Discuss PRMIA 8010 Exam Topic 1 Question 38

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

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.

Get Premium 8010 Questions as Interactive Web-Based Practice Test or PDF Real Exam Format Detailed Explanations Instant Access Get Your Practice Test

18 comments · newest first

Stevie 11 months ago

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

Glendora 11 months ago

D is also true, lower weight on recent returns.

Golda 11 months ago

Wait, how does lowering the parameter speed things up?

Ivette 11 months ago

Totally agree with B! Makes sense.

Celia 11 months ago

B is correct! Lower persistence means quicker reactions.

Adaline 12 months ago

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

Karol 12 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.

Suzi 12 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.

Stephen 1 year 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.

Oretha 1 year 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.

Lemuel 1 year 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.

Evan 1 year 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.

Alethea 1 year 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.

Fredric 1 year ago

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

Coral 1 year ago

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

Ezekiel 1 year 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.

Kenneth 1 year 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.

Elke 1 year 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.

PRMIA 8010 Exam - Topic 1 Question 38 Discussion