Actuarial Outpost > MFE "But she has not ever re-balanced her portfolio"
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#1
07-13-2012, 07:16 PM
 Time_value_of_Sex Member CAS SOA CCA AAA Join Date: Jun 2012 Location: Swishville College: Scarlet Knights Posts: 50
"But she has not ever re-balanced her portfolio"

What the flunkjacks does this mean?

From MFE SOA Question 47

I thought it mean that she does not buy bonds to cover her position and so I used the profit equation of:

-(Ct+h - Ct) + Delta (St+h - St)

And I got a answer choise of exactly 240. A nice letter E.

So what does it really mean if the answer is B?

It means she did cover herself in bonds, but she just didn't buy of sell anything until now?
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#2
07-14-2012, 11:15 AM
 sjb554 Member Join Date: Jun 2011 Location: Vermont Studying for P / 1 College: University of Vermont - Alumni Favorite beer: Miller Lite Posts: 306

Don't use the SOA sample questions. They are completely useless for the exam. Spend your time memorizing all of the formulas and doing questions more similar to the real thing.

MFE used to have more difficult and longer questions, but it seems like now they are shorter, but still thorny problems.
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#3
07-14-2012, 11:31 AM
 Garth Member Join Date: Jan 2011 Posts: 41

It just means that the period you use is "several months" instead of 1 day. It's the same exact problem as an Overnight Delta Hedge problem, just that you're calculating profit over a period much larger than 1 day.

EDIT: So yeah, your last sentence is right. I didn't see you wrote that, at first.
#4
07-16-2012, 05:06 PM
 Time_value_of_Sex Member CAS SOA CCA AAA Join Date: Jun 2012 Location: Swishville College: Scarlet Knights Posts: 50

Ok. So it's actually just a "find the market maker profit" problem with confusing languwage.
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