Study strategy.

[frm_daniel]

Hi David,

I saw you spent only about 2 minutes to wrap-up the slides for 2010 market risk 5.b screencast (p.65 -81). Does it mean that those slides can be lightly read through. However, I found those slide's content/concepts are pretty heavy. Please advise.

Thanks,
Daniel

 

[David Harper CFA FRM]

Hi Daniel,

I didn't mean to imply that section of Tuckman Chapter 21 is less important or unimportant. Frankly, given the pace and the fact that we consider all AIMs (L1+L2) before the May exam, I just have to make some decisions about where i put the "talking emphasis." In this case (Tuckman Chapter 21) it's either (i) terms where I would just be reading them aloud and (ii) the deeper material near the end (PAC, CMO, IO, PO) which, in regard to Tuckman, has frankly seen less testability (this chapter has entered and exited the curriculum twice in the last 4-5 years).

In regard to (i) the mortgage terms (e.g., media effect, burnout effect, points), I definitely would know those, I only rushed those to save the redundancy of me reading them.

In regard to (ii) the deeper material at the end, IMO:
* maybe know the counters of the prepayment approach (really the only one that matters)
* page 78: (i think i did pause here?) definitely do understand how the mortgage holder is akin to a corporate issuer and how the call option translates into negative convexity at low yields. This has been classically testable.
* an IO is pretty much the only fixed income instrument that exhibits negative duration; e.g., sample question from last year on this: http://forum.bionicturtle.com/viewthread/1418/

... so the safest thing is to read the source, but I hope you understand i have to decide for some AIMs that i can't "go deep" given the time constraints and I only do that where the evidence suggests the topics are not critical... it is an endearing feature of GARP's AIMs that collectively they quite outpace the actual testable material...

thanks, David