Derivatives Foundation interview preparation

Questions

100

Traced to a firm

29

Firms

19

Updated

September 2026

Asked at

All firmsMSMorgan Stanley4Nomura4Akuna Capital2Amundi2HSBC2PIMCO2Bank of America1Barclays1Citadel1DRW1Goldman Sachs1Jane Street1Millennium Management1Mizuho1Old Mission Capital1RCRBC Capital Markets1Scotiabank1UBS1Wells Fargo Securities1

Topic

All topicsForwards and futures10Options basics8Option pricing7The Greeks10Volatility7Option strategies9Swaps and rates7Credit derivatives4Market structure and clearing6Indian derivatives8Trading and markets9Brainteasers6Fit9

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseMarket viewBrainteaserFit

1. 056Given a portfolio of three bonds, explain how the portfolio changes if duration increases.Swaps and ratesIntermediatetechnicalPIMCOGeneralist · Los Angeles · 2026

   Say this

   Portfolio duration is the market-value-weighted average of the individual durations, so if it increases you have become more exposed to rates — you gain more when yields fall and lose more when they rise. The question is which lever moved it: the weights, a change in the bonds themselves, or a shift in yields.

   Then walk it

   1. Start with the arithmetic. Say a 2-year at 30 percent weight with duration 1.9, a 10-year at 40 percent with duration 8.2, and a 30-year at 30 percent with duration 19. Portfolio duration is 0.57 plus 3.28 plus 5.7, about 9.6 years.
   2. Shift 10 percent from the 2-year into the 30-year and duration goes to about 11.3. So the sensitivity per 100 basis points has gone from 9.6 percent of value to 11.3 — you have added roughly 1.7 percent of NAV per 100 basis point move.
   3. Duration can also rise without you trading. Yields falling raises duration mechanically, and the long bond's weight in the portfolio grows because it rallied most. So a bull market in bonds lengthens your duration passively, which is a real drift risk in an unmanaged book.
   4. The long bond dominates. It is 30 percent of the money and nearly 60 percent of the risk, and that concentration is the first thing I would point out. Weighting by market value tells you nothing about where the risk sits; dollar duration does.
   5. Convexity rises too, and non-linearly, so the portfolio becomes more asymmetric: better in a large rally than duration predicts, better than a shorter portfolio in a large selloff too, relative to its own duration.
   6. Two limitations to volunteer. First, averaging durations assumes a parallel shift — this portfolio is really a bet on the whole curve, and a flattening would hurt the 30-year and help the 2-year regardless of the average. Second, if any bond has credit risk, the spread duration is a separate exposure, and in a selloff spreads and rates often move together.

   Where candidates lose it

   Answering qualitatively — 'more rate sensitive' — without doing the weighted average. Put numbers on it, then make the two real points: the long bond carries most of the risk despite a modest weight, and duration drifts upward on its own in a rally. That is what a fixed income manager wants to hear.

   Expect next

   • Which bond carries most of the risk, and is that what the weights suggest?
   • How would you bring the duration back down without selling the long bond?
   • What if the curve flattens instead of shifting in parallel?

   Reported by candidates at PIMCO (Generalist, Los Angeles, 2026). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.