Thursday 19 March 2020

VaR

This is the way I teach this - This is all you need to know for the exam.

 VaR = Standard Deviation x the Z score.

The standard deviation is how much the members of a group differ from the mean (average) value for the group. You will not be required to calculate this in your exam.

To calculate the Z score of a particular confidence level we take the confidence level, in this case, 95% and takeaway 50 (this is because we are just looking at one side of the standard distribution (the amount that is over or under the average). This equals 45. So for a 95% confidence, we’re looking for a value in the body of the table of 0.45.

As you can see in the screenshot here, this will lie exactly halfway between the two values I’ve highlighted (0.4495 and 0.4505)



As these figures are in row 1.6 we get 1.645

 So assuming the standard deviation (always given) is $2m then the VaR is 1.645 × $2 million = $3.29 million.

 If we are asked to find the 8 years VaR we don't multiply the $1.72 by 8 as you would think. But we multiply it by the square root of 8.

On your calculator this is the same as (8^0.5) means the square root of eight. (i.e. the n-period VAR = the one-period VAR x n^0.5).

So for 99% VaR we get 99-50= 49. Look up .49 in the body of the table we get column 0.03 and row 2.3 so the Z score for a 99% VaR is 2.33.

Tuesday 28 January 2020

How to take Objective Tests or Peter's Three Pass Technique

I have always thought that taking exams is part knowledge and part technique. In fact, during most of my teaching career, I have often said that to pass professional exams you need three skills in equal measure: Knowledge, technique and time. With the onset of objective testing has this option changed?

Well no it hasn't!

For objective tests, I believe that technique is also very important and it can make a big difference between pass and failure.

Firstly make sure the first time you take the exam isn't the first time you take it for real. In other words practice, practice, practice. What you need to do is not only practice your knowledge but also practice your exam technique as well and to time.

If you were entering for a marathon you wouldn't just turn up on the day and run. You would train. This training would consist of short runs, longer runs, trying different techniques, different paces until you find something that really worked.

This is what you need to do in the final build-up to the exam. Also, you wouldn't run a marathon in a brand new pair of trainers, would you? No! So make sure you practice questions using the calculator (from CIMA's approved list) that you would use on the day. Even practice using a single piece of paper or laminate sheet like you get in the exam.

With objective tests, a careful reading of the question is crucial. One word can change the whole meaning of the question. Watch out for double negatives and check how many answers you have been asked to select.

You have on average 90 seconds to attempt each question so with this in mind, can you really afford to read and then re-read a question a second or even third time?

So here is Peter's three pass technique.

First pass: Aim to do over 10 questions in each 15 minute period (there is a timer on the computer screen). Start at question 1 and ask yourself the question can I do it quickly? If the answer is yes do it. If the answer is no, flag the question (there's a button top right) and move on.

Second pass: Again aim to do 10 questions per 15 minute period. Start at your first flagged question and this time ask yourself the question. Do I think I can do it? If the answer is yes do it, if not leave it flagged and move on.

If a question has a long scenario, read the question (at the end, normally) first, so you know exactly what you're looking for in the scenario. Think about what type of information is needed to answer the question, and look for the information in the scenario.

Attempt the questions and remove the flag as you do it.

Third pass: Now go back again to your first flagged question work out how much time is left and try and spend equal time on the still flagged questions.

Don't leave any multiple-choice questions unanswered - if you don't know which answer is correct, exclude those which you know are wrong and make an educated guess. You have nothing to lose as there is no negative marking in the exam.

Remember:
If a question looks 'subjective', stop thinking too much. Look for what it probably says in the textbook. Try the 'simplistic' approach. It's normally the right one. If you over-analyse, you'll get even more confused.

The questions students are finding the most challenging are the 'select ALL that apply' question. Of course, you need to select the most obvious answers, but which ones? Well, it's least likely to be one or all of them, so 2/3/4 should be your 'favourites' but a much better approach is to try spotting the ones that don't apply.

If you find yourself using far too much time on a question, guess and move on. Try to attempt ALL the questions in the 90 minutes, even if you have to guess at a few.

Never go back to questions you have already answered. You'll only waste time and talk yourself out of what is probably the correct answer.

Finally, to pass exams you don't have to use my technique but at least have one. Good luck!