GARP Chapter 4 Books do not cover specific concepts

[The Intrepid]

Unless I am missing something the latest GARP books do not cover CDS, TRS, LTRS in chapter 4. Then why is it in the BT notes? Is this chapter not updated per the latest syllabus?

 

[David Harper CFA FRM]

@jimmykaw You're kidding right ; we spent considerable time and effort on that chapter. Yes, Chapter 4 is updated. The LOs match, don't they?

Here is the very first Learning Objective (LO) given by GARP at the start of the reading (and in the study guide/syllabus): "Compare different types of credit derivatives, explain how each one transfers credit risk, and describe their advantages and disadvantages."

Am I missing something? Is that not the very first Learning outcome?

As GARP's Chapter reads (emphasis mine) "These included credit default swaps (CDSs), collateralized debt obligations (CDOs), and collateralized loan obligations (CLOs)." ... and TRS are an important credit risk transfer derivative, with a long history of being tested. Actually, come to think of it, and I will capture this is the errata/issues thread, unless I am missing something, GARP's Chapter 4 seems to be missing any mention of TRORS/TRS which should definitely be in there (ie., long track record on the exam)

Several of GARP's new Part 1 chapters do not include illustrated examples. It's my position some are therefore inferior to the previous source readings upon which they are based. We included illustrations of CDS because, well, we think it's easier to understand with concrete examples. There are a lot of chapters like this; ie, where GARP's new readings do not including illustrated examples. (GARP's new material is their first version. In addition to many errors, it contains some really light areas. I'd expect them to revise Chapter 4 so that next iterations include more detail addressing their own LOs).

Here is a rhetorical question: Can a CDS be understood by reading the following sentence? "These included credit default swaps (CDSs) ... The CDS and CLO markets remained robust."

Because, as far as I can tell, that is the extent of the explanation of a CDS in GARP's Chapter 4. Is that enough (by itself) to "compare different types of credit derivatives"? ...

Is that not the LO?

Am i missing something?

 

[The Intrepid]

Ok - wasn't expecting that kinda answer, but i do get your point. The 'Am I missing something' was because i did not see any mention on these credit derivative types GARP readings (yes i did a search and came back with nothing in the book) and i really thought i was missing something. So i think my question was very valid. Never meant to be condescending. So my apologies, if it came out that way.

 

[David Harper CFA FRM]

@The Intrepid Thanks you. Maybe I should apologize, maybe the question is fine. I am sorry to be irritated: It was a Sunday (yesterday) and I was working all weekend on the last Tuckman T4 Tuckman (VRM 13) study note, and I resented interrupting that work to basically be a proxy for GARP support. You've separately gone back and forth with Nicole via email, including in early March how you were "a little disappointed that a lot of notes are still are not available." And ironically, here is a note where I've spent considerable money generating (our best author Thomas wrote it. My feedback at the time was "this note is SUPER, it's much BETTER than GARP's reading. Thank you for great work!"). I'm basically thrilled with the work he did on the FRM-4 note.

Really the problem here is that GARP's own FRM-4 (Chapter 4) is weak tea, as they say. The LO reads "Compare different types of credit derivatives, explain how each one transfers credit risk, and describe their advantages and disadvantages" yet their Chapter 4.1's Overview of Credit Risk Transfer Mechanisms inadequately addresses the LO. Our author, in my opinion, did a terrific job of addressing GARP's stated LO. I'll end up posting this up, as part of a soon-to-be started copious feedback thread, which will probably be used to inform next year's revision. But GARP makes all the real money, and it should be their job to support problems with their new material. (And their new material contains many problems, some major ones I've already brought to them because I was concerned that candidates, whether our customers or not, would learn the wrong things about e.g., VaR or ES).

We have this forum which, as transparency, is quite a challenge. Some of these issues really should be put directly to GARP rather than implicitly delegated to the EPPs, who too often are implicitly beta testers. I'm certain there are (will be) many more issues like this and I just want to say that I don't want to be constantly arbitrating them all, if that's okay. The forum is for constructive knowledge sharing or it becomes unbearable for me. Thanks,

 

[JLFRM2020]

Complete noob to FRM exam (Been studying for 2 weeks). A little background for context, I have an MBA (engineering undergrad) and currently work in Enterprise Ops Risk in a Project Manager capacity. I'm familiar with the terms but don't practice risk management as an analyst.

I understand the practice questions are intentionally more difficult so that we are better prepared for the exam. I'm reading both the GARP provided material and the study notes. The study notes definitely go into a lot more depth. I find that if I read the notes, watch the video and read the GARP material, I'm able to score 100% on the questions in the GARP book as well as the bionic turtle problems. So the content works.

