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. 022Which equities have duration?Greeks and sensitivitiesHardtechnicalBLBlackRockRisk and Quantitative Analysis · New York · 2026

   Say this

   Equity duration is how sensitive a stock's price is to the discount rate, and it's driven by how far out the cash flows sit. Long-duration equities are the ones whose value is mostly terminal value: high-growth tech, biotech with no earnings, and long-dated infrastructure and utilities.

   Then walk it

   1. Mechanically it's the same idea as bond duration. Discount cash flows, compute the weighted average time to those cash flows, and that's your rate sensitivity. A company earning nothing today with all the value in year fifteen has enormous duration.
   2. So the long-duration buckets: unprofitable growth software, early-stage biotech, anything valued on a distant terminal value, plus regulated utilities and infrastructure where the cash flows are bond-like and stretch for decades.
   3. The short-duration buckets: value names, banks, energy, cyclicals with high near-term free cash flow and low reinvestment. Their value is front-loaded, so the discount rate matters less.
   4. The empirical check: 2022 is the cleanest natural experiment. As real yields rose, the Nasdaq underperformed value by a huge margin even though earnings held up. That is duration doing the work, not fundamentals.
   5. There's a twist that matters for a risk seat: for financials the rate effect goes the other way through earnings. Banks' net interest margins improve with rates, so their effective duration can be negative. You can't apply a single sign to the whole market.
   6. And utilities are the interesting case, because they have long-duration cash flows and leverage, so they trade as rate proxies. Many managers hold them as bond substitutes and then get surprised when they behave like bonds.

   Where candidates lose it

   Treating this as a trick question or saying equities don't have duration. The interviewer is testing whether you can move a fixed income concept into equities and name the cohorts. And the answer that stands out mentions financials as the exception where the sign flips.

   Expect next

   • Why did long-duration equities sell off so hard in 2022?
   • Do banks have positive or negative equity duration?
   • How would you hedge the rate sensitivity of a growth equity portfolio?

   Reported by candidates at BlackRock (Risk and Quantitative Analysis, New York, 2026). Source: Wall Street Oasis.

3. 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?
4. 024What is basis risk? Give me an example.Greeks and sensitivitiesIntermediatetechnicalBank market riskTreasury and ALM

   Say this

   Basis risk is the risk that your hedge and your exposure don't move together, so you're left with residual P&L even though you think you're flat. It's what's left after you've hedged the first-order factor.

   Then walk it

   1. The classic example: you hold a corporate bond and hedge the rate risk with a government bond future. Now you're exposed to the spread between corporate and government yields, which is exactly the thing that moves in a credit event.
   2. Product basis: hedging a jet fuel exposure with crude futures because jet fuel futures are illiquid. The crack spread becomes your risk, and airlines have lost real money on that.
   3. Tenor and calendar basis: hedging a three-month exposure with a one-month contract and rolling. Each roll re-prices the basis, and in a stressed market that roll cost blows out.
   4. Location and currency basis: cross-currency basis on a dollar funding swap. In March 2020 that basis widened by more than 100 basis points, which made hedged dollar funding dramatically more expensive for non-US banks holding dollar assets.
   5. In a bank's banking book it shows up as repricing basis: your loans reprice off the repo-linked benchmark and your deposits reprice off something else entirely, so a rate move that looks neutral on a gap report still hits net interest margin.
   6. The way you manage it is to measure it explicitly, set a separate basis limit, and stress it. The failure mode is that VaR often shows a hedged book as low risk because the basis has been quiet, right up until it isn't.

   Where candidates lose it

   Defining it abstractly without a concrete pair. Interviewers want an instrument and its hedge named. And the risk-manager point to add is that basis risk is systematically understated by VaR, because the basis is stable for long stretches and then jumps.

   Expect next

   • How would you measure and limit basis risk?
   • Why does VaR tend to understate it?
   • What happened to cross-currency basis in March 2020?

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.