Equity Derivatives Interview Questions from Goldman Sachs

[Andy Nguyen]

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?

Link Equity Derivatives Interview Questions from Goldman Sachs | News | www.eFinancialCareers.com

 

[marina]

andy,
where is the original link? you are posting as if you attended the interview.
here is the original link with answers

http://news.efinancialcareers-norway.com/newsandviews_item/newsItemId-29858

 

[Andy Nguyen]

Thanks marina.
I got the questions from a different link. It would be much more fun to add the source AFTER people attempt to answer it.

 

[Joy Pathak]

1) Which structured product would you issue in the current market conditions?
I would like to get into the interest rate swap market by issuing fixed leg to receive floating.

2) Explain the Greeks for options.
Simple

3) Draw me a payoff profile for autocallable structures, digital coupon notes, Asian options and bonus certificates.
This one is tough. I only know digital coupon notes and asian options. This question looks for strong product knowledge.

4) What is a square root of 0.1?
I got asked square root of 0.01 a while back. It is 0.1. Are you sure this was the right question?

5) Is gold expensive or cheap ?
This is tricky. It depends on whose perspective is the answer being given from. As a student who is in the same bracket as 90% of the population, gold is expensive.
As a finance student who is interested in trading, gold is cheap as it is a good buy.

6) Explain the assumptions behind Black-Scholes.
simple

7) How do you determine when to enter or exit the market using a chart?
Depends on the chart. You set up barriers for yourself. This can be explained and communicated well if you have a minimal knowledge of technicals or even common sense.

 

[Andy Nguyen]

Why would they ask easy question like sqrt(0.01) since sqrt(0.1) is more interesting.

 

[Joy Pathak]

Why would they ask easy question like sqrt(0.01) since sqrt(0.1) is more interesting.

Yeah. I suppose you're right.

 

[ThinkDifferent]

I got asked square root of 0.01 a while back. It is 0.1.

that while back was in elementary school, I reckon

 

[ThinkDifferent]

...i don't like the answer from that link about sqrt(0.1).
I think the interviewer had the following trick in his head: sqrt(0.1) = 1 / sqrt(10) = sqrt(10)/10. So it all boils down to calculating sqrt(10) and then shifting the answer one digit to the left.

 

[DominiConnor]

I have to say those questions sound a bit easy for quant roles...
Not saying they don't get asked, but you will die horribly if these represent any sort of boundary on your ability to do interview questions.

 

[pruse]

Expecting people to memorize numbers like sqrt(10) is absurd.

I think this is a better approach:

Powers of 2 are much better known. 1024 = 2^10 = 32^2. So sqrt(0.1) is about 0.32.

 

[euroazn]

Expecting people to memorize numbers like sqrt(10) is absurd.

I think this is a better approach:

Power of 2 are much better known. 1024 = 2^10 = 32^2. So sqrt(0.1) is about 0.32.

Clever! If more precision is needed, know that 31^2=961

 

[Andy Nguyen]

Find sqrt(19), sqrt(21), sqrt(23)

 

[euroazn]

Find sqrt(19), sqrt(21), sqrt(23)

Same principle.... for example, we know that 45^2 = 2025 (remember your D5^2 rules!!!). Even if we suck at multiplying (like me ) and don't know that 46^2 = 2116, we can still use a linear approximation; derivative of x^2 is 2x so we add 2 times x (which is 45) or 90. That's 2115 (only one off).
Instead of going forwards, we can go backwards and guesstimate for 43~44
so sqrt(19) is about 4.35 while sqrt(21) is about 4.6.

I suppose you could keep at it for sqrt(23) :P

 

[FedericoM]

Find sqrt(19), sqrt(21), sqrt(23)

Use Taylor approximation. The 1st order should be ok.
sqrt(16+3)= sqrt(16)+ [1/(2*sqrt(16))] *3 = 4+[1/8]*3 = 4+3/8= 35/8= 4.375

35/8 can be asily done without any calculator.

If you want a better approximation, go on:
sqrt(x+y)= sqrt(x)+ [df(x)*y]+[(1/2!)*d(df(x))*y]+...

 

[Andy Nguyen]

How to find (\sqrt[3]{x}) were x is any random number between [1,100]

 

[ThinkDifferent]

Expecting people to memorize numbers like sqrt(10) is absurd.

I think this is a better approach:

Powers of 2 are much better known. 1024 = 2^10 = 32^2. So sqrt(0.1) is about 0.32.

where did anyone say that someone is expecting people memorize numbers like sqrt(10)?

 

[koupparis]

Another way for sqrt(0.1) = sqrt(10)/10. Still need to approx sqrt(10). It's close to sqrt(9) = 3. How close? We can guess or make some argument about where 10 lies in comparison to 9 and 16 so we know how far sqrt(10) lies between 3 and 4.Guess less than 3.2 more than 3.1 so, 3.15?

 

[pruse]

where did anyone say that someone is expecting people memorize numbers like sqrt(10)?

Well then why go through sqrt(10) first? If you're going to use a trick like Taylor and write 10=9+1, why not go straight for sqrt(0.1) and write 0.1 = 0.09+0.01?

 

[ThinkDifferent]

Well then why go through sqrt(10) first? If you're going to use a trick like Taylor and write 10=9+1, why not go straight for sqrt(0.1) and write 0.1 = 0.09+0.01?

LOL because, as with any math problem, there are more than one way to tackle it. Apparently in your world there is only one way - you own

Also, who said that to approximate sqrt(10) the only way is to resort to Taylor?

 

[pruse]

LOL because, as with any math problem, there are more than one way to tackle it. Apparently in your world there is only one way - you own

Also, who said that to approximate sqrt(10) the only way is to resort to Taylor?

Ha. My point was exactly that -- that your way is NOT different. At least not for any effectively beneficial reason. You're just unnecessarily scaling by a factor of 100.

It seems like you have a habit of picking fights with people...