15-2002, 11:54 PM

The 2nd half of Pg. 28 (from dr(t) = ...) to the 1st line on Pg. 29 is from SN306 (taken out this sitting).
Then the next 12 lines on Pg. 29 is from the SN307 Appendix (part of this year's syllabus).
The rest of Pg. 29 - the 1st line of Pg. 33 unfortunately corresponds to Ch. 1 of the FVL book from last year, instead of SN317. That is why wondering had a hard time matching the formulas from SN317 to the formula sheet.
Hope that helps.

wondering

10-16-2002, 09:01 PM

How many hours can you put in everyday now? I'm so sick of it....

failed8v

10-17-2002, 08:00 AM

10-17-2002, 03:11 PM

How many hours can you put in everyday now? I'm so sick of it....

I was planning to spend 3-4hrs everyday in Oct. but, it is more like 2hrs
except on Tuesdays (that is my study day) about 5hrs.

I find reading to be very exciting :swear: (not at you wondering just at the reading) :crazy:
C'mon, guys, only 2 weeks left! It's like being able to see the finish line of the marathon. I'm beginning my "hell week" of reviewing 10 chapters a day and trying to memorize. Then hopefully I'll just work on problems and wind down the last week. I hope I don't break down before then. Just think about how much it would suck to do this again next year. This could be the very last time you take one of these exams. Ever!

annabel lee

10-17-2002, 03:25 PM

Just think about how much it would suck to do this again next year. This could be the very last time you take one of these exams. Ever!

Thank you, Me -- that sentiment is exactly what I need to keep reading/hearing/thinking. Right now that's about the only thing that's keeping me going.

chica

10-17-2002, 03:36 PM

I agree. I plan to kill myself over the next 2 weeks - well, probably just until the Monday before. Need to rest up and have a clear head for the exam! Hang in there - we're almost there! C'MON!

10-18-2002, 02:12 PM

MNEMONIC SN 106 Political Risk in World Economics

Role of the state in world markets: CLIMBS
*Maintaining Currency stability
*Establishing a Legal framework
*Controlling Inflation
*Preventing Monopolies
*Regulating Banks
*Regulating Securities markets

Variables found to be predictors of political stability: GRIPpeD, QATCH
(Sometimes the more bizarre they are, the easier they are to remember :shrug:)
*GDP
*Rental income
*Distribution of Income
*Predictability
*Democracy

*Quality of Life
*Agriculture
*Trauma
*Competitiveness
*Human capital

hunting

10-19-2002, 04:42 PM

failed8v

10-20-2002, 07:38 AM

What is the consesus of the Luke Girad's paper?

10-20-2002, 12:00 PM

Me,

Thanks for the mnemonics but I think you forgot a list from this study note! Factors suggesting that political risk has diminished over time:
- Spread tightening of sovereign debt
- Studies show that trading on the basis of a political risk measure cannot produce abnormal returns
- Increase in foreign direct investment
- Nationalism no longer a threat

For the formula package, what is everybody going to do? Memorize which equations go with what? I am having trouble trying to decide if I should just scrap even trying to remember what some of the formulas are for, since some are pointless.

Study, study, exams are your buddy.

Wow, that list didn't even make my big outline let alone my super-condensed memorization outline. I just tried to remember that political risk has diminished over time. I have 90+ pages of stuff to memorize so I can't imagine adding anything else on at this point. More power to you, hunting, if you've got that level of detail in your head! (Besides, my list was not necessarily meant to be exhaustive. It was just the long lists I had mnemonics for in that SN)

As for the formula sheet, I am trying to be very familiar with it. If they ask me to price a barrier option, I want to be able to use the formula from the sheet. If they ask me about the s.e on a VaR calc from the quantile method, want to know where that formula is. I'm going to spend next week doing pratice questions, so we'll see how helpful the formula sheet is then.

What is the consesus of the Luke Girad's paper?
Um... it sucks!

