Exam Feedback November 2015 Part 2 FRM Exam Feedback

[Sidewinder]

I have a small request to everyone. If you guys can please tell how much you are expecting to score on an average? It will give a rough indication on where everyone of us are standing, atleast here on forum. Please if you all can give your rough estimate of scores. I think mine will be approximate 50. Request you all to please post yours.

congrats, passed... me 30+

Pure guessing: 40-60

EDIT: Sry, totally forgot that we had only 80 questions, so I guess 30-50

 

[Tanya Vasileva]

Do we really have 60??? Its not adding up for me ...just remembered another question about the liquidity cost not adding up for 2 traders in singapore and hongkong ..it was about endogenous or exogenous liquidity and something cant recollect now[/QUOTE
I remember that the answer was about the price elasticity

 

[HERO]

My score about 45-50...

 

[babyik]

I have a small request to everyone. If you guys can please tell how much you are expecting to score on an average? It will give a rough indication on where everyone of us are standing, atleast here on forum. Please if you all can give your rough estimate of scores. I think mine will be approximate 50. Request you all to please post yours.

___________________________________________

same..around 50 on the optimistic side

 

[a.lesnar]

First of All, Good Luck with results on 1st week of Jan.

I felt part-2 exam neither easy nor complex, Managed to attempt all 80 questions. Few of qualitative questions were tricky and difficult to final answer.

I felt questions on VaR, Basel-3, Société Générale, LVar comparatively easy.

Btw, Which one did you choose for Estimated Operational loss to be reported (It was my 1st Question)

Q. A company has met with fire accident and all the building is damaged including the equipment. what amount would be correct to report as operational loss.

Not sure of the order of Answers provided. it goes like below

A) The cost of rebuilding the building & equipment ..etc
B) Book Value of the building & equipment minus estimated recovery from insurance
C) Book Value of the building & equipment
D) Book Value the building & equipment cost including insurance premium

I choose option C

Hello

Can I kindly ask you whether you are sure about choice B? because I remember that one option was something with replacement costs minus insurance recovery, I am not completely sure about it by the way
Thanks

 

[Sidewinder]

Hello

Can I kindly ask you whether you are sure about choice B? because I remember that one option was something with replacement costs minus insurance recovery, I am not completely sure about it by the way
Thanks

This is what Ive had also in mind.

 

[Twol84]

Pretty sure adding insurance is wrong. We are asked (if I recall correctly) to qualify what counts as an operational loss, towards which insurance cannot count. Insurance is only allowed as a mitigant under AMA.

 

[a.lesnar]

Pretty sure adding insurance is wrong. We are asked (if I recall correctly) to qualify what counts as an operational loss, towards which insurance cannot count. Insurance is only allowed as a mitigant under AMA.

yes insurance premium should never be added

 

[Twol84]

I think you misunderstood. Insurance premiums should not be added. Mitigation by insurance is allowed, however, up to 20% and with several restrictions, but only under AMA. Operational loss cannot count either premiums or insurance mitigation. You'll probably get the question right anyway, so cheers

 

[KilJaeden]

Does anyone recall the question about a firm worrying about traders exposures with counterparties. The answer options were to adjust CVA, adjust DVA, adjust FVA and one more.

I was discussing this question earlier; and I got that we should adjust the counterparty's DVA (which would be the equivalent of adjusting your CVA.) Does anyone recall this question and whether it was asking for how to adjust the counterparty or how to adjust your own portfolio?

 

[Paranoid Panda]

Does anyone recall the question about a firm worrying about traders exposures with counterparties. The answer options were to adjust CVA, adjust DVA, adjust FVA and one more.

I was discussing this question earlier; and I got that we should adjust the counterparty's DVA (which would be the equivalent of adjusting your CVA.) Does anyone recall this question and whether it was asking for how to adjust the counterparty or how to adjust your own portfolio?

Hi I remember choosing adjust your cva because exposure was increasing or something like that so I read that question from the traders perspective..not the counter parties ...thanks for adding a new question
And as for scoring I'm just looking at around 35

 

[Sidewinder]

Does anyone recall the question about a firm worrying about traders exposures with counterparties. The answer options were to adjust CVA, adjust DVA, adjust FVA and one more.

