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# Errors Found in Study Materials P2.T5. Market Risk

#### cbrach

##### New Member
Hi @David Harper CFA FRM

In the formula sheet page 21, it looks like expected shortfall column is incorrect. It appears to be dividing by (n - 1) losses in excess of the VaR instead of n.

Updated by Nicole to add image of formula sheet being referenced

Last edited by a moderator:

#### bpdulog

##### Active Member
Hi @David Harper CFA FRM

In the formula sheet page 21, it looks like expected shortfall column is incorrect. It appears to be dividing by (n - 1) losses in excess of the VaR instead of n.

Updated by Nicole to add image of formula sheet being referenced

View attachment 1153
I think it is n-1 because there is a 1 added to numerator

#### Karim_B

##### Active Member
Subscriber
Hi @Nicole Seaman @David Harper CFA FRM
Here are some things I've noticed.

P2.T5.R36 Jorion Ch 11 Study notes.

1) Page 2 & subsequent headers: The learning objective below shouldn't specifically list Commodity Forwards:
DESCRIBE THE METHOD OF MAPPING FORWARDS, COMMODITY FORWARDS, FORWARD RATE AGREEMENTS, INTEREST-RATE SWAPS AND OPTIONS

Here's the version from the 2018 FRM Learning Objectives PDF from GARP:
Describe the method of mapping forwards, forward rate agreements, interest rate swaps, and options.

2) Page 28: VaR mapping table 11-6 for Forward Contracts is duplicated.

Screenshot:

3) Small typo on page 21

Thanks
Karim

Last edited:

#### Nicole Seaman

##### Chief Admin Officer
Staff member
Subscriber
Hi @Nicole Seaman @David Harper CFA FRM
Here are some things I've noticed.

P2.T5.R36 Jorion Ch 11 Study notes.

1) Page 2 & subsequent headers: The learning objective below shouldn't specifically list Commodity Forwards:
DESCRIBE THE METHOD OF MAPPING FORWARDS, COMMODITY FORWARDS, FORWARD RATE AGREEMENTS, INTEREST-RATE SWAPS AND OPTIONS

Here's the version from the 2018 FRM Learning Objectives PDF from GARP:
Describe the method of mapping forwards, forward rate agreements, interest rate swaps, and options.

2) Page 28: VaR mapping table 11-6 for Forward Contracts is duplicated.

Screenshot:
View attachment 1452

3) Small typo on page 21
View attachment 1453

Thanks
Karim
Hello Karim,

Thank you for the above. The first point that you noted is not an error. As I stated in another thread over the weekend, we have not updated the Jorion notes for 2018 yet, but we are aware of all of the changes. Have you seen the very detailed XLS that I create every year, which lays out all of the changes in the curriculum? That is located here if you have not seen it: https://www.bionicturtle.com/forum/threads/2017-2018-curriculum-change-analysis-spreadsheet.13307/. When we do update the study notes, they will reflect the learning objectives in the 2018 curriculum (although there really have not been any changes besides the commodity forwards no longer being in the learning objective). Any duplicates or errors that you noted above will be fixed in the updated set of notes.

Thank you,

Nicole

#### Jeroen

##### New Member
In P2.T5. Jorion.Chapter 6 and 11 study notes quite some formulas are not printed well. It appears shifted, which makes it harder to find out if you read it correctly. For example p.8 cutoff, p.13 GRC, p. 18 z-test, p. 23 Var Bond returns, p.27 tracking error, p. 36 answer Q9, answer Q12, p.37 answer Q14, p.38 answer Q18, p.39 answer Q22. Can this be fixed? Many thanks, Jeroen

#### David Harper CFA FRM

##### David Harper CFA FRM
Staff member
Subscriber
@Jeroen I just downloaded the PDF from the planner and the formulas in R36.P2.T5.Jorion_v11_5 appear to be okay, see below (your first two examples, but thank you for specific examples because it's much easier to troubleshoot):

@Nicole Seaman I think you know more about this, this is likely an issue in Joroen's PDF client reader, right?