Oh, you meant on what to do with studying it? I sort of skipped it on my second pass. I plan to go over it at some point in the last couple of days before the exam and cram a few key things in my brain. If they ask a full 8-pt question on it, I'd hope to get about 1 pt worth of credit and then use the time on the other questions. It would be pretty evil for them to ask a math-intensive question from it since they haven't given us those formulas (and since it sucks!). But remember, main ideas are worth more than details, so if you have a few main points or relevant formulas to spit out you could still get decent partial credit.

hunting

10-20-2002, 03:50 PM

Well said, me. Maybe that list isn't that important. You're probably right. For some reason I picked it out and it made its way onto my outline. I share your pain re: memorizing and trying to be familiar with everything! Good luck cramming all that crappola in there. My dad always told me that eating honey helps your memory. Probably only a piece of folklore from the old country (italy) but even if it's just a psychological crutch, I'll use it.

As for Girard, I would definitely know under what situations the direct and indirect method are equivalent. As for the math stuff, who knows? If a problem were to appear I might just draw a big picture of the middle finger on my answer sheet to relieve frustrations. Grading is supposed to be anonymous! Seriously, though, that stuff is tough.

failed8v

10-21-2002, 12:27 PM

Thanks me and hunting about Girard's paper. I do not know whether
I'll have more time to go through it.

10-21-2002, 02:24 PM

Thanks me and hunting about Girard's paper. I do not know whether
I'll have more time to go through it.

You're welcome.

BTW, I like your proposed answer, hunting. I just might use that. At least it would make me feel better. Perhaps I would write that the picture was meant for the author of the question and not the poor grader; maybe s/he could pass it along to the proper person.

10-21-2002, 02:32 PM

SN 114 Mnemonic???

Has anybody come up with a way to remember those "Global Study Group's" recommendations on derivatives? I've been trying to cram so much in my brain, I just can't imagine coming up with some kind of mnemonic for these 30 things!

failed8v

10-22-2002, 12:48 PM

10-22-2002, 02:35 PM

Me:
SN 114: I just have a short list from it just, who are the users safe practices etc. But then again I am pretty bad with memorizing lists, even a list that I know well, I may forget to write one or two item. I don't even look at mnemonics, they sounds wilder than the list itself may be because I use ESL.

Anyway I have a question: What are you guys doing with Real Options.
It is straightforward but no problems to practise.

This would be a whole lot harder with ESL and it's already unbelievably hard!

As for Real Options, I haven't looked at it in a while, but I'll probably try to pick out some of the examples they did, write down the givens, and then try to reproduce the results without looking.

failed8v

10-22-2002, 03:45 PM

This would be a whole lot harder with ESL and it's already unbelievably hard!

Just a minor point, I don't like to think that I am at a disadvantage for
not being a native english speaker. The biggest problem with me is poor motivation. I've realized that most successful exam takers study very hard.

As for Real Options, I haven't looked at it in a while, but I'll probably try to pick out some of the examples they did, write down the givens, and then try to reproduce the results without looking.

Thanks, this is what I am doing. I am sure everybody knows that there will be a (4-8pts) Real Options question.

10-22-2002, 03:57 PM

Thanks, this is what I am doing. I am sure everybody knows that there will be a (4-8pts) Real Options question.
Yeah, I think so too. But I don't think it will necessarily be a math question. Or maybe it will just have one of several parts involve calculation.

hunting

10-23-2002, 04:50 PM

when you say practice problems, do you mean just out of the hull book or do you have another source of good practice questions?

If so, I'd be interested in getting my hands on those as well.

Thanks!

10-23-2002, 04:52 PM

There's Hull, and Actex has a few (mostly essay, but a couple math). Then there's the sample exam and 2000 and 2001 exams. That's all I know about, but that should keep me busy for the next week.

10-24-2002, 02:11 PM

MNEMONIC SN 201 Behavioral Models

Actual investor behavior is characterized by:
L, M, N, O, P, -- Fast Forward past q -- R
Loss aversion
Mental accounting
Non-bayesian
Overconfidence
Prudence
Framing
Fads / Fashion
Regret / Responsibility

failed8v

10-24-2002, 03:14 PM

MNEMONIC SN 201 Behavioral Models

You like mnemonics a lot! Can you write legibly really fast?

6 more days of looking at this bovine manure!

10-24-2002, 04:14 PM

MNEMONIC SN 201 Behavioral Models

You like mnemonics a lot! Can you write legibly really fast?

6 more days of looking at this bovine manure!

