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Core Reading Anthony Saunders

sipanivishal

Manager-Corporate Banking
Thread starter #1
Hi David,

Now, Chapter 11 Anthony Saunders is very big but the number of AIM are only three which has been covered nicely in the movie.Now, but you have always advocated to go through the core reading. What should one do according to you, read the whole chapter or just pick those section which are there in the AIM.

Thanks,Sipani
 

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
#2
Hi Sipani,

My suggestion would be to read the whole thing.

There are really five AIMs to this (Two are misclassified into de Servigny: Compute the cumulative default probability over a multiyear period given the marginal default probability for each year. Compute a marginal default probability using the term structure approach) so the implied PD stuff is important (per my newsletter and the practice question #1)

And *most* of the other stuff is repeat exposure to AIMs that are in de Servigny (Altman's, Merton). And the Appendix is helpful repeat to the credit risk models.

David
 
#3
Hi David,

I had the same feeling as Sipani as to whether we need to read the whole thing. In one of your posts, I remembered that you stated that there are around 80 something reading materials for the FRM exam. There are so many materials for the FRM exam and even if I study diligently, say finish one reading per day (that is very efficient but honestly I can never be that efficient due to part-time study), it would still take me almost 2.5 months to complete.

For me, the purpose of study FRM is not just for the sake of getting the certification, I truly want to understand more about the financial risk management and I think you have done a very great job in explaining those very difficult risk management concepts. I am trying to follow your approach to read the core, then screencast and finally study notes (at least it worked pretty well for my Market B study). However, I am wondering whether there are readings that we can treat it as lower priority so that we can spend most of our time and effort in studying the critical areas.......

Also, for the Chapter 11 of Saunders reading, I've finished reading up to 317 (Term Structure Derivation of Credit Risk). From 318 to the end of the chapter, I am not sure whether they (e.g. Mortality Rate Derivation, RAROC Models, etc) are related to one of the AIMs in credit risk domain. Do you suggest us to read all these??

Thanks,

Aquarius
 

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
#4
Hi Aquarius,

Right, i empathize with that. And GARP has not helped us (you/me) this year in particular with the (dis)organization of the credit risk section (i.e., redundant AIMs, impossible AIMs, misclassified AIMs, probably omitted AIMs).

"However, I am wondering whether there are readings that we can treat it as lower priority so that we can spend most of our time and effort in studying the critical areas" I had previously promised to try and do a list of this sort, and i am late. Notice I went the other way and suggested additional readings that would be helpful :)

but i'll will put this back on my to-do list. Please realize, as a course provider it is very difficult for me to even imply that something can be skipped....

Re Chapter 11. You are correct: after the term structure (solving for implied marginal PD, and cumulative PD), the rest is not on the AIM. I only meant to say: it is not a waste because most of it appears in other readings: RAROC is a topic under de Servigny, credit risk models are a topic. But, strictly speaking, you've identified the "line" between testable 11 and the rest.

So: RAROC, risk models: yes they are definitely in the exam. Mortality rate frankly I have worried a bit that GARP forgot, but technically, no it is dropped from 2008. I am tad wondering if they haven't bounded credit risk tightly...but it is all sort of the "GARP way," an impossible amount of material, a high bar, hard to feel prepared, if you know what i mean...

David
 
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