#### Nicole Seaman

##### Chief Admin Officer
Staff member
Subscriber
@Jeroen I just downloaded the PDF from the planner and the formulas in R36.P2.T5.Jorion_v11_5 appear to be okay, see below (your first two examples, but thank you for specific examples because it's much easier to troubleshoot):

@Nicole Seaman I think you know more about this, this is likely an issue in Joroen's PDF client reader, right?
@David Harper CFA FRM @Jeroen

Yes, the only time we've come across this issue, it has been the PDF reader that is being used. I just downloaded the PDF from the study planner also, and there were no issues with the formulas. I use Foxit PDF, but I've also tested with Adobe. Foxit PDF Reader can be downloaded for free here: https://www.foxitsoftware.com/pdf-reader/.

#### Stella G

##### New Member
Hi Nicole and David,

R38-P2-T5-Meissner Study notes pg.22, question 10.

10) Name one correlation option where a lower correlation results in a higher option price.
Answer: Option on the worse of two. Payoff = min(S1, S2)

Given the answer shouldn't the question be ''Name one correlation option where a lower correlation results in a lower option price.

Thanks.

#### David Harper CFA FRM

##### David Harper CFA FRM
Staff member
Subscriber
Hi @Stella.gkotsi Yes, you are absolutely correct: we picked up the typo in Meissner's book (hopefully it's obvious that these are Meissner's EOC Q&A. We wrote our own questions of course, but we wanted to include his in the study note).

@Nicole Seaman Can we notify Gunter Meissner about the typo, I am sure he will appreciate notification (with credit to Stella. I missed it). His Chapter 1 Question 10 should read exactly as Stella wrote above, thanks!