Yeah, I memorize a lot. I have about 90 pages worth of stuff I'm trying to cram into my brain (I'm only thru about 60+ so far). Last week I looked at one question from the 2000 exam just to judge how I was doing / what type of questions they might ask. I won't say what it was in case anyone was saving those questions for later. But anyway it had parts a, b, and c. Part "a" I recognized as a list from a chapter I hadn't done the memorizing for yet. Either you spew out the list of 7 things they were looking for, or you probably don't get much credit on that question. It convinced me I needed to work harder on the memorizing. The supporting details are there in my brain from the months of studying, but if I don't memorize the framework off of which to hang the details, I'm sunk.

I pretty much have to come up with mnemonics for lists with 7-8 or more things. I've probably got about 40 of them already. Most ofthem aren't good enough to share with other people, but the ones I put here seemed relatively elegant. I've actually come up with a set of mnemonics for the 52 features of the different equity-indexed products and which features go with def ann, imm ann, and life. It's ugly and I'll probably not be able to remember what a couple of the letters in the mnemonic stand for, but if asked I would give you the vast majority of the list and categorize it correctly. I am continually awed by how much of this crap I can keep in my head.

I'm not sure what you mean by the "legibly really fast" part. Isn't that what these essay exams are all about? Core-dumping an outline and a bunch of details? For the 201 mnemonic I'd just write the L,M,N,O,P,F,F,R down the side of the page with a few lines between each letter. Then I would go back and fill in what they stand for. Then I'd write details and examples in those extra blank lines until the 3 minutes/point were up for that question.

Munch

10-25-2002, 09:37 AM

failed8v

10-25-2002, 12:50 PM

8Vwriter

10-25-2002, 03:29 PM

I have two questions.

1. Does anyone know why x=1 year put and y=10 year call will minimize the cost in question 3 (a) of 2000 exam? From the asset chart, it seems that this combination is the most expensive. Also, in part (c), how to calculate the 99th percentile drop in S&P?

2. In question 12 (g) of 2001 exam, how the index number = 84.92 come from?

1. The first step hedges the gamma and vega risk. Looking at the table, all 1-year options have the same greeks (except for delta), same with the 10-year options. Because of that, you would have to use a combination of 1-year something and 10-year something to construct the hedge.
Given y = 10-year call/put <0 and x = 1-year call/put >0, you would want y to be a more expensive option since you're shorting it, and vice versa for x.
One thing I don't quite agree with the solution is that the 1.036 should be -1.036 and 1952 should be -1952.

2. I think they assume index at t=0 is 100. Looking at the confidence interval from (c), the range of the index will be (100e^-0.1635, 100e^0.2285) = (84.92, 125.67) at t=0.25. Payoff from the put is maximum of (95-index at t=0.25) and 0, which is (10.08, 0) respectively.

wondering

11-01-2002, 03:03 PM

No discussion about 8V yet? What do you think about the exam?

11-01-2002, 05:39 PM

As for Girard, I would definitely know under what situations the direct and indirect method are equivalent. As for the math stuff, who knows? If a problem were to appear I might just draw a big picture of the middle finger on my answer sheet to relieve frustrations. Grading is supposed to be anonymous! Seriously, though, that stuff is tough.

I pretty much took hunting's idea for #16. I can't believe they asked that! And a calculation question from the Real Options book -- at least it was amongst a bunch of essay stuff.

Was the principle components question as easy as it seemed?

wondering

11-01-2002, 06:08 PM

I left #16 blank. The one I also missed is the question asking about F's process where F is a function of three variables.

emptiness

11-02-2002, 02:24 AM

What do u guys think about the passing point this time? I did attempt around 70% of the paper but not very sure of the answers.

Dinklefwat

11-04-2002, 09:35 AM

I wouldn't worry about the "Tricky Z"...

What a freaking idiot!!

11-04-2002, 10:37 AM

I am guessing that I got between 55% and 60% on the exam. I am arbitrarily setting [45%, 70%] to be a 95% confidence interval. I am terrible with memorization, and there were a lot of "essay" list-type problems. I think I only blew one of the math problems, and I knocked the 13-point "real-options" problem out of the park. Of course, I have a Ph.D. in operations research, so I ought to have.

