Jan 11

Friday’s Newsletter - learning pro finance during the week of Jan 11th

by David Harper, CFA, FRM, CIPM

FRM | CFA |

Contents:

  • FRM 2008 Early Bird starts Monday Jan 14th
  • This week's video tutorials
  • This week's blog articles

 

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FRM 2008: Early Bird starts Monday Jan 14th

In a few days, on Monday Jan 14th, you will receive your first FRM 2008 "Early Bird" email. The Early Bird is a low-hassle program to help future FRM candidates ramp-up on certain quantitative methods that are key to the exam. Each year, several people ask how they can ease into 'quant' if they are rusty. I started the Early Bird for these folks.

It is low-hassle because it consists of a brief tutorial (next week's is about 55 minutes and it introduces random variables, logarithms and just a bit of matrix math) and few tough practice questions. I carefully crafted these practice questions to maximize your learning.

  • If you are already a (paid) Bionic Turtle member, you won't need to do anything. The email will contain the learning outcomes (LOs), a link to the video tutorial, a few carefully crafted practice questions, and links to the answers (in the Forum)
  • If you are not a paid Bionic Turtle member, you will still have an option to participate on a limited basis, for free. This will give you a chance to evaluate us, so you can make an informed decision about us. We would very much like to be your course provider for the 2008 FRM

 

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Video tutorials

I have recorded the following brief video tutorials this week (6 to 12 minutes each). These are all free. I have started with some basic tutorials (Quantitative Methods). Over time, the videos will address more advanced topics. The following tutorials were recorded since my last newsletter:

  • What's a random variable? (7 min)
  • Central limit theorem (10 min) - this is really why the normal distribution is so popular, important and prevalent (aside from the fact it only needs two parameters)...but it also hints as to why normality enjoys no privileged status as a risk metric "at the edge" where losses occur
  • Six theories about random variables (8 min). I admit these border on boring, except the formula for variance. Here is the one that really matters: Variance (X) = E(X2) = [E(X)]2
  • Covariance and correlation (12 min). Important! Correlation is covariance standardized (converted into an intuitive, unitless format) by the product of volatilities
  • Limits of correlation (12 min). Correlation is used so often that it is critical to consider its limits. I touched on only two reasons in this tutorial, but you'll start to see why Riccardo Rebonato says that, in many cases, "the familiar correlation coefficient does a very poor job at explaining how different variables move together."
  • Bayes' Formula (6 min). I hope this brief example crystallizes the Bayes concept for you
  • Using Excel to simulate a standard normal random variable. About the common technique of using = NORMSINV(RAND()) to create a random variable that behaves normally

 

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This week from my blog

From my blog this week...

  • Summary of FAJ study that looks at correlations within industry sectors
  • Cholesky Decomposition. If you haven't done this before, I attached a working EditGrid spreadsheet example
  • My summary of GARP's interview with Igor Zax about receivables risk (he wrote me and said it was an excellent summary). I don't normally summarize interviews, but I learned a lot about receivables risk and I wanted to share
  • Bayes' Formula
  • The common theme in at-risk measures. I wanted to show how most of the "at-risk" metrics have a single idea in common: they are cumulative loss distributions. In my opinion, this is the way to approach value-at-risk (VaR), cash flow at risk (CFaR), economic capital (EC), and capital at risk. From this superficial level, these are all VaR metrics: worst expected loss over some horizon with some confidence. (Just as in the advanced approaches under Basel II in the U.S., there is a great advantage in this: we can aggregate across risk types)

If my newsletter bugs you, please unsubscribe. The last thing I want to do is decrease your signal-to-noise ratio! Otherwise, thanks for your time and please visit the Bionic Turtle.

David Harper, CFA, FRM, CIPM
Founder
www.bionicturtle.com

Comments

  1. Ali 17 Jan 2008

    i tried to register and i always get a msg saying “you’re not authorized to perform this action” will u please help?

    thanks

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