I was discussing this question earlier; and I got that we should adjust the counterparty's DVA (which would be the equivalent of adjusting your CVA.) Does anyone recall this question and whether it was asking for how to adjust the counterparty or how to adjust your own portfolio?

The only thing I remember is that I choose CVA...because the question was about Credit worthiness decline from your counterparty (?!). Thought FVA made no sense because there was no talking about financing cost and DVA made no sense because the question was not talking about us (the firm) defaulting. Maybe Im wrong, don't know exactly

 

[Twol84]

Can't remember the question, but FVA is definitely wrong as per Hull. The answer depends on whether the question is asking for bilateral exposures. If so, DVA will need to be considered. If it is asking for a change in exposures, then only the CVA change needs to be considered.

 

[Esbringa]

The answer its CVA as the question was about the counterparty default risk, not its own default risk.


There was other question about payment netting vs closeout netting.

And other one on CVA as settlement risk vs pre-settlement risk

 

[KilJaeden]

Can't remember the question, but FVA is definitely wrong as per Hull. The answer depends on whether the question is asking for bilateral exposures. If so, DVA will need to be considered. If it is asking for a change in exposures, then only the CVA change needs to be considered.

Yes, I agree with most people here that it is a CVA from the point of view of the firm.

However, for some reason, I recall the question being about how does the firm adjust the counterparty's position in their models. And in that case, since the CP has a higher default probability, that would be an increase in their DVA.

I guess its a matter of whetehr the question was asking for the adjustment from our point of view, or from the CP point of view...and for some reason, I seem to recall it asking from the CP point of view.

 

[KilJaeden]

The answer its CVA as the question was about the counterparty default risk, not its own default risk.


There was other question about payment netting vs closeout netting.

And other one on CVA as settlement risk vs pre-settlement risk

If its about the counter party's default risk, and their default risk goes up - wouldnt that imply an increase in the counterparty's DVA?

 

[Sidewinder]

Yes, I agree with most people here that it is a CVA from the point of view of the firm.

However, for some reason, I recall the question being about how does the firm adjust the counterparty's position in their models. And in that case, since the CP has a higher default probability, that would be an increase in their DVA.

I guess its a matter of whetehr the question was asking for the adjustment from our point of view, or from the CP point of view...and for some reason, I seem to recall it asking from the CP point of view.

As far as I remember it wasn't about any kind of "view". I thought to have mind that it was only questioned what does the firm do to adjust his counterpart credit worthiness.

 

[KilJaeden]

As far as I remember it wasn't about any kind of "view". I thought to have mind that it was only questioned what does the firm do to adjust his counterpart credit worthiness.

So if they are specifically adjusting the counter party's credit risk, then does that not mean they adjust the counter party's DVA?

I think we agree in principal, just a matter of how we interpreted the question..wish GARP was a bit more clear on this one.

 

[Sidewinder]

So if they are specifically adjusting the counter party's credit risk, then does that not mean they adjust the counter party's DVA?

I think we agree in principal, just a matter of how we interpreted the question..wish GARP was a bit more clear on this one.

I think there are 2 options:

1) As far as I remember it was only told about the credit worthiness of the counterparty and the view is "our" firm". So CVA.

2) It could be the case that they told about the credit worthiness of of our counterparty but the view is the counterparty, Then DVA --> BUT you can also say that negative CVA (=DVA)

Dont k now but option 2) sounds strange and I haven't in mind such a "complex" question. Furthermore CVA seems to be in both cases more "right" than DVA. What you guys think?

 

[Twol84]

It's adjust CVA from what I gather here. In general, the CVA is simply whatever the PV of the expected credit loss is, to be deducted from trade value. If a counterparty's worthiness decreases, CVA increases. DVA is not adjusted because the worthiness of the company itself has not changed. The bilateral CVA adjustment is for the company's DVA, not the counterparty's.

On a side note, CVA to company does not necessarily = DVA of counterparty.