This is my first time sitting for the exam. Any ideas on

(A) Generosity of partial credit
(B) Subjective feeling for the normal pass mark
(C) Is the exam harder or easier than usual?

wondering

11-04-2002, 11:13 AM

BC, did you get #16, the fair value of liability question? Well, I think if you got 55% - 60%, you have a very good shoot. I remember people discussed the pass mark for 8V is about 65/120 last year.

11-04-2002, 11:17 AM

I didn't get much of anything on the FVL question. I wrote down a few formulae copied from the formula pages the SOA provided. In the afternoon, if I remember correctly, I got good results for 9-11 and 13-15. For 12 and 16-18, I struggled to put down anything relevant. Not 100% sure on which problem numbers, though, so don't quote me :duh:

When I see the exam again I can probably re-create how I came up with my "range".

Good luck to all.

wondering

11-04-2002, 11:44 AM

Here is what I remeber the questions were....

1-4 Case study: Return Attribution, Aquire a P&C Co... (about 40?)
5 Differential Equation: F is a function of three variables... (7)
6 Employee Stock Options (13?)
7Sythetic GIC (5)
8Interest Risk Models (5)

9 Political Risk (5)
10 Principle Component Analysis (5)
11 Real Options (13)
12
13
14
15
16 FVL (7)
17
18 SPDA, RSA (5)

11-04-2002, 01:49 PM

BC, did you get #16, the fair value of liability question? Well, I think if you got 55% - 60%, you have a very good shoot. I remember people discussed the pass mark for 8V is about 65/120 last year.
What is the point of this type of speculation???? No one except the exam committee has any idea how many points get awarded for what answers and/or how many of the 120 points are needed to pass. They purposely hide this information. Other than people's subjective speculation and gut feeling, there's nothing to be brought to this discussion. There are no facts available.

(BC, past graders have indicated that they are fairly generous with partial credit.)

failed8v

11-04-2002, 01:49 PM

I thought first 5 questions were related to the case study.

I think the math portion of this exam was easy compared to last year.
Anyway, this was not my first attempt, I wrote as much as I could this time. As usual I may have misinterpreted some questions. I hope they can read my handwriting. I ended up using 0.7mechanical pencil.
I feel much better compared to last time. I am terrible at memorization, like math type questions. I hope I don't have to read that crap again>

I think there are 6 posters here (Me, Dinklefwat(?), BC, Wondering, Hunting and myself, I was not sure whether 8Vwriter is a candidate or in the E&E committee) and seems we all did well (?). However, roughly 41% will pass. I would guess about 270 (there were 113 first time, 50 passed, 169 second time 68 passed) took it. As usual I was the only candidate in my center. Were there many in your center?

11-04-2002, 03:37 PM

hunting

11-04-2002, 10:27 PM

I remember some of the other questions from the exam but can someone verify that it is safe to post comments related to the content of exam questions?

In my exam center, there was me and three others, all of whom showed. One in particular did not look at all pleased at the end of the exam.

wondering

11-05-2002, 01:59 AM

Don't worry, Hunting. SOA will pulish the exam anyway (only 1-4 will not be published).

Two more questions I can think of:

Credit risk, lower band for call option... (5)
Stratigic exposure: currency risk & commodity price risk. (5)

11-05-2002, 09:49 AM

There were 14 people scheduled at my test center, of whom 12 showed up; however, only 2 were there for 8V, and we both showed.

WBH

11-05-2002, 11:11 AM

You do know that you can get a copy of the test from your exam administrator...right. You can do this for courses 5,6 and 8. They are allowed to release the exam 24 hours after the sitting. It may be too late to get one now. After a couple of days they are thrown away.

failed8v

11-05-2002, 03:34 PM

So far Me's center had the largest # of candidates.

Everybody, except one candidate in one center, thought that the exam is easy? going to be a long 10weeks.

I don't know anybody who took 8V, except the posters here.

Dinklefwat

11-05-2002, 04:23 PM

I certainly didn't think the exam was easy. I felt very well prepared and still struggled with a few of the questions. Also, there were several that I didn't have nearly enough time to put everything I knew (or even the most important points).

