# Errata (eg, FRM Handbook) or Key Exam Issue

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1. ### Convexity adjustment & AR Scaling Factor Formulae

Hi Murehwa, Good catches. In regard to the convexity measure, I am not exactly consistent, but please note: the convexity adjustment is the same because, where the "measure" omits the 2 in the denominator in the presentation, then the 1/2 is multiplied in the adjustment (the adjustment is the useful metric, I am pretty sure Fabozzi--who is not assigned but i used here b/c i thought is was...
Hi Murehwa, Good catches. In regard to the convexity measure, I am not exactly consistent, but please note: the convexity adjustment is the same because, where the "measure" omits the 2 in the denominator in the presentation, then the 1/2 is multiplied in the adjustment (the adjustment is the useful metric, I am pretty sure Fabozzi--who is not assigned but i used here b/c i thought is was...
Hi Murehwa, Good catches. In regard to the convexity measure, I am not exactly consistent, but please note: the convexity adjustment is the same because, where the "measure" omits the 2 in the denominator in the presentation, then the 1/2 is multiplied in the adjustment (the adjustment is the...
Hi Murehwa, Good catches. In regard to the convexity measure, I am not exactly consistent, but please note: the convexity adjustment is the same because, where the "measure" omits the 2 in the...
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2. ### SSR clarification

Hi Theresa, Okay, I got your original email. I totally understand the apparent confusion. I would have preferred to keep the terminology from Gujarati: ESS (explained sum) + RSS (residual sum) = TSS (total sum) but GARP switched to Stock & Watson ESS (explained sum) + SSR (sum of squared residual) = TSS (total sum) Thanks, David
Hi Theresa, Okay, I got your original email. I totally understand the apparent confusion. I would have preferred to keep the terminology from Gujarati: ESS (explained sum) + RSS (residual sum) = TSS (total sum) but GARP switched to Stock & Watson ESS (explained sum) + SSR (sum of squared residual) = TSS (total sum) Thanks, David
Hi Theresa, Okay, I got your original email. I totally understand the apparent confusion. I would have preferred to keep the terminology from Gujarati: ESS (explained sum) + RSS (residual sum) = TSS (total sum) but GARP switched to Stock & Watson ESS (explained sum) + SSR (sum of...
Hi Theresa, Okay, I got your original email. I totally understand the apparent confusion. I would have preferred to keep the terminology from Gujarati: ESS (explained sum) + RSS (residual...
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3. ### Regaridng the 2011 practice paper of GARP level II

Hi suraj, They intend the answer to be (a), $0 million, on the theory that during the entire lockout (and therefore true at 14 months) none of those liability tranches have been paid down to any extent; i.e.,$0 principal paid to all of the five tranches, or put another way, assuming no defaults (not indicated in the question), the principal values would be unchanged at the 14 month. ......
Hi suraj, They intend the answer to be (a), $0 million, on the theory that during the entire lockout (and therefore true at 14 months) none of those liability tranches have been paid down to any extent; i.e.,$0 principal paid to all of the five tranches, or put another way, assuming no defaults (not indicated in the question), the principal values would be unchanged at the 14 month. ......
Hi suraj, They intend the answer to be (a), $0 million, on the theory that during the entire lockout (and therefore true at 14 months) none of those liability tranches have been paid down to any extent; i.e.,$0 principal paid to all of the five tranches, or put another way, assuming no...
Question: What would be the market risk capital requirement for a bank with an average one-day VAR of $100 and a specific risk surcharge of$30, based on the current BIS minimum capital requirements? a. $300 b.$316 c. $949 d.$979 Answer: d) The total MRC is 3 × $100 × √10 +$30 = $949 +$30 = $979. Question: What would be the market risk capital requirement for a bank with an average one-day VAR of$100 and a specific risk surcharge of $30, based on the current BIS minimum capital requirements? a.$300 b. $316 c.$949 d. $979 Answer: d) The total MRC is 3 ×$100 × √10 + $30 =... Question: What would be the market risk capital requirement for a bank with an average one-day VAR of$100 and a specific risk surcharge of $30, based on the current BIS minimum capital... Replies: 0 Views: 3 19. ### EXAMPLE 31.5: FRM EXAM 1999—QUESTION 184 Question: You are given that the RiskMetrics VAR for a portfolio is$1,000,000. What is the approximate Basel Committee VAR? a. $4,450,000 b.$225,000 c. $1,000,000 d.$1,412,121 Answer: a) Assuming normally and independently distributed returns, the RM VAR needs to be adjusted from 95% to 99% confidence and from 1 day to 10 days. This gives $1,000,000 × (2.326/1.645) × √10 =$4.5...
Question: You are given that the RiskMetrics VAR for a portfolio is $1,000,000. What is the approximate Basel Committee VAR? a.$4,450,000 b. $225,000 c.$1,000,000 d. $1,412,121 Answer: a) Assuming normally and independently distributed returns, the RM VAR needs to be adjusted from 95% to 99% confidence and from 1 day to 10 days. This gives$1,000,000 × (2.326/1.645) × √10 = $4.5... Question: You are given that the RiskMetrics VAR for a portfolio is$1,000,000. What is the approximate Basel Committee VAR? a. $4,450,000 b.$225,000 c. $1,000,000 d.$1,412,121 Answer: a) Assuming normally and independently distributed returns, the RM VAR needs to be adjusted from...
Question: You are given that the RiskMetrics VAR for a portfolio is $1,000,000. What is the approximate Basel Committee VAR? a.$4,450,000 b. $225,000 c.$1,000,000 d. \$1,412,121 Answer:...
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20. ### EXAMPLE 31.4: FRM EXAM 2001—QUESTION 42

Question: Which of the following best describes the quantitative parameters of the internal models approach? a. 10-day trading horizon, 99% confidence interval, minimum one years of data, minimum quarterly updates b. 1-day trading horizon, 95% confidence interval, five years of data, updated weekly c. 1-day trading horizon, 99% confidence interval, minimum one years of data, updated...
Question: Which of the following best describes the quantitative parameters of the internal models approach? a. 10-day trading horizon, 99% confidence interval, minimum one years of data, minimum quarterly updates b. 1-day trading horizon, 95% confidence interval, five years of data, updated weekly c. 1-day trading horizon, 99% confidence interval, minimum one years of data, updated...
Question: Which of the following best describes the quantitative parameters of the internal models approach? a. 10-day trading horizon, 99% confidence interval, minimum one years of data, minimum quarterly updates b. 1-day trading horizon, 95% confidence interval, five years of data,...
Question: Which of the following best describes the quantitative parameters of the internal models approach? a. 10-day trading horizon, 99% confidence interval, minimum one years of data,...
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