Credit Risk in 2014

[brunnim]

Hi,

I notice that the 2014 credit risk aims's have changed somewhat, considerably in the Gregory chapters. Can you confirm if new study notes will be released in line with these and when?

Thanks

 

[David Harper CFA FRM]

Hi @brunnim Yes study notes will be updated. But, no we don't get specific about dates. Please see https://forum.bionicturtle.com/threads/2014-part-ii-published-materials.7594/

 

[brunnim]

great thanks.

 

[Johnson]

Hi David,
Firstly thanks for uploading study notes on Gregory and Golin.
I have a few questions
I will be giving FRM part 2 exam this may for the 5th time(ouch). I had cleared part 1 in first go but am yet to break with part 2.
I have used your videos extensively (really like those from part 1 ) and during the exam literally can recollect your words from the video but most of the times get stuck in choosing between two close answers.
1. In the past I have not been able to practice the questions you provide because of time constraints with job and I think because of it am unable to clear.
Now I am really feeling confused how to prepare differently this time around.
So for practicing questions, there are questions in PDF format of each chapter, previous years mock exams, previous years practice questions, Global Topic Drill. I plan to do them all but which are the ones I should focus on (mainly)to be ready for the exam.
2. Also with GARP changing syllabus like canabarro then gregory last time and now new topics on gregory, should I focus on doing only new gregory or should I also try to use the concepts learnt in previous authors readings.
3. Any other additionsal advice you can tell, for me to prepare differently for the exam.
I think some of these queries may have been answered in other forums so apologies.
But your advice will help me immensely to prepare this time around.
Thanks

 

[David Harper CFA FRM]

Hi @Johnson

Thanks for your candor and persistence (and for using our videos). Part 2 is currently very hard to anticipate, even in relative terms (I am going to say it's never been harder to anticipate Part 2). Factors include:

• The superficial reading churn continues to be high; "superficial" because in some cases (e.g., Gregory) it is more of a superficial re-map of somewhat unchanged/similar concepts
  
• There are certainly some over-assigned areas; i.e., AIMs that are very unlikely to be tested (these bug me only because they can be time traps ... for everybody)
  
• As usual, Basel II/III has the potential to consume much study time, and it would be very easy to over-prepare for Basel II. On the other hand, GARP's 2014 exhibits some creativity (fresh questions) re Basel, so it looks fully on the table to me
  
• Similarly, T9. Current Issues (very hard to anticipate)

To your questions, as best I can offer:

1. For you in this case, my view is firstly to shift your time allocation (from now to May exam) to a majority practice questions trending to almost exclusively practice questions (using the questions to conduct ex post research).
   I also would suggest a top-down (rather than bottom-up) approach. What I mean is,
   • start with broad P2 practice exams: GARP's practice, past exams (back to 2011 or 2010 or if you want 2009 but no earlier than 2009, please), mock exams and any question sets that quiz Topic 2 broadly
   • then global topic reviews (e.g., T5, T6 ...)
     
   • and lastly only, "per reading" practice question sets.
   The reason is strategic: you will grab more "low-hanging fruit" with the broad approaches as you will encounter more of the durable (and more testable ideas). You want to get comfortable with the durable, high-testable ideas. Here is an example, GARP 2014.P2.12:
   

   12. A trader observes a quote for Stock ZZZ, and the midpoint of its current best bid and best ask prices is CAD 35. ZZZ has an estimated daily return volatility of 0.25% and average bid-ask spread of CAD 0.1. Assuming the returns of ZZZ are normally distributed, what is closest to the estimated liquidity-adjusted, 1-day 95% VaR, using the constant spread approach on a 10,000 share position?

   While LVaR has seen reading rotation, this sort of question is common (durable) and I'd rather see you get comfortable with this basic but relatively popular question *before* going deep on new topics that may not be tested ...
2. At this point, I would focus only on the new assigned Gregory (Gregory's new edition is agrressively assigned, it overwhelms and includes anything Canabarro had to say, although less accessibly unfortunately). I am starting a new PQ series for Gregory at the end of this week, if you want to follow along at https://forum.bionicturtle.com/forums/todays-daily-questions.53/
3. Just that I think practicing with questions is essential. And I'd start with broad sets before spending time on the per-reading sets. Good luck, I hope this helps a little!

