FRM Exam

[Imad]

Hi all,

I sat for Level II exam.

I went thru the thread and I have my own comments.
I used schweser and it seems that the books are not enough. I did all the Qbank questions while preparing, however, I couldn't relate them to the exam.
We were only 4 people to sit for the exam and the four of us confirmed that the exam was tough. I am not sure if I will pass, however, I am happy it's over!

Looking forward to January!!!

 

[David Harper CFA FRM]

I second Suzanne's appreciation for the thoughtful feedback in this thread.

Especially @ugli-stix and .(JavaScript must be enabled to view this email address):
Thank you for the fantastic details! … some of these questions really illustrate the high degree of difficulty.

By sharing detail, you allow me to itemize some of these as particularly "testable" in preparation for our 2011 curriculum. Thanks again and good luck!

David

 

[srinu2singaraju]

Hi David,

Can you please develop some questions from the above concepts (shared by ugli-stix and .(JavaScript must be enabled to view this email address) given in the FRM exam. Which will help us for the next sitting.I really don't know most of the concepts mentioned.


Thanks and Regards
Srinivas

 

[the luncheon meat]

Hi, revisiting this ... which AIM or topic is covered in the below? I do not remember calculating opvar using distributions?

thanks

not sure if anyone knows, in 2011 context,

....


Below are some tested concepts as much as I can recall :
.....
- Provided the Frequency Distribution( Times X Prob) and Severity Distribution (Prob X Loss) and asked to calculate

the expected OPR (loss or VAR??)
........
.
.
Chessy​

 

[David Harper CFA FRM]

Chessy,

It's a weakness of 2011 AIMs: GARP dropped the "LDA at work" reading (a helpful case study) and the 2011 reading list, IMO, goes right to intermediate LDA without an intro.

Please note, the first tab of XLS 7.b.2 LDA @ http://www.bionicturtle.com/how-to/spreadsheet/2011.t7.b.2.-lda/
... performs a very simply copounding of freq (Bernoulli) and discrete severity. About the simplest illustration possible, thanks, David

 

[the luncheon meat]

Hi,

using this example of 100 assets, prob of default for 1 asset = 0.03, independent, and each asset value = 100k, and recovery = 0.3, find the 2nd-to-default expected loss.

is it correct if i take the binominal approach and find the prob of default of 2 or more assets?.

i.e PD= 1-P(0) - P(1) = 1- (0.03)*(0.97^99)-(0.03)^0 * (0.97)^100) = 0.95097.

hence EL = PD*LGD*V = PD*100K*0.7 = 66,568.

i was thinking should it be taking exactly 2 defaults or taking at least 2 defaults in computing the PD.

- Calculate the EL of writing a 2nd-to-default based on 100 assets with a set PD, Recovery, and asset value.
This was one the the questions I got stuck. I figured, the chance the 2nd-to-default basket has to pay out is the when two or more assets default. PD was 3%, recovery rate 30%, each asset represented $100,000.
P(X >= 2) = 1 - P(X=0) - P(X=1) = 1 - 0.97^100 - 100*0.03*0.97^99 = 0.8054.
So E(Loss) = 0.8054 * (1-0.3) * 100,000 = $56376, but this was not one of the answers
​

 

[David Harper CFA FRM]

Hi afarty,

I agree exactly with the calcs given by mrbombastico. As this is a 2nd-to-default basket, the probability of an event is the probability of 2 or more, which is equal to 1.0 - P(0) - P(1) = 0.8054.
Although your symbolic formula looks correct, I am not sure how you get 0.95097; e.g., P(2 defaults exactly) = 22.52%
... see http://en.wikipedia.org/wiki/Binomial_distribution you m,ight be omitting the "n choose k"

also, i think it is instructive that we multiply by $100 not $200 which might be tempting: the 2nd-to-default does NOT pay for the first default. I would love to see GARP's answer because i would get the same as mrbombastico... David

 

[Leli]

I found this topic and was reading feedback when i found this question :"Provided choices for different tranches viz. senior, mez, equity , all . Bank exposed to highest moral hazard byholding which CDO tranch?"

Maybe the question is not complete but i can't answer (moral hazard between who and bank ? ) Someone to help me ?

Thanks a lot

leli

 

[Hend Abuenein]

I'd like to understand it first
Moral hazard from holding a CDO tranche? Sounds incomplete?

 

[Leli]

Maybe David can help us (think and wish he's sleeping at the moment ) with a smart case by case and impact of moral hazard with CDO'tranches???
Hend, if you've a little time , the beginning of this topic is really instructive - some people have a crazy memory about exam

 

[Hend Abuenein]

I know Aren't they lucky to have such a photographic memory ? They probably retain 90% of what they read the first time. Like Dimitrij if you know him, he studied for only 45 days and sat for both exams on the same day, and scored all Q1s :s
I was amazed at the accuracy they remember the questions! Photographic memory indeed!

 

[Leli]

Maybe i've found something about CDO tranche (really, not totally convinced) : From Hull, mezzanine tranche can be repackaged and resold. Maybe that's why more subject to moral hazard...
Wish David will see that question before tomorrow

Good night and good luck all !!!!