WinnieThePooh

11-05-2002, 05:21 PM

I think the problem is that there is so much stuff. There is some stuff at one point I knew but did not have time to look at again, so that on the exam the reflection is that I did not know it at all. Most questions are probably easy if someone told you to learn it the night before.

I think the exam was on the hard side based on sheer volume and stupid stuff to remember.

Poohbear

hunting

11-05-2002, 06:36 PM

Just so I can get my bearings, and so I stop wigging out, can someone tell me what is meant when they say they thought the exam was easy? At least put me in the ballpark. Does easy mean you think you got 100/120? Or do we mean more like 80/120. Or 60/120. This would be a huge help and would probably bring my blood pressure down a few points. I certainly don't think it was easy, but I definitely thought it was fair. There were no questions that were so large that missing them would be a dealbreaker. Many different portions of the syllabus were tested to get a good cross-section of the material. There was a good balance between computational, blind list, and conceptual questions. I'll have to wait to see the exam to try to reconstruct my point estimate.

Dinklefwat

11-05-2002, 06:43 PM

Like I said, I thought I was well prepared, but I'm guessing I only got around 75/120, for what it's worth.

failed8v

11-05-2002, 07:10 PM

I thought math/computational portion was easy, and other questions were fair and assumed lack of discussion meant that it was easy for most.

I am not going to guess a point value for my answers. It always depend on how others did, so no point in guessing.

11-06-2002, 10:50 AM

For the record, I did not think it was easy. I thought it was evil! :evil:

wondering

11-06-2002, 11:03 AM

Definitely not an easy one for me!

Dinklefwat

11-06-2002, 01:32 PM

failed8v

11-06-2002, 01:40 PM

I was looking at the section of the Hull book on risk-neutral valuation, and found something I couldn't figure out...

In order to form a "risk-free" portfolio, we choose securities such that the dz term drops out. For instance, if we write a call option with a delta of 0.5, then we would hold 0.5 shares of the underlying security, so that the coefficient of the dz term is zero.

So the hedged position is risk free for a very short period of time, in your example.

Doesn't it then follow that any "risk-free" security or portfolio would have a dz component of 0 (and that a security or portfolio having a non-zero dz is by definition, NOT risk-free)?

Let me know if I'm missing something. Thanks in advance.

I don't get this part. Any security with 0dz would earn the rate implied
in dt .

For examle if

df/f = m(t) dt + 0dz
then rate of return in f during [0,t] is int_0^t m(s) ds. It is ``risk-free''.

Dinklefwat

11-06-2002, 01:46 PM

failed8v

11-06-2002, 02:01 PM

The point I'm trying to make (while being careful not to disclose exam contents) is this...

If we're given a security in a problem (let's call this security "R") and the price process for R has a non-zero dz component and we're told that R is risk-free, it would seem to me that this is a defective question...

I get it now.

Till now, I did not think about ``risk-free '' part. Can a risk-free rate follow an ito process? Sure it can! ex. C-I-R model for risk free interest rates. Remember B-D-T trees in part 6.

edited to correct obvious mistake.. :shake: sheesh, I hope my answers are not that sloppy.

Dinklefwat

11-06-2002, 06:56 PM

Thanks for the info. I understand that risk-free securities don't necessary follow deterministic processes, i.e., the "risk-free" part only applies to credit risk, not interest rate risk.

I was just confused because I thought the question came from the Hull book, where the Risk-free portfolios are formed by eliminating the dz component.

And feel free to gloat. If you got that one, you're in the minority. I haven't talked to anyone who got part a) of that question, although part b) wasn't nearly as tough.

failed8v

11-07-2002, 09:45 AM

11-07-2002, 01:27 PM

I was just confused because I thought the question came from the Hull book, where the Risk-free portfolios are formed by eliminating the dz component.

Part (a) was application of eq 19A.3 in Hull (page 526). Unfortunately, it was not in the formula sheet.

Wow, I guess I blew that problem!

Given that bit of info, I strongly encourage all you 8V people checking out this thread to write the SOA (now that you're not studying and have all that free time) and tell them just what you think of the formula package. I'm going to today. Sheesh!

Dinklefwat

11-07-2002, 02:57 PM

I have a different problem with this question...

