De Laurentis implies Correlation = Beta in marginal contribution to portfolio unexpected loss?

[Karim_B]

Hi @David Harper CFA FRM
I remember you mentioned the De Laurentis text was weak, but I wanted to confirm my understanding of his marginal contribution to portfolio unexpected loss formulae which seem to imply Correlation = Beta.

R42.P2.T6 Giacomo Study Note page 9:

Screenshot:

If we rearrange the top formula dividing ULC(i) by w(i) then UL(Portfolio) aren't we left with:
Correl(i,port) = [ULC(i)/w(i)]/UL(Portfolio)

Which is the same as his Beta(i) formula at the bottom of my screenshot?

I may be doing something silly, but wanted to double check.

Thanks
Karim

 

[David Harper CFA FRM]

@Karim_B I don't think your math is silly, but his ULC(i) is wrong. So an awkward outcome isn't surprising. We reported this to him, his publisher and GARP when it was added to the syllabus. None of them has ever replied specifically about De Laurentis. I asked (er, begged) GARP to drop this lame reading based on its problems.

Do you happen to know if these formulas are in the packaged candidates readings? (I don't actually have a copy of what candidates get) ... to be honest, I really resent this reading. One of the issues I cited is that he does not provide a numerical example, so it's hard to confirm exactly what he terms mean. ULC(i) is called a marginal contribution, and I assume that refers to what has traditionally been called risk contribution (RC; i.e., Michael Ong), but it's all too shallow Thank you for teasing it out specifically, though!

 

[Karim_B]

Thanks @David Harper CFA FRM
Yes same issue in the GARP 2018 FRM Part II Credit Risk book on page 72.

Screenshot:


If you can send me a list of the other issues after exam day (we both have more pressing things to do now ) I'll ask GARP too so hopefully we can get them to reconsider.

Thanks
Karim

 

[David Harper CFA FRM]

@Karim_B Thank you! ... That's disappointing to see, we reported it over a year ago

 

[Karim_B]

Thanks @David Harper CFA FRM
I've pinged GARP about this particular error in hopes that it won't make it onto the exam.
Thanks
Karim

 

[David Harper CFA FRM]

@Karim_B I sincerely appreciate that only because I have been sending them several issues per week (my backlog seems to exceed their capacity; my memo recommendations include a PM ticket system) but I think, you as a customer (not to mention an informed customer) has special weight. About De Laurentis, it's my least favorite new reading, and I think they might just be tired of me impugning it (fwiw, I even hate the harvey balls. They teach me nothing)

 

[Karim_B]

My pleasure @David Harper CFA FRM
My guess is they want to keep it in because it covers a broad array of topics, but sadly seems to personify "jack of all trades, master of none"

So I'm thinking they would need several replacement texts to cover the 1 book's learning objectives.

Btw, not sure what/who harvey balls is

Thanks
Karim

 

[Karim_B]

Hi @David Harper CFA FRM
GARP replied: "GARP is aware of this discrepancy in the text and is working with the publisher to address it. It will not impact actual FRM Exam questions."

So there's still hope
Best
Karim

 

[David Harper CFA FRM]

@Karim_B Sweet, thank you for taking the time (which i realize is limited) to help make improvements!