... fwiw, we have discussed the occasionally counter-intuitive assertions w.r.t. value of basket options, including difference between "best of" and "worst of," and correlations here at https://www.bionicturtle.com/forum/...relation-basic-review-meissner-chapter-1.8200 e.g.,
Hi @luxsns@gmail.com In my example (ie, flipping two coins such that head pays $1.00 and tails pays zero), if you perfect negative correlation, then your outcome must be {heads, tails} or {tails, heads}. Under an option on the worse of two with payoff = min(S1,S2), you are ensured a zero payoff because you are ensured a tail. Either the first flip is a tail, or if it is a heads, then the second flip must be a tail. Or maybe we can think of it this way. Two assets, S1 and S2, each with outcome "high value" or "low value" such that the four outcomes are: 1. S1 = low value, S2 = low value --> "better of two" payoff is low, "worse of two" payoff is low 2. S1 = low value, S2 = high value --> "better of two" payoff is high, "worse of two" payoff is low 3. S1 = high value, S2 = low value --> "better of two" payoff is high, "worse of two" payoff is low 4. S1 = high value, S2 = high value --> "better of two" payoff is high, "worse of two" payoff is high What about correlation? • Zero correlation implies each of the four outcomes is equally likely, in which case (under zero correlation), the "better of two" has a 75% probability of high payoff but the worse of two has only a 25% probability of high payoff. • Perfect positive correlation implies only outcomes (1) or (4); i.e., they are both low or high together. The "better of two" probability of high payoff decreases to 50%; the worse of two probability of high payoff increases to 50%. • Perfect negative correlation implies only outcomes (2) or (3); i.e., they are opposite high/low. The "better of two" probability of high payoff increases to 100%; the worse of two probability of high payoff decreases to zero(!). I hope that's a useful perspective, thanks! Last edited: #### Jeroen ##### New Member Thanks. My computer did open the pdf in the web browser instead of a pdf reader. In the latter case the formulas are showing correctly. #### Nicole Seaman ##### Chief Admin Officer Staff member Subscriber Thanks. My computer did open the pdf in the web browser instead of a pdf reader. In the latter case the formulas are showing correctly. @Jeroen Thank you for confirming that you are able to open the materials in the browser. We always want to make sure that there are no issues with our member accounts, and that you can access the materials that you have paid for. If you would like to download the pdfs for offline viewing or printing, I would recommend trying the Foxit pdf reader that I mentioned in my previous post. Thank you, Nicole #### Karim_B ##### Active Member Subscriber Hi @David Harper CFA FRM @Nicole Seaman In R35.P2.T5 Dowd page 8 of the study notes Sub-additivity & Monotonicity formulae are swapped in the bulleted section (although they're correct in the boxes below). See screenshot further down. As a side note which you can ignore if you disagree, I also prefer the order of the Monotonicity formula in the bullets (compared to the formula in the box) where the order of the variables is consistent. i.e. I like that Y is on the left and X is on the right in both equations here: Y ≥ X → ρ(Y) ≤ ρ(X) Since it's harder to follow in the format in the box where they're switched around (at least that's how my brain works): • If X ≤ Y then (Y) ≤ (X) Thanks Karim Screenshot: #### David Harper CFA FRM ##### David Harper CFA FRM Staff member Subscriber @Karim_B Yes, I totally agree with both points, it's a mistake. Thank you for your attention to detail. (now that you helpfully focused me on this, I see that I also had an inconsistency between h and λ; and also between the n and c). I have just revised this section in the way shown below. This gave me a chance to improve (I hope) the text after the box, in order to explicate a very common confusion around genera/spectral/coherent vis à vis ES and VaR. As part of our ongoing maintenance, we happened to be re-publishing this Dowd this week (anyway) to improve the subsequent LO ("Evaluate estimators of risk measures by estimating their standard errors.). Thank you!! cc: @Nicole Seaman This is now Dowd v11-2.docx (pagination unchanged) Last edited: #### Karim_B ##### Active Member Subscriber Thanks @David Harper CFA FRM I think the order of the figures in R38-P2-T5-Meissner Study Note page 19 should be changed to: Figure 1.9, then 1.10 then 1.11. Screenshot of figure 1.11 coming before 1.9: Thanks Karim CC @Nicole Seaman #### David Harper CFA FRM ##### David Harper CFA FRM Staff member Subscriber Hi @Karim_B Yes good point, we agree! We recently published the associated video, which included our own Venn diagrams of these three cases (see below). We will eventually update this note (non -urgently) as you suggest, thank you! (@Nicole Seaman captured in non-urgent edit task) Last edited: #### Stella G ##### New Member Hi @Nicole Seaman & @David Harper CFA FRM , P2.T5. Market Risk Measurement & Management Bruce Tuckman, Fixed Income Securities, 3rd Edition Bionic Turtle FRM Study Notes page 35 41.1. B. 3.5% and 4.5% Spreadsheet @ https://www.dropbox.com/s/pgrwd3prpf8jblf/L2T541_riskneutral_v1.xls If the six-month forward price is$978, then 978 = 1,000 / (1+r/2)^2, so that r(up) = (1000/978 - 1)*2 = 4.5%. Similarly, r(down) = (1000/960.23 - 1)*2 = 3.5%.

I believe the six-month forward price should be 978=1,000/(1+r/2)^0.5*2 => 978=1,000/(1+r/2) - this will give you the 4.5% r(up)

Regarding the r(down) it should be 982.80=1,000/(1+r/2)^0.5*2 => 982.80=1,000/(1+r/2) - this will give you the 3.5% r(down)

Thank you.

Stella

#### Karim_B

##### Active Member
Subscriber
Hi @David Harper CFA FRM @Nicole Seaman
R38-P2-T5 Meissner correlation study notes on page 37 I think the variance of X is missing the -E(X)^2 piece if you compare it to the variance of Y.