I was taken aback by the variance between the notes vs the GARP material for Foundations chapter 4 credit risk transfer and chapter 5 CAPM. The notes goes into significantly more depth than the GARP material. The chapter on credit risk transfer is only 8 pages and it never going into the mechanics of CDS and other swaps. While I'm appreciative that going through the notes helped primed me to better understand the underlying mechanics of swaps, it's just so different than what's in the GARP book. I do see there are chapters specifically on swaps later, so maybe this is to prepare us for later chapters? I'm now going through chapter 5 on CAPM. I find the videos to be theoretical, technical, and a bit convoluted to follow. It's just really dense... I have exposure to CAPM from MBA and understand it at a high level. The math don't necessarily scare me either, I'm sure more time will help me absorb the content better. The problem is that it takes me two or three times longer than I planned to fully understand the study notes vs reading the GARP provided book. How much of the notes is overkill?

tl;dr

How in depth are questions on the FRM? To what degree do we need to understand the notes and videos? The variances between the notes and the chapters seems huge... I get that the exam is difficult, trying to figure out how to interpret the notes. Should I take it as engineering classes material where the key is to understand how it's applied? The notes and videos seem to suggest that I need to grasp the content at a very in depth and mechanical level. How much of the notes is FYI vs absolutely necessary to pass the exam?

 

[David Harper CFA FRM]

Hi @JLFRM2020 GARP's Part 1 notes (you may or may not realize) are new in the sense that it's the first year they wrote them in house; previously they were assigned to external authors, like Part 2 currently. My view is that new Chapters 4 and 5 are pretty weak. The first Learning Outcome (preserved from last year when the reading was stronger) asks us to "Compare different types of credit derivatives, explain how each one transfers credit risk, and describe their advantages and disadvantages." and the text goes on to introduce products, "These included credit default swaps (CDSs), collateralized debt obligations (CDOs), and collateralized loan obligations (CLOs)." But unlike previous years, this first-version doesn't bother to illustrate any of those vehicles. I'm glad to maintain our quality and depth. (Their next version will gain the benefit of copious feedback ...). Normally, we might look to their EOC questions to answer your question, but GARP has taken a huge shortcut by writing EOC questions that are not representative; indeed, the Chapter 4 EOC include many questions that are far too trivial to be useful for actual exam prep.

So the key determinant here is (i) GARP's churn of the material and, again just my opinion, (ii) the shallowness of many of the new Part 1 readings (and I think Chapter 4 is one of the weaker chapters, although a persistent weakness of the new material is the lack of illustrated examples). In regard to your question, "How much of the notes is FYI vs absolutely necessary to pass the exam?" I can't really answer because GARP doesn't give EPPs much in the way of prospective clarity (e.g., we have relatively few exam-type questions) and the exam is extremely over-assigned (always more material than can be possibly tested). Certainly, you do not need all of our notes to pass; our notes often go deeper and broader than required to the exam, some of it is due to the unpredictability, but admittedly must is due to the fact we care about mastery of the domain beyond the exam. I hope that's helpful,

 

[JLFRM2020]

Hi @JLFRM2020 GARP's Part 1 notes (you may or may not realize) are new in the sense that it's the first year they wrote them in house; previously they were assigned to external authors, like Part 2 currently. My view is that new Chapters 4 and 5 are are pretty weak. The first Learning Outcome (preserved from last year when the reading was stronger) asks us to "Compare different types of credit derivatives, explain how each one transfers credit risk, and describe their advantages and disadvantages." and the text goes on to introduce products, "These included credit default swaps (CDSs), collateralized debt obligations (CDOs), and collateralized loan obligations (CLOs)." But unlike previous years, this first-version doesn't bother to illustrate any of those vehicles. I'm glad to maintain our quality and depth. (Their next version will gain the benefit of copious feedback ...). Normally, we might look to their EOC questions to answer your question, but GARP has taken a huge shortcut by writing EOC questions that are not representative; indeed, the Chapter 4 EOC include many questions that are far too trivial to be useful for actual exam prep.

So the key determinant here is (i) GARP's churn of the material and, again just my opinion, (ii) the shallowness of many of the new Part 1 readings (and I think Chapter 4 is one of the weaker chapters, although a persistent weakness of the new material is the lack of illustrated examples). In regard to your question, "How much of the notes is FYI vs absolutely necessary to pass the exam?" I can't really answer because GARP doesn't give EPPs much in the way of prospective (e.g., we have very few exam-type questions) and the exam is extremely over-assigned (always more material than can be possibly tested). Certainly, you do not need all of our notes to pass; our notes often go deeper and broader than required to the exam, some of it is due to the unpredictability, but admittedly must is due to the fact we care about mastery of the domain beyond the exam. I hope that's helpful,

Hi David,

Thank you for your feedback. That's helpful. I appreciate the much more in depth details of the notes. I thought the notes on credit swaps was helpful. CAPM videos kicked my ass. ha ha. I guess I need more time to absorb the material.

P.S. Really appreciate the insight you shared on this year's GARP reading material. That's helpful to understand the context.