 

[Johnson]

Hi David,
Thanks for the immediate reply...
I will definitely go with the top down approach....
Will be eagerly waiting for Gregory PQ
Thanks

 

[Johnson]

Hi David,
I have few queries.
1. In Malz Chapter 6, in the PQ 304.2, how is k calculated.I am unable to use the inverse normal function.I use Texas BA 2 calculator.I searched on the forum and I think you have mentioned it can't be calculated by it.Then how to use z tables to find it.(sorry its really basic question but I am very much struggling with it)In 304.1 as well we are asked to calculate it.
2.In liquidity adjusted VaR, in the videos its mentioned that we are required to use the exponential formula to get VaR. But Garp sample questions like the one in the above post you specified, have calculated it in normal way and not the exponential.Is it because of the assumption that returns are normally distributed?
Thanks

 

[Johnson]

Hi David,
Can you please reply to the question mainly the first one.
Apologies for asking again..
Just stress with few days to go for the D Day...
Thanks

 

[David Harper CFA FRM]

Hi @Johnson sorry for the delay
FYI, source Q&A is here at https://forum.bionicturtle.com/threads/p2-t6-304-single-factor-credit-risk-model.6806/

1. You are correct, TA BA II+ cannot retrieve N(-1)(3%). It is good to know how to retrieve it from the z lookup, see screenshot below. Mine happens to only include positive Z, so first we must realize that, per symmetry, N(-1)(3%) = 1 - N(-1)(97%). Then it is a matter of locating the cell nearest to 0.9700, which is found at 1.8 (row) plus (+) 0.08 (column) = 1.88. This tells us the Z(1.88) ~= 0.97 ~ 97%. And, in fact N(97%) = NORM.S.DIST(97%,TRUE) = 0.969946. Therefore, N(-1)(3%) = -1.88
2. The liquidity-adjusted VaR (LVaR) is assigned in Dowd and he just happens to employ a lognormal VaR which means that the geometric returns, ln(S1/S), are normally distributed (with the advantage that the asset price cannot go negative). Contrast with arithmetic returns as normally distributed, which is still the more common approach in the FRM. In either case, the basic LVaR ("constant spread") still entails adding one half the spread. I hope that explains. Good luck on the exam!

 

[Johnson]

Hi David,
Firstly want to tell that I cleared the Part 2 and am super happy about it.It was a real hard fought victory.
I would like to mention it was definitely not possible without this forum.I really enjoyed the process of preparing for this tough exam and you were the part of this process and made it enjoyable for me.
I have spent hours and hours on this forum trying to clear my doubts and have even asked you many a times really silly questions.I must admit the first time when I was asking a really simple question, I was really worried and thought that I would get a real scolding reply from your end.But to my surprise your post mentioned its a good question, not silly at all.I really like the way explain the queries with example and excel sheets.I was using your videos from long but what did the trick this time( I think so) is the time spent on this forum.I would say great work to other active members on this forum as well as they also share their ideas and help clear the doubts.
Now I really feel nice that I don't have to sit in the forum again( was really bored of it)
I would like to share few thoughts here
1. I think part 1 is relatively easier to crack, mainly because most of the syllabus coincides with our graduate curriculum or CFA exam.
Part 2 is difficult to crack as it requires thorough understanding of the concepts and the questions asked are very different and not straight forward.
2.I think T9 is overemphasized by us students.Reading it through the core material is I feel most effective way of doing it.I am mentioning it as David had to give it a priority at the last few days of exam and crucial time of other subjects was taken by it.(I am just saying my view here and from exam perspective)I really enjoyed reading T9 from the core material.Its fun part.
3.At the day of the exam,there were a lot of students who were prohibited from entering the exam hall because they couldn't produce required documents.For part 1 at my center alone 43 people were not allowed to enter.I have given it from India and PAN card was not allowed to show as an identity proof. So I feel all of the students sitting for the exam, please take the instructions given by GARP before the exam seriously and read it.Guys you can share their views if you found such issues in your countries.
Now few queries( how can I write a post without asking doubts)
1. I read the forum posts, and found that before we are certified we can't use the FRM designation but we can mention FRM holder.So does that mean we can mention it as our name XYZ, FRM Holder.
2.When we send the experience for verification to GARP and if they find that the experience is inadequate and doesn't fulfill their criteria, are we given another chance to apply after gaining that experience?Or is it that we have only one chance to get it right.
Apologies for a long post and for posting in THIS forum.
Thanks.