ARRIBA

Introduction to the Quantitative Foundation of Risk – Present Value

[caption id="attachment_454805" align="alignright" width="247"]  [/caption] A common question asked by FRM candidates (and people who are considering whether to sit for the FRM exam) is, where can I find an introduction to the math? Although the FRM has many qualitative and conceptual topics, it also contains a lot of formulas and numerical illustrations. The CFA,... Read More

David Compares Durations in CFA vs. FRM

I'd like to clarify duration terminology as it pertains to differences between the CFA and FRM. Our forum has hundreds of threads over 12+ years on duration concepts (it's hard to say which links are the best at this point, but I'll maybe come back and curate some best links). Our YouTube channel has an... Read More

Week in Financial Education (May 17, 2021)

Welcome to another Week in Financial Education! This week saw some great questions and fascinating insights. I will just highlight the instructive example of a flawed solution in the 2021 practice paper (as usual, the impetus is candidates' justifiable confusion). This one is tricky because the correct answer is coincident with two implicit assumptions, but... Read More

Week in Financial Education (May 10, 2021)

Welcome to the latest week in financial education (WIFE)! As the May exams have started, we experienced another busy week. We are grateful for some fabulous contributions by members (see links below). At this time of year, many candidates are naturally focused on practice question revision, not just from our database but also from other... Read More

Bionic Turtle Has Been Acquired by CeriFi

We wanted to share some exciting news: Bionic Turtle has been acquired by CeriFi. You can read the press release here https://www.prnewswire.com/news-rel...s-acquisition-of-bionic-turtle-301242071.html. David started BT over 15 years ago (yikes!). His original vision was to build an entire online school. He started with the FRM because he loves finance and the FRM seemed to be... Read More

Capital Adequacy

Capital Adequacy is a Balance Sheet Ratio Financial analysts analyze company performance with different sets of ratios; e.g., earnings per share, return on equity. As a ratio, capital adequacy is just a special solvency ratio, not greatly unlike the classic debt-to-equity ratio. But capital adequacy connotes a financial institution's capital, so it’s really a bank-specific... Read More

Binomial Tree

Introduction The Financial Risk Manager (FRM) introduces binomial trees by applying them to value derivatives for two asset classes, equities and bonds. For stock options, the text is John Hull’s Options, Futures and Derivatives; for bonds, the text is Bruce Tuckman’s Fixed Income Securities. Both are excellent and have been assigned in the syllabus for... Read More

Spot Rates

Spot prices are a basic building block in finance, but they are tricky when the commodity is money. When the commodity is money, spot prices are called spot rates (a.k.a., spot interest rate). A spot price is simply the market's current price to buy or sell a commodity for immediate delivery. Spot prices are so... Read More

What Is a Z Table?

Functions based on the normal distribution are easy to retrieve in code or excel, so we do not really need z tables anymore, in practice. But we still want to understand the z table. Why? Because the popular exam calculators (TI BA II+ and HP 12c) do not include z table functionality, so we do... Read More

Statistical Inference: Hypothesis Testing and Confidence Intervals

320.1. Recently 25 banks were surveyed. Their sample average total capital is 8.40% (i.e., Tier 1 plus Tier 2 as a percentage of risk-weighted assets, RWA) with a sample standard deviation of 1.0%. Our one-sided null hypothesis is that the population's "true" average total capital is less than or equal to 8.0%. With 95.0% confidence,... Read More

Economic Capital (Schroeck)

Learning outcomes: Evaluate a bank’s economic capital relative to its level of credit risk. Identify and describe important factors used to calculate economic capital for credit risk: probability of default, exposure, and loss rate. Questions: 505.1. According to Schroeck, economic capital is an estimate of the overall level of capital necessary to guarantee the solvencyof... Read More