I don't have my book in front of me, but if I remember correctly, formula (19A.3) means it came from Appendix A of Ch. 19. There was almost 1,700 pages of material on the syllabus and they have to pull a question from the appendix?!

Dinklefwat

11-13-2002, 03:41 PM

Anyone have additional thoughts on the exam after getting the booklet back? Looking back, I found several questions that I thought I nailed at the time, that in retrospect, I think I missed major points on.

Anonymous

11-18-2002, 06:47 PM

Exam was released. Any thought?

Anonymous

11-19-2002, 01:44 AM

Exam was released. Any thought?

What anonymous postings are allowed? Since when :)

Anonymous

11-19-2002, 09:16 AM

Apparently

Dinklefwat

12-20-2002, 06:28 AM

The only good insomnia is good for is moving our thread back to the top... Anyone else getting nervous about 1/10/03?

actuari

01-07-2003, 11:54 AM

How are you waiting for this Friday? I personally try to do a lot of work that requires concentration and not to think about exam results. As you can see, it doesn't always work.

01-07-2003, 12:18 PM

I'm going to be a complete wreck by Friday. I did pretty well not thinking about it before this week, but now I'm starting to get obsessed. So many good things happen if I pass and it will be so miserable if I don't. So many people counting on me and nothing I can do about it now.... Argh!

Anyone know what the web address of the candidate numbers will be? I'm so pissed that they took down the links to November '01 results.

hunting

01-08-2003, 05:40 PM

I am a wreck. I can say for sure that I don't want to take this exam again!

I wish everyone in this thread the best of luck.

Dinklefwat

01-09-2003, 06:43 PM

After reviewing last year's pass rates, it looks 8V had the lowest of all the Course 8's. That means there are more second-timers this year, so that the candidates are, in general more prepared, and the pass rate this year should be higher. They owe us one!!

Seriously though, best of luck to everyone. And as much as enjoy this forum, I hope this is my final posting.

hunting

01-10-2003, 04:13 PM

They are out. Anyone else get their marks? I passed.

Dinklefwat

01-10-2003, 04:22 PM

I passed as well.

01-10-2003, 04:23 PM

Woo-fricking-HOO!!!!! No more exams! No more studying!

And congratulations to hunting!. I sure hope failed8v gets to change his/her name.

01-10-2003, 04:49 PM

I passed - didn't expect to on my first try, either.

wondering

01-10-2003, 05:06 PM

I passed too!

actuari

01-10-2003, 06:13 PM

Glad I passed too! Happy for you as well.
Curious to see the grade - I only had difficulty with part of the question on Gurard's paper - didn't remember all the formulas (boy, they are hairy)... but the good news is I don't have to worry any more about what's on SOA grader's mind and what they want or don't want to see in my answers!
Hard to believe it's over. How do you celebrate? It was, probably, the last one for most of you. Any creative ideas?

pokemon

01-10-2003, 08:03 PM

I would like to know which fields you passers are in or what type of work you are doing. I am in health insurance business and need to decide whether to take course 8 managed care track or investment track. Several people from our company took 8M and all failed. Would it be better for me to take 8V since I liked course 6 material and passed it on first try.

Any suggestions or comments?

Dinklefwat

01-11-2003, 02:28 PM

If you liked the COurse 6 material had were able to pass it on the first try, I'd go for the Investments track. I don't know anything about the other one, but I found most of the 8V material somewhat interesting, and it's really an extension of Course 6.
I'm in life pricing and had no actual investments experience when I took 8V, and I don't think it hurt me much.

8Vwriter

01-11-2003, 04:08 PM

I passed too!
Congrats to all who passed!
Pokemon: I suggest you take 8V, I think you can pass this course as long as you spend enough time on it, and you mentioned you liked the material in Course 6. So it should be a little easier for you.
I heard of someone who took 8M and failed, then had to switch tracks.

failed8v

01-11-2003, 10:54 PM

I sure hope failed8v gets to change *his* name.
I passed, thanks. Congratulation to all the passers!

asamd

01-12-2003, 07:26 AM

I'm in Health, took 8V and failed, but I'm better at crunching numbers than memorizing lists, so I'll try again.

actuari

01-12-2003, 02:31 PM

I only studied for 8V but based on what I heard 8V has the smallest amount of memorization and 8G/M has the most. On the other hand, people who passed 8G in our company said the exam was fair and straightforward. They felt if you learn the material you pass. On 8V you need to solve problems on the spot and memorization is secondary but still important. Next year you might get a better formula package. I know the Committee is working on the update (I sent them the list of typos I noticed and suspect others shared there thoughts as well). I am not sure how important work experience is for either test.

