Exam Feedback May 2019 Part 2 Exam Feedback

[nikic]

2.08? I remember ‘k’ the rate of mean reversion was too small, 0.02

That’s Vasicek....no?

 

[amit.m.sharma]

That’s Vasicek....no?

@nikic you’re right that is for Vasicek
Ho-Lee I can’t recall now but it was a straight application of the formula and I made sure I was adding the drift terms and not subtracting them

 

[Amarnadh D]

@Amarnadh D thanks but what same answer? I have a call into GARP (also in regard to the unconditional PD question) about this. If the assumption was 98% and 252 trading days then the correct answer is neither the simple average of worst five or six but rather, per my post above, the correct answer would need to include a slight weight for the sixth worst, as given by a non-simple average. Maybe the solution was correct, I can't tell by the feedback ....

As I wrote above, if the 6 worst losses were: -2.8%, -2.6%, -2.5%, -2.4%, -2.3% and -2.2%
... then the correct answer for the 98.0% ES is 2.5175% (not 2.5200% and not 2.4667% which are simple averages; but maybe the answer only displayed 2 decimals such that 2.52% was given (?), and that would be a happy coincident outcome, although I'd still want to talk to GARP if they aren't doing this correctly and it only happens to be correct b/c the displayed options were limited to, eg, simple averages 2.52 and 2.47). I'm skeptical simply because the setup of 98.0% ES and T = 252 days automatically throws ES into a harder calculation, versus it's much easier to request 98.0% ES and T = 250 days because that is a simple average (assuming unweighted HS) of the worst 5.0 = 250 days * 2.0% losses.

Hi David, I took the average of last 4 days/4.

 

[tigeryellow]

Another current issue questions, I was confident that I get it right but now I know I was probably wrong.

CRO of my workplace asked me to write a report for our company's own system including why we need to build our own. Quite similar scenario like a question right? I chose that one that the company should build own system to compete with start-up Fin-tech companies because I thought it was testing my knowledge on Arms Race, a machine learning driver(Article 4). When I take back the original material to find if there is any thing can help me with the report, I find that the Article 5 which talk about fin-tech services and frequently mentions star-ups. I felt it might be some problem because I am not actually confident about that question totally after test. Finally, I found in the conclusion that A larger company should outsource fin-tech rather than make it in-house. It means that I probably make this wrong but I do not know how one of the other three is right. It represents point of view of one article but I think for real world risk management, companies strategies vary.

 

[vanhvidieu]

Do anyone remember that question having hazard rate 3 year, and ask student to calculate PD 1 year? What should answer?

 

[nikic]

Another current issue questions, I was confident that I get it right but now I know I was probably wrong.

CRO of my workplace asked me to write a report for our company's own system including why we need to build our own. Quite similar scenario like a question right? I chose that one that the company should build own system to compete with start-up Fin-tech companies because I thought it was testing my knowledge on Arms Race, a machine learning driver(Article 4). When I take back the original material to find if there is any thing can help me with the report, I find that the Article 5 which talk about fin-tech services and frequently mentions star-ups. I felt it might be some problem because I am not actually confident about that question totally after test. Finally, I found in the conclusion that A larger company should outsource fin-tech rather than make it in-house. It means that I probably make this wrong but I do not know how one of the other three is right. It represents point of view of one article but I think for real world risk management, companies strategies vary.

Yes definitely the answer was not to start it in house (which I recall was option A). I honestly can’t recall what answer I put but it made sense and was from the readings. When you’re a big bank or investment company, the best thing to do is to acquire a small firm that already has a head start for example.

 

[Anoop Kumar]

@ nikic:
a) for the SOFR question the answer would be that its derived from repo trades. I guess its B.
b) For the Stressed loss question, i guess it would be stressed loss = stressed pd * EAD * LGD and then stressed EL - pre-stress EL
c) For collateral, yes it is high threshold.
d) For question 12 in credit risk, its that there was a requirement in OTC regulation for the trades to be posted to a central repository.
e) For the distressed company / high volatility, the impact of asset volatility on subordinated debt is always unclear but the senior debt value reduces?

This was my second attempt after failing the Nov'18 exam. Comparatively, IMO, May'19 was easier than the Nov'18 exam. Well, one can say that's because I'm more prepared this time but from my perspective, ~80% of the questions were really concise and tested the basics of FRM II learning objectives. If you have a good grasp of the concepts and formulae you can easily find the answer. I left the room feeling that I'll pass this time but will have to wait for 6 weeks to get to know if I did or not !!

Do you remeber the asnswer for stressed pd * EAD * LGD and then stressed EL - pre-stress EL o lets say option A or B ??

 

[amit.m.sharma]

There was one question about banks and third party vendors. I chose the answer that stated that the bank should help the third party vendor with developing their contingency plan. Was this the right answer?

 

[nikic]

There was one question about banks and third party vendors. I chose the answer that stated that the bank should help the third party vendor with developing their contingency plan. Was this the right answer?

No, definitely not - the third party vendors should develop their own contingency plans. I believe the answer was that the banks should place the same level of scrutiny on the third party vendors / outsourcing service providers, as they would if the function was in-house.

 

[Yogi88]

No, definitely not - the third party vendors should develop their own contingency plans. I believe the answer was that the banks should place the same level of scrutiny on the third party vendors / outsourcing service providers, as they would if the function was in-house.

Yes agree with nikic..

 

[amit.m.sharma]

No, definitely not - the third party vendors should develop their own contingency plans. I believe the answer was that the banks should place the same level of scrutiny on the third party vendors / outsourcing service providers, as they would if the function was in-house.

Yes agree with nikic..

Thanks @nikic

 

[etherm]

But this question has appeared exactly the same in the GARP samples and the answer was 10.0% there?

I honestly thought this was a free and easy mark...

Memory is hazy now....but wasn’t the question worded EXACTLY as above? Or was it worded differently?

I think yes... Same question was asked...

 

[etherm]

Do anyone remember that question having hazard rate 3 year, and ask student to calculate PD 1 year? What should answer?

This question mentioned conditional or unconditional wording ... I remember largely

 

[etherm]

What can be a passing score for this exam?

 

[Nicole Seaman]

What can be a passing score for this exam?

Hello @etherm

There is a lot of discussion about what the passing score could be starting on page 2 of this thread (although there is no way to know until GARP releases the actual pass rates).

 

[kylian.mbappe]

I think yes... Same question was asked...

Not exactly.

As I said above, there may be several exam versions ... But I am 100% sure that the question was about PofD 2y given SURVIVAL 1y..
So it is not the same question as it was in the mock exam.

 

[nikic]

What can be a passing score for this exam?

We really have no idea. However, I hope a mid to high 50s should suffice. I've narrowed down the range of my results to between 40-55/80 based on what's been discussed here, though I can probably narrow it down there further to 44-52/80. Will it be enough? Let's see. Fingers crossed!

 

[Yogi88]

I think it will be in 40-45 range considering some very tricky questions..

 

[javal123]

Can anyone tell me what would be the cutoff I m little bit confident about sums but not about theory.

This was my second attempt

 

[javal123]

Those who had orange or yellow one where there ans b in the start for few questions