FRM Forum Discussions
GARP 2016 Practice Exam Errors
- Several errors were identified in the originally published GARP 2016 Part 2 Practice Exam, see https://www.bionicturtle.com/forum/threads/2016-frm-part-ii-practice-exam-q-a.9350/. These have been corrected by GARP. I think errors are very instructive, regardless. For example, the practice exam includes the estimation of ES via VaR quantiles.
Do you need to know calculus to sit for the FRM exam?
- A forum member re-asked a question that we get every year. Miller contains Calculus, do you need to know calculus to sit for the exam? I wrote to Bill May (David: “Especially because the Miller reading utilizes (basic) calculus, we are often asked, Do I need to know any calculus?”). Bill replied helpfully! Read his response here: https://www.bionicturtle.com/forum/threads/p1-t2-300-probability-functions-miller.6728/page-3#post-40734.
LIBOR/Swap Rates vs. Zero Rates
- This is a good technical discussion on LIBOR/swap rates versus zero rates: https://www.bionicturtle.com/forum/threads/hull-swaps-example-10-1-in-text.9327/. This includes a tricky, more basic question: what’s the difference between a zero and swap rate? David writes, “Sorry to toot my own horn, but I recently recorded a short video here at my 5-minute YouTube video on “Swap versus Spot rates“
Correlations Spiking During Stress
- A forum member asks a good question (What’s the solution to correlations spiking during stress?) at https://www.bionicturtle.com/forum/threads/naive-observation.9385/
ES and VaR
- Summarizing the issues around ES and VaR for a discrete distribution: https://www.bionicturtle.com/forum/threads/var-and-es-for-discrete-rv.9407/
Liquidity-adjusted VaR (LVaR)
- Which liquidity-adjusted VaR (LVaR)? While there are several variations, GARP routinely asks for the most straightforward approach: https://www.bionicturtle.com/forum/threads/lvar.9391/
A Bond’s Realized Return and its Yield
- Illustration of the contrast between a bond’s realized return and its yield (we do not expect the realized return to equal the yield unless the coupons are reinvested at exactly the yield) https://www.bionicturtle.com/forum/threads/tuckman-chapter-3-realized-return-ytm-re-investment-of-coupons.9383/
General Risk-Related News
- Revised framework for market risk capital requirements (Jan 2016) http://www.bis.org/bcbs/publ/d352.htm
- Proposed revisions to the operation risk capital framework (March 2016) http://www.bis.org/press/p160304.htm
- Consultation on revisions to the Pillar 3 disclosure framework (March 2016) http://www.bis.org/press/p160311.htm
FINRA 2016 priorities emphasize risk management: http://www.finra.org/industry/2016-regulatory-and-examination-priorities-letter
Negative interest rates
- A forum member asked about negative yields https://www.bionicturtle.com/forum/threads/bonds-with-negative-interest-rates.9392/
- Thank goodness Damodaran himself weighed in on this important issue at: http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html
A heated p-value controversy! The true “error rate” is (much higher) than the p-value: The ASA issued a statement on p-values (http://trtl.bz/asa-pvalues). This re-sparked a lot of debate about the seemingly innocent p-value; for example, a 0.05 p-value does not imply the false positive rate is 5.0%, it can be much higher (http://trtl.bz/1UHpeji).
- Here is one of my favorite tutorials (http://trtl.bz/pvalue-tutorial) and his helpful “How to Correctly Interpret P Values” (http://trtl.bz/pvalue-interpret).
- Here is a word-friendly article on the p value “crisis” (http://trtl.bz/1MsGdiA)
- Here is a short illustration of type of possible pilot error (“The problem is that with large samples, significance tests pounce on tiny, unimportant departures from the null hypothesis”) https://matloff.wordpress.com/2016/03/07/after-150-years-the-asa-says-no-to-p-values/
- This is good, why the p-value is still useful http://www.r-statistics.com/2016/03…ault-reflections-on-the-recent-asa-statement/
Interesting 3-part interview with Edward Altman, who created the Z-score, and Larry Cao of CFA Institute.
- Did you know that his reliance on fundamentals caused him to be presciently pessimistic in 2007? Where does he think we are in the credit cycle today? “I believe a bubble is building in the credit market today. A bubble is defined as unsustainable prices in an asset class” https://blogs.cfainstitute.org/investor/2016/02/23/the-altman-z-score-in-action-is-a-bubble-building-in-global-credit-markets/
Three lines of defense
- GARP explains the “Three lines of defense” (ie, business/front line, independent risk management, and internal audit) at http://trtl.bz/occ3lines.
- Here is how the Federal Reserve Bank of New York applies (speech by Joshua Rosenberg) at http://www.bis.org/review/r160316c.htm (Here is the referenced IIA Position Paper at http://trtl.bz/1TUwUQx).
- Andrew Smart asks if it is time to kill the 3-lines model https://www.linkedin.com/pulse/time-kill-three-lines-defence-model-andrew-smart
Fear of Basel IV http://trtl.bz/1RrL3xX
The Problem with Benchmarking
- FT explains research that says portfolio managers with tight tracking error (versus benchmark) effective pay (lose to) momentum investors http://trtl.bz/1R5Vkmi
“Models and Measures”
- Hull and White on risk-neutral valuation and scenario analysis in “Models and Measures” Part 1 and Part 2
- Calculus is so last century http://www.wsj.com/articles/calculus-is-so-last-century-1457132991
- Cool quant blog! How to learn advanced math without universityhttp://trtl.bz/learn-adv-math. And, Careers in Quantitative Finance (http://trtl.bz/careers-quant-finance) includes Risk Management. “The science of computing and managing the credit and market risk borne by traders and portfolio managers has grown greatly in complexity and importance since the financial crisis. Finding people with the technical expertise to handle these computations has become a challenge for financial firms and regulators alike.”
- How to replace a pie chart (so cool!) http://varianceexplained.org/r/improving-pie-chart/