Archive for November, 2007

Name That Tune Contest

November 9th, 2007

See the following contest for a chance to win an iPod Touch:


Good Luck!

November 6th, 2007

I want to wish everyone good luck tomorrow!

If you can think of anything that would improve the online seminar, then please let me know.  Any feedback is greatly appreciated (positive or negative)?


Last couple of days …

November 5th, 2007

Today you should be working problems, but what about tomorrow?  I always like to rest the day before the exam.  I might flip through the summary sheets a couple of times, but nothing more.  I definitely recommend going to bed early.  It is likely to take you longer than usual to go to sleep so it helps to get into bed 30 minutes to an hour early.  IMO, the worst thing you can do is stay up all night studying.  You will likely be tired so the studying won’t be too effective and it could cause you to be tired on exam day too.

On exam day there will be a handful of people with their notes cramming right before the exam.  I always thought this was silly.  If you don’t know it by the morning of the exam, then you are not going to know it.  Plus there is always a chance that you will confuse yourself of something that you do know.  I strongly recommend against cramming the morning of the exam.

During the exam try to relax and stay positive.  If you have studied hard enough, then it is very likely that you know how to work enough problems to pass.  The key is finding those problems you know how to work and getting them right.

Good luck!

Exam Tips

Sample Exam 1, Problem 1 Error

November 5th, 2007

The solution to problem 1 on Sample Exam 1 was incorrect. This error went unnoticed for an entire sitting. Needless to say, the problem was tricker than I intended. I’ve uploaded a new video solution to this problem. I recommend you watch it.


Test Taking Tips

November 4th, 2007

In my opinion, the difference b/w a pass and a fail can often come down to test taking strategy.  If you don’t have a good strategy, then you are a serious disadvantage.  The first thing to realize is that all questions count the same.  That means answering the easiest question correctly on the exam is worth just as much as answering the hardest question on the exam.  For that reason, it is imperative that you get to attempt every problem on the exam.  You must not run out of time and force yourself to guess on any questions without first having a chance to devote a few minutes to solving them.

What does this mean?  You must be willing to skip a problem.  If you read a problem and don’t have a clear picture in your mind of how to solve it, then skip it.  If you read a problem and you are confused on the wording of even a single sentence, then skip it.  If you read a problem, but can’t think of an elegant solution and the one you have outlined in your head is a long a tedious one, then skip it.  If you start to get frustrated with a problem, then skip it.  Please do not be scared to skip a problem.  You are not required to work them in order.

The key to passing the exam is getting all the questions you know how to do right.  If you spend 10-20 minutes working on a problem that you likely wouldn’t get even if you had 30-45 minutes, then you made a huge strategical error.  That means you have less time to devote to problems that you do know how to work.  You will be rushed on the easy problems and could make a careless mistake b/c of it.  Don’t fall into that trap.

When the proctor tells you there is 15 minutes remaining make, stop whatever you are doing and make sure you have an answer bubbled for every problem.  There is no penalty for guessing and you do not want to find yourself with one minute and stressing over if you have everything bubbled in.

Bring at least one extra calculator.  Make sure it is the same model as your other calculator.  You would hate to have to switch calculators and be unfamiliar with the 2nd calculator.

Exam Tips

No-arbitrage bounds with transaction costs

November 1st, 2007

I recently contacted the author with a couple of questions regarding the no-arbitrage bounds with transaction costs derived on pages 138-139 in the DM textbook and he was kind enough to respond.  Basically, the formula derivations assume one price for the stock at time T.  That is natural for cash settlement, but not physical settlement where the arbitrager would be forced to trade at the bid and ask prices. (Even with cash settlement there can be some ambiguity about what price is being used to settle the transaction.)  The author is going to post a typo that he is assuming cash settlement.  In my sample exam, I also assume cash settlement.

I also asked about the sentence following formula 5.11 on page 139.  The author agreed it was confusing and it will be removed from further editions.  The author said he intended to imply that “the short rebate equaled the interest rate.”