Risk Management interview preparation

Questions

100

Traced to a firm

37

Firms

12

Updated

September 2026

Asked at

All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

Topic

All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseBrainteaserMarket viewFit

1. 020Explain the Greeks to me.Greeks and sensitivitiesCoretechnicalBank market riskDerivatives risk

   Say this

   They're the partial derivatives of an option's value with respect to each input. Delta is sensitivity to spot, gamma is how delta changes, vega is sensitivity to implied volatility, theta is time decay and rho is sensitivity to rates.

   Then walk it

   1. Delta, first derivative in spot. Roughly 0.5 for an at-the-money option, and it's also the hedge ratio, so it tells you how much stock to short.
   2. Gamma, second derivative in spot. It's the curvature, it's largest at the money and near expiry, and it's the reason a static delta hedge stops working when the market moves.
   3. Vega, sensitivity to implied vol. Largest for long-dated at-the-money options, because there's more time for volatility to matter. A one-point vol move on a big vega book is real money.
   4. Theta, the passage of time. A long option position bleeds theta and collects gamma; a short position collects theta and is short gamma. That trade-off is the whole economics of an option book.
   5. Rho for rates, and for anything with a dividend or a carry you also need the sensitivity to that. On FX options you have two rho-like terms, one per currency.
   6. From a risk seat the ones that cause incidents are gamma and vega, not delta. Delta is easy to see and easy to hedge. Gamma and vega are where a book that looks flat loses money.

   Where candidates lose it

   Reciting definitions without saying which ones matter to a risk manager. Delta is the one traders talk about and the one risk cares least about, because it's hedgeable intraday. Say that gamma and vega are where the losses come from and you sound like you've sat on a desk.

   Expect next

   • Which Greek is hardest to hedge, and why?
   • What is the relationship between gamma and theta?
   • How would you set a limit framework on an options book?
2. 023Explain duration and convexity.Greeks and sensitivitiesCoretechnicalBank market riskTreasury and ALM

   Say this

   Duration is the first-order sensitivity of a bond's price to yield, convexity is the second-order correction. Duration is the slope of the price-yield curve and convexity is its curvature, which is why a duration-only estimate always understates the price rise and overstates the fall.

   Then walk it

   1. Macaulay duration is the weighted average time to cash flow, in years. Modified duration is that divided by one plus the yield, and it's the one you use: price change is roughly minus modified duration times the yield change.
   2. Worked number: a bond with modified duration of 7 and a 100 basis point yield rise loses about 7 percent. With convexity of 60, you add half times 60 times 0.01 squared, which is 0.3 percent, so the real loss is closer to 6.7 percent.
   3. Convexity is positive for a plain vanilla bond, which is good for the holder. Your gains from a rally exceed your losses from an equal sell-off.
   4. Negative convexity is the thing to watch. A callable bond or a mortgage-backed security has it, because when rates fall the issuer or homeowner prepays and you don't get the upside. That's the whole story of mortgage hedging, and it's why MBS books need dynamic hedging.
   5. Duration also assumes a parallel shift. A steepening curve can hurt you badly on a barbell that looks duration-matched, which is why you look at key rate durations by bucket, not one number.
   6. And the term to have ready: DV01, or price value of a basis point, is the same idea in money rather than percent, and it's what a rates desk actually manages to.

   Where candidates lose it

   Defining duration as 'time to maturity'. It isn't, except for a zero-coupon bond, and the interviewer is listening for that error. The second differentiator is negative convexity on callables and mortgages, because that's where the real risk management problem sits.

   Expect next

   • What is DV01?
   • Why does a mortgage-backed security have negative convexity?
   • Two portfolios have the same duration. How can their risk differ?

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.