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Equity derivatives interview questions from Goldman Sachs

Equity derivatives are going to be totally steaming, at least compared to all other areas in 2011 according to analysts at JPMorgan.

You may therefore be interested to know what Goldman Sachs is allegedly asking in equity derivative interviews this year.

The questions below were sent in by a student for our latest iPod competition, so please note that they are likely to at the simplistic end of the scale. Note too, that we have no guarantee that these questions really were asked at Goldman Sachs: we are taking the student’s word for it and are trusting types.


The questions:

1) Which structured product would you issue in the current market conditions?

2) Explain the Greeks for options

3) Draw me a payoff profile for autocallable structures, digital coupon notes, Asian options and bonus certificates.

4) What is a square root of 0.1

5) Is gold expensive or cheap ?

6) Explain the assumptions behind Black-Scholes

7) How do you determine when to enter or exit the market using a chart?

Comments (8)

Comments
  1. ..This was at the Analyst level?! Wow…Q1 and 3 seem a bit tough. Doable but tough.

    DukeOfLancasterVI Reply
     
  2. …erm, isn’t Q1 a standard Intern Q?!

  3. .1> principle protected notes on asian equities and yen carry trades with 5 year expiries
    2> text book
    3>text book structured equity by harry kat
    4> again use math tricks
    5>gold is cheap .. use euro funding to buy gold (price long term inflation).. gold silver spreads are attractive
    6>cons volatility, efficient markets and const interest rate ( use implied volatility to build practical models)
    7> long terms trends should be visualised using weekly and monthly charts…
    define trend through weekly &monthly
    take entries though daily char analysis and exit again using when weeklies or monthlies indicates target is met
    for intraday use 4 H charts

  4. Good graduate level questions, if you’re applying for a entry level equity derivatives role and you can’t answer 1)-7) competently, don’t bother. I was asked 6) at a graduate level M&A role.

  5. 1) None. If it goes south all your clients think you’re a d–bag and if it goes north all your clients think you’re overpaid because they’ll think you got most of it anyway. You’re better off selling a vanilla product with decent margins at high volumes to … suc… i meant ignorants… oh wait i really meant custies.

    2) Olive oil, lots of pensioners and civil servants, and no optionality left since GS has booked these great fx swaps for them.

    3) Do I get to use WikiLeaks as a reference?

    4) Ok, math never did offend one much so maybe this one deserves a proper answer…

    5) Depends on whether GS wants to bring down JPM on the supposed all-time leveraged “silver” trade (shhh, it’s a big secret)

    6) Sorry I didn’t think this firm did normal anything but I do believe it is very flat right now.

    7) I ask what the clients think first.

    sarcastically_assinine Reply
     
  6. ..sqrt(0.1) = 0.3+x
    => 0.1 = (0.3 + x)&2
    = 0.09 + 0.6x + x&2
    Now, x&2 almost 0:
    => 0.1 = 0.09 + 0.6x
    => x = 0.016667
    => sqrt(0.1) = 0.316667

    Check: (0.316667)&2 = 0.1002777
    which is correct to 3dp

  7. Questions are quite tough and needs attention of someone to solve it. The basics about implied volatility i have learned quite a lot and i think after doing a little bit of more effort i can completely understand all the questions. However your post is quite good and would love read some more here as already bookmarked this site .
    http://www.livevol.com/historical_files.html

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