I wanted to ask you for your insight on the Tuckman Readings for Part 2 and what would you consider a low / high priority from the exam planning perspective.

I have retrieved the below info from your summary Focus from 2012. I get the impression that some chapters (the important ones) were moved to part 1 which leaves not many high testable matters from the dense 4 chapters. Do you have any different feedback after 2012 & 2013 exams for this year´s exam?

Thanks a lot!

Juan

2012 FOCUS REVIEW (related to Tuckman)

- T5.b.2. Tuckman Durations (because single-factor sensitivities are highly testable in P2, like they were in P1). If you can comprehend all of this (relatively small) 5.b.2. spreadsheet, I would venture to say that you know most of what you need from these Tuckman chapters.

**Bond sensitivities (single, multi-)**

Here's the reality of the three assigned Tuckman chapters, from an exam standpoint only: they are progressively more difficult and less testable. The final (Science of Term Structure) is quite dense but, historically at least, has been tested only superficially. It's an important topic in bond pricing generally (outside the exam), but you don't want to skip other FRM topics because either Chapter 7 (key rates) or Chapter 9 (Term structure) are slowing you down.

- Single-factor sensitivities: get very comfortable with durations, DV01, and convexity, much of which overlaps with P1. The most important difference here in P2 is that you want to be sufficiently comfortable with DV01 and dollar duration such that you can perform hedging calculations.
- Key rates: it's probably enough to have a superficial understanding. Why is it? (it's multi-factor, so we can overcome the unrealistic assumption of parallel yield curve shift) How does it work basically? The one additional thing here, that i would understand, is how KR01 and key rate durations are analogous to DV01 and duration.
- Term structure: understand the logic of the binomial tree, which is similar to Hull's binomial tree for option pricing (except here the underlying risk factor is a mean reverting interest rate rather than a stock price). The FRM historically has mostly, if not almost exclusively, tested one idea here: the calculation/meaning of the risk-neutral probability (p). To my knowledge, much of the depth in Chapter 9 has yet to be tested (such that I requested it be removed last year); this whole chapter historically has been borderline optional w.r.t the exam.