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Exam Feedback November 2019 Part 2 Exam Feedback

on question 2: UL-EL; 4*bonds notional minