First impressions: 2012 FRM Part 2 (L2) reading list

Discussion in 'David's Notebook' started by David Harper CFA FRM, Dec 12, 2011.

  1. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    I just finished reviewing the 2012 Part 2 (L2) AIMs (actually, Suzanne did the hard work). On a numerical basis, there is material change in the assignments: ~ 20 readings have been deleted and ~17 readings have been added.

    However, this overstates the substance of the change: in some cases, readings have been swapped against essentially similar AIMs. Nevertheless, where P1 was largely unchanged from 2011 to 2012, we can say that P2 experiences modest change. In detail:

    T5. Market Risk. Topics are UNCHANGED but "Mortgages and mortgage-backed securities (MBS)" is elevated to top-level status. The churn here entirely concerns MBS.

    • Two MBS Chapters (Tuckman Chapter 21 and Fabozzi Chapter 31). Replaced by chapter in well-regarded Veronesi text and three chapters in a different Fabozzi text (below).
    • Pietro Veronesi, Fixed Income Securities. One Chapter Added: Basics of Residential Mortgage Backed Securities (Chapter 8)
    • Fabozzi, Bhattacharya, William Berliner, Mortgage Backed Securities (2nd Edition). Three Chapters Added: Overview of Mortgages and the Consumer Mortgage Market (Chapter 1); Overview of the Mortgage-Backed Securities Market (Chapter 2); and Techniques for Valuing MBS (Chapter 10)
    T6. Credit Risk. Topics are UNCHANGED except that Credit VaR is added.

    • Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability”
    • Basel Committee: Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research
    • Eduardo Canabarro, “Pricing and Hedging Counterparty Risk: Lessons Re-Learned?” (September 2009).
    T7. Operational Risk. Essentially UNCHANGED.

    • Hong et al, “Using approximate results for validating value-at-risk,” The Journal of Risk Model Validation. (Largely irrelevant as this was barely testable).
    • Philippe Carrel, The Handbook of Risk Management. Four Chapters Added: Liquidity, the Ultimate Operational Risk (Chapter 16); Analyzing and Measuring Liquidity Risk (Chapter 17); Funding Risk (Chapter 18); Managing and Mitigating Liquidity Risks (Chapter 19).
    T7. Basel. UNCHANGED except the the IRC reading (“Guidelines for computing capital for incremental risk in the trading book – final version”) has been deleted. Only one 2012 AIM references the IRC ("Describe the qualitative disclosures for the incremental risk capital charge.").

    However, I think you still want to be familiar with IRC. It remains timely; e.g., see Is Basel 2.5 hitting the bond market? And, further, IRC is discussed in the assignment "Revisions to the Basel II market risk framework"

    T8. Investment. Topics are UNCHANGED, but there is significant churn in the reading assignments (i.e., portfolio performance, hedge funds, private equity, Madoff)

    Four Deleted:
    • Grinold, Active Portfolio Management, Performance Analysis (Chapter 17). This is a relief, this is a time-consuming and complex chapter that few will miss!
    • Lars Jaeger, Individual Hedge Fund Strategies (Chapter 5). This will remain a strong and relevant reading; you will not waste time to keep this in your library. It is an excellent overview of the strategies.
    • Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers.”
    • Steven N. Kaplan and Per Stromberg, 2009. “Leveraged Buyouts and Private Equity”
    Five Added:
    • Bodie, Kane, and Marcus, Investments, 9th Edition. Portfolio Performance Evaluation (Chapter 24)
    • David P. Stowell, An Introduction to Investment Banks, Hedge Funds, and Private Equity (Academic Press, 2010). Three Chapters: Overview of Hedge Funds (Chapter 11); Hedge Fund Investment Strategies (Chapter 12); Overview of Private Equity (Chapter 16).
      I recommended this book, I think it's great!
    • Greg N. Gregoriou and Franciois-Serge Lhatant, “Madoff: A Riot of Red Flags,” December, 2008.
    T9. Current Issues. All readings are NEW except one (!). However, the number of readings is reduced. Sovereign risk is retained. Topics conspicuously dropped: Flash Crash, Lehman, Centeral Counterparties, and Sound Compensation Practices. Gorton has been retained but the paper has been switched (both are in his excellent book Slapped by the Invisible Hand)

    • Gary Gorton, “The Panic of 2007" (still useful)
    • Raghuram Rajan, “Has Financial Development Made The World Riskier?” (fine but theoretical)
    • Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.” (an important, timely and oft-referenced paper, largely summarizing the book. However, time-consuming and difficult to test)
    • Bennett Golub and Conan Crum, “Risk Management Lessons Worth Remembering from the Credit Crisis of 2007-2009,” (October 2009).
    • “Findings Regarding the Market Events of May 6, 2010, (Executive Summary)” Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues (September 2010).
    • “Interpreting sovereign spreads,” BIS Quarterly Review, March 2007.
    • “Making Over-the-Counter Derivatives Safer: The Role of Central Counterparties.” IMF Global Financial Stability Report, April 2010, Chapter 3
    • “FSF Principles for Sound Compensation Practices,” Financial Stability Forum, April 2009. (won't be missed. Generic principles, very hard to test)
    • Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007-2008.” Journal of Economic Perspectives, 2009. (still useful)
    • Examiner’s Report on Lehman, Appendix 8 (pages 1–49).
    • All are new except reading 69, including Arthur M. Berd (editor), Lessons From the Financial Crisis (London: Risk Books, 2010).
      Three Chapters: The Collapse of the Icelandic Banking System (Chapter 4); Measuring and Managing Risk in Innovative Financial Instruments, by Stuart M. Turnbull (Chapter 9); Active Risk Management: A Credit Investor’s Perspective, by Vineer Bhansali (Chapter 20).
  2. MariusE

    MariusE New Member

    Hello David,

    could you please estimate when you will release the 2012 calendar.
    I have used your materials to pass L1 and I am planning to use it also for L2.
    I am very interested how you will change the release dates for L2 materials
    because for 2011 I think that the materials were released to close to the exam
    and I think one did not had time to prepare well in time; especially for one like me
    ho is based exclusively on bionic turtle materials due to lack of time.

    Thank you for your response,

    Best regards,

  3. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    Hi Marius,

    First, the AIMs from 2011 to 2012 are not hugely different: nothing prevents you from starting your studies today. For example, we have many quality questions that can be worked today. (We will be releasing fresh questions all year).

    Second, no, with all due respect, I won't give you an estimate on the date upon which I will be releasing dates. Then I have to support that estimate. We are working on it now. We just got the AIMs. (like everybody else.). We will be sending out a newsletter and posting the information soon enough.

    Thanks, David
  4. MariusE

    MariusE New Member

    Thank you David for your reply.

  5. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    Just an update, if you have purchased the P2 Core Readings from GARP: we observed that, currently, several are missing. But GARP informs us that, probably as of tomorrow, the full set of core P2 readings will be available (i.e., added to your digital library). Apparently, like P1, it is the full set (is what I'm told....), thanks, David
  6. trabala38

    trabala38 Active Member

    Hi David,

    On my side, I purchased the P2 Core Readings from GARP (electronic version) and I still haven't access to all readings. I got access to 35 readings only (out of a total of 47 I think).

    When trying to open the protected Locklizard file, I got this error message for readings (i.e. for Hull or Fabozzi reading): "This document is protected and cannot be viewed until you purchase a copy from GARP Digital Library ( For addtional information please contact".

    Moreover, while parsing the readinsg list, I did not retrieve the reading "Challenges and Pitfalls in Measuring Operational Risk from Loss Data" from Cope, Eric. The file is not listed amongst Locklizard protected files, nor available in the "unprotected" PDF files (

    Does anyone face the same issue as me ?



  7. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    Hi trabala38,

    Yes, we had very similar issues ... much the same problems ... GARP can easily "fix" the protection problem of the LockLizard: it's a security. I think it's a really bad DRM program; it limits you to one seat and is very sensitive to (eg) system upgrades. I am constantly having them reset mine.

    We will send link to your post to our GARP contact, in case it can help ... you definitely don't have the correct, current P2 set.

    ... thanks, David
  8. trabala38

    trabala38 Active Member

    Hi David,

    Do you have access to Hull Chapter 19 and 25 ("Volatility Smile" and "Exotic Options"). I tried the protected Locklizard file (got the error message mentioned above) and also "View Online" which gives me a blank screen...

    I already sent an email to GARP for this, but they replied we would have to wait till 23rd January... If I am the only facing this issue, I will re-send an email to GARP.

    Btw, I saw a previous post from you ( where you posted the missing readings for FRM Part II 2011. Again, in 2012, there is one missing reading ("Challenges and Pitfalls in Measuring Operational Risk from Loss Data"). I think GARP should fix this...



    • Like Like x 1
  9. Leli

    Leli Member

    you're not alone :) I can't open those files...
  10. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    Hi Trabala,

    No, I do not have access to either of those readings in my digital library. Must be systemic issue, if they aren't there by 23rd, we can follow-up with our GARP contact, thanks,
  11. trabala38

    trabala38 Active Member


    thanks David !
  12. trabala38

    trabala38 Active Member


    I confirm : just tried (as we are Jan 23rd), the Hull readings, and it is still not accessible.

  13. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

    Thanks, we sent an email to our contact at GARP, with link to this thread, I am sure this will be resolved soon -- David
  14. trabala38

    trabala38 Active Member

    Hey David,

    I just noticed that I got access to the online version "View Online" for Hull's reading. However, the Locklizard protected files are still not working.


  15. David,
    Am looking for practice exaMS for Part 2, FRM.
    Is it the mock exam that has 20 questions? Are there any more practice exams?
  16. Suzanne Evans

    Suzanne Evans Administrator

    Hi Sushmita,

    We only have two mock exams for the May exam. One of them is for Part 1 and one is for Part 2. Part 2 does have 20 questions. We do plan to produce additional mocks for the November exam, however those will be the only ones for May. We do offer thousands of practice questions if you need additional practice.

    I hope that helps.

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  17. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test)

  18. irrationaldream

    irrationaldream New Member

    Hey David,

    Can you give some quick tips on how one should focus on for the approx 45 days before FRM level 2. What should be the focus areas and the study strategy.

  19. Suzanne Evans

    Suzanne Evans Administrator

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