Screenshot:

Thanks
Karim

#### David Harper CFA FRM

##### David Harper CFA FRM
Staff member
Subscriber
Hi @Stella.gkotsi Yes, exactly! This has been previously observed and we updated the PQ but we neglected to update the appearance of 41.1. on page 35 of the Study Note, as you point out. Thank you! The source question is currently correctly specified (iee., matches your correction) @ https://www.bionicturtle.com/forum/threads/l2-t5-41-risk-neutral-derivative-pricing-tuckman.3553/ (cc @Nicole Seaman as the answer is unaffected, I am tasking this to the non-urgent 2019 revision)
41.1 B. 3.5% and 4.5%
If the six-month forward price is \$978, then 978 = 1,000 / (1+r/2)^(T*2) and since T=0.5,
978 = 1,000 / (1+r/2)^(0.5*2) = 1,000 / (1+r/2), such that:
r(up) = (1000/978 - 1)*2 = 4.5%.

In a similar way, r(down) = (1000/982.80 - 1)*2 = 3.5%.
Hi @Karim_B Yes, absolutely, thank you, that is our typo. Clearly it should read σ^2(X) = E(X^2) - E(X)^2.

#### Karim_B

##### Active Member
Subscriber
Hi @David Harper CFA FRM @Nicole Seaman
There seems to be an issue with P2.T5.Tuckman_Ch7.xlsx

I've just downloaded it again, but it tells me there's a problem.

Screenshot:

I told it to make the repairs, and it got the following popup:

Here are the contents of the log file listing the repairs (I can't upload the xml itself due to forum security):

<?xml version="1.0" encoding="UTF-8" standalone="yes"?>
<recoveryLog xmlns="http://schemas.openxmlformats.org/spreadsheetml/2006/main"><logFileName>error027400_01.xml</logFileName><summary>Errors were detected in file 'C:\Users\kbekalti\Desktop\Temp to Archive\FRM\Part II-Laptop\BionicTurtle\1 MarketRiskMesurmtMgmt\[MR 10-14] Tuckman, Income Securities, Chs 6 7 8 9 &amp; 10\P2.T5.Tuckman_Ch7.xlsx'</summary><additionalInfo><info>Excel completed file level validation and repair. Some parts of this workbook may have been repaired or discarded.</info></additionalInfo><removedRecords><removedRecord>Removed Records: Named range from /xl/workbook.xml part (Workbook)</removedRecord></removedRecords></recoveryLog>

Thanks
Karim

#### Nicole Seaman

##### Chief Admin Officer
Staff member
Subscriber
Hi @David Harper CFA FRM @Nicole Seaman
There seems to be an issue with P2.T5.Tuckman_Ch7.xlsx

I've just downloaded it again, but it tells me there's a problem.

Screenshot:
View attachment 1480

I told it to make the repairs, and it got the following popup:
View attachment 1481

Here are the contents of the log file listing the repairs (I can't upload the xml itself due to forum security):

<?xml version="1.0" encoding="UTF-8" standalone="yes"?>
<recoveryLog xmlns="http://schemas.openxmlformats.org/spreadsheetml/2006/main"><logFileName>error027400_01.xml</logFileName><summary>Errors were detected in file 'C:\Users\kbekalti\Desktop\Temp to Archive\FRM\Part II-Laptop\BionicTurtle\1 MarketRiskMesurmtMgmt\[MR 10-14] Tuckman, Income Securities, Chs 6 7 8 9 &amp; 10\P2.T5.Tuckman_Ch7.xlsx'</summary><additionalInfo><info>Excel completed file level validation and repair. Some parts of this workbook may have been repaired or discarded.</info></additionalInfo><removedRecords><removedRecord>Removed Records: Named range from /xl/workbook.xml part (Workbook)</removedRecord></removedRecords></recoveryLog>

Thanks
Karim
Hello @Karim_B

I just went to the study planner and had no issues downloading and opening/viewing the Tuckman Chapter 7 XLS. It is not bringing up any errors for me at all. I use the most updated version of Microsoft Office. It is difficult for us to troubleshoot an issue if it is specific to your device and others are not having trouble. @David Harper CFA FRM when you get a moment, could you test this? I'm not seeing any issues.

Thank you,

Nicole