PRMIA 8010 Exam - Topic 1 Question 38 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 38
Topic #: 1

[All 8010 Questions]

As the persistence parameter under EWMA is lowered, which of the following would be true:

AThe model will react slower to market shocks

BThe model will react faster to market shocks

CHigh variance from the recent past will persist for longer

DThe model will give lower weight to recent returns

Show Suggested Answer

Suggested Answer: B

The persistence parameter, , is the coefficient of the prior day's variance in EWMA calculations. A higher value of the persistence parameter tends to 'persist' the prior value of variance for longer. Consider an extreme example - if the persistence parameter is equal to 1, the variance under EWMA will never change in response to returns.

1 - is the coefficient of recent market returns. As is lowered, 1 - increases, giving a greater weight to recent market returns or shocks. Therefore, as is lowered, the model will react faster to market shocks and give higher weights to recent returns, and at the same time reduce the weight on prior variance which will tend to persist for a shorter period.

by Kiley at Dec 11, 2023, 02:46 PM

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Stevie

3 months ago

C seems off to me, high variance shouldn't last longer.

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Glendora

3 months ago

D is also true, lower weight on recent returns.

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Golda

3 months ago

Wait, how does lowering the parameter speed things up?

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Ivette

4 months ago

Totally agree with B! Makes sense.

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Celia

4 months ago

B is correct! Lower persistence means quicker reactions.

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Adaline

4 months ago

I thought high variance from the recent past would persist longer with a lower persistence parameter, but now I'm questioning that.

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Karol

4 months ago

I practiced a similar question, and I think that lowering the persistence would actually give lower weight to recent returns, which makes sense to me.

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Suzi

4 months ago

I'm not entirely sure, but I feel like if the persistence is lower, it could mean the model reacts faster to changes. It’s a bit confusing.

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Stephen

5 months ago

I remember that lowering the persistence parameter means the model becomes less sensitive to recent data, so I think it might react slower to shocks.

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Oretha

5 months ago

I'm pretty confident on this one. A lower persistence parameter means the model will give less weight to recent returns, so option D is the correct answer.

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Lemuel

5 months ago

Wait, I'm a bit confused. Doesn't a lower persistence parameter mean the model will react slower to shocks? I'm not sure about this one.

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Evan

5 months ago

Hmm, this seems like a tricky one. I'll need to think through how the EWMA model works and how the persistence parameter affects it.

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Alethea

5 months ago

Okay, I think I've got this. As the persistence parameter is lowered, the model will react faster to market shocks, since it gives less weight to the recent past. That means option B is the correct answer.

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Fredric

5 months ago

This looks like a pretty straightforward risk management question. I'm confident I can figure this out.

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Coral

5 months ago

This seems straightforward - I think the answer is to install the View Client with URL redirection enabled.

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Ezekiel

5 months ago

Okay, the data is transient and the database size is static, so I'm thinking we should focus on optimizing memory usage and reducing disk I/O. Let's see what the options are.

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Kenneth

5 months ago

This seems like a straightforward question. I think option B is the easiest approach - writing a Python script to use the BigQuery API directly in the pipeline.

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Elke

5 months ago

I feel pretty confident about this one. Based on my understanding, the Bank Secrecy Act exempts certain types of businesses from the reporting requirements, and I think the key is whether the business is considered a financial institution or not. I'll double-check my knowledge, but I think I've got a good handle on this.

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