Ashcroft

[shanlane]

Hello,

After looking through your list of questions concerning the Ashcroft reading, it is almost as if we should be reading this as a case study. What I mean by this is that many of your questions ask about specific details of the actual securitization that was discussed in the chpater. Are we supposed to be memorizing the specific details of all of the case (like why there were two A tranches or that the equity tranche received excess spread) or just understand how they came to be and the processes involved with structuring and packaging?

Thanks!

Shannon

 

[David Harper CFA FRM]

Hi Shannon,

I appreciate that question because a valid criticism of the questions is: "they are too detailed (deep), the exam will not ask this much detail." And, this is largely a true statement!

However, there is an important qualifier, i think this is important: the FRM is unlike, say, the CFA where the exam is somewhat predictable. The track record of feedback, especially since the split to 2 levels, and especially in regard to P2, is that it's VERY difficult to predict what will be asked exactly (importantly, part of this is due to GARP's own admission that the exam is improving). Why do i stress this? Only because many candidates have the unrealistic expectation that it would be possible, in the first place for anyone, to write the same questions that will be asked. To understand this is to understand that neither I nor any trainer can know what the next exam will ask about this reading.

Our guidance, pure and simple, are the AIMs. Those who think either the practice exams or the historical questions (short sample!) are sufficient guidance are simply mistaken (this is not the CFA: the P2 questions that will be asked on the next exam are likely to be mostly entirely new). GARP 2012 sample paper for P2 is utterly insufficient and not representative, it is but a narrow slice of what can be asked.

So, I try hard to query the AIMs specifically. And my error bias is to ask a level deeper.

Re: Ashcroft, clearly GARP wants you to view it LESS for the specific details and MORE (or entirely) for an understanding "of how they came to be and the processes involved with structuring and packaging?" They selected it because it is one of the more colorful and concrete illustrations (case studies) of a simple subprime RMBS. Sometimes my questions are less specific than you might think; e.g.,

"106.2. Which of the following tranches in the securitization had the greatest width (and this was definitely typical)?

a) Class A
b) Class M (mezzanine)
c) Class B
d) Class X (equity or junior) "

While it's specific to the actual GSAMP Trust, it is also generically true for all of its peers: the Class A (senior tranche) always (amazingly) got most (70%+) of the width.

I hope that helps, let me know if isn't agreeable? I think my main motivation, given the knowledge of the exam method, is rigor to the AIMs. Then I willingly try to go one step down, but rigorous to the AIMs. As I write questions every day, I am totally open to input ...

Actually, here is my "mental model" that I use as I write questions (FWIW):

1. Follow the AIM with LITERAL and RIGOROUS interpretation; i.e., even if i doubt it will be asked, this is my primary self-rule
2. Let the error bias be deeper rather than shallower, on the theory that deeper contributes to a more robust preparation
3. If possible, cross reference (a more recent practice)

Thanks!

 

[shanlane]

Very helpful, as always. The unpredictability makes me a little afraid to take this thing but I think some fear is a good motivator.

Thanks again,

Shannon

 

[David Harper CFA FRM]

I may be too close, biased and lacking in perspective, but on balance I tend to think it is a positive. Rather than favoring test anticipation techniques and rote memorization, it is almost as if a good strategy includes enjoying the material for its intrinsic value.