Risk Management interview preparation

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100

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37

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12

Updated

September 2026

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All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

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1. 021A trader tells you his book is delta neutral. It lost $4 million yesterday on a 3 percent market move. What happened?Greeks and sensitivitiesHardsuperdayBank market riskDerivatives risk

   Say this

   Almost certainly short gamma. Delta neutral only holds for an infinitesimal move; if he's short options, delta turns against him as the market runs, so he's rehedging at worse and worse prices all the way. The move being 3 percent is the clue.

   Then walk it

   1. The mechanism: short gamma means delta moves against you. Market rallies, your delta goes short, you buy to rehedge, market falls back, your delta goes long, you sell. You buy high and sell low mechanically all day.
   2. Rough size check: for a book with gamma of minus $2m per percent, a 3 percent move costs about half times gamma times move squared, so around $9m of gamma P&L. A $4m loss is entirely consistent with a modest short gamma position.
   3. Second candidate, vega. A 3 percent move usually comes with implied vol up several points. If he's short vol, that's a separate loss on top, and on a big book vega loss can dwarf gamma loss.
   4. Third, delta neutral in what. Neutral to the index but long a basket of single names is a beta hedge, not a delta hedge. Dispersion or a basis between the hedge instrument and the underlying gives you exactly this.
   5. Fourth, the hedge was neutral at the close and not during the day. Intraday delta drift with no rehedging looks flat on both snapshots and loses money in between.
   6. So the questions I'd ask him, in order: what's your gamma and vega, what did implied vol do, what instrument are you hedged in, and when was the last rehedge. And the control conclusion: a delta limit alone was never going to catch this, which is why you need gamma and vega limits.

   Where candidates lose it

   Saying 'he must have been wrong about being delta neutral'. He probably wasn't. The whole point is that delta neutrality is a local property and says nothing about second-order risk. Name gamma first, vega second, and then draw the control conclusion about limits.

   Expect next

   • How would you size a gamma limit?
   • How do you explain to a trader that delta neutral isn't neutral?
   • What if implied vol had fallen instead?

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.