01-13-2003, 10:44 AM

I loved the material on 6 and that was what made me decide to take 8V. I am horrible at memorizing; while I didn't feel that the exam had much less memorization than the others, I would say that since I already had a lot of the underlying knowledge from exam 6, that made it easier to memorize.

My breakdown of the past three exams:

1/3 memorization
1/3 case study
1/3 problems

The problems are probably harder than on the other "8"s, but if you're good at problems then it's worth it, I think. I have no insurance experience with investments, either.

actuari

01-14-2003, 07:06 PM

Did you get your grades? Anybody got a 10?

Dinklefwat

01-14-2003, 08:11 PM

Yes and Yes. Honestly, I don't know how - I really thought I was sort of borderline. :wink:

pokemon

01-14-2003, 08:53 PM

Is there anyone willing to share study notes? Any comments on Actex study manual?

wondering

01-14-2003, 09:08 PM

I got a 9. I thought about a 5 or 6. I'm curious to know what's the pass ratio for 8V this time.

01-15-2003, 12:35 PM

Is there anyone willing to share study notes? Any comments on Actex study manual?

What do you mean by study notes? The SOA SN package? That belongs to my company and I don't think I can share.

I thought Actex sucked, but it was better than nothing. I went through it while reading the text on my first pass and made a lot of notes. Sometimes I stapled an extra page of handwritten notes in when I thought the outline skipped stuff. I reviewed that giant mess a couple times after that and didn't go back to the texts.

pokemon

01-15-2003, 02:29 PM

Did anyone create your own study notes?

Traina

01-16-2003, 01:36 PM

I would like to start studying for 8V fairly soon. Can anyone recommend which of the textbooks I should start with? Or, any recommendations for which texts are particularly challenging and will require special attention.
Thanks for any advice!

eminem

01-16-2003, 02:31 PM

If you are taking 8V after 6, the best book is Hull. It starts out easy and has little problems embedded in the text that the SOA loves to test you on.

A recent addition is Real Options. The math is not too hard.

If you want interesting reading, start with Chew.

01-16-2003, 03:44 PM

I'd start with the Options, Futures, and Other Derivatives book or the Real Options book.

To answer an earlier question in the thread: 8, not bad considering I didn't expect to pass and only put in 300 hours. I had other things going on in my life, which tends to hinder studying.

Traina

01-16-2003, 11:56 PM

Thanks for your help guys!

New at pd

01-17-2003, 09:24 AM

Hi everyone,

While waiting for my 8V books to arrive, I have the 3rd edition of the Options, Futures, and other Derivatives text. What were the chapter names in the 4th edition that people were responsible for on the exam?

Thanks!

01-17-2003, 10:44 AM

Hull:
7: Properties of stock option prices
8: Trading strategies involving options
9:Introduction to binomial trees
10: Model of the behavior of stock prices
11:The black-scholes model
13: The greek letters
14: Value at risk
15: Estimating volatilities and correlations
16: Numerical procedures
17: Volatility smiles and alternatives to b-s
18: Exotic options
19: ...: Martingales and Measures (part of it)
20: Interest rate derivatives: the standard market model (part)
23: Credit risk

New at pd

01-17-2003, 10:52 AM

Thanks a lot!!

I just want to make sure I don't read the wrong sections.

failed8v

01-22-2003, 07:20 PM

I got my score today, it is a 9. I did all the questions, I was sure of all the numerical questions. I must have misread some nonnumerical questions. Just a tiny bit dissapointed after seeing all the 10s. After the exam, I thought I would get a 10. Oh, well ..

For the new guy, there is a new edition of Hull, he has expanded a few chapters, there is a chapter on credit insurance etc..
Also, they *might* end up using a better book for Real Options.

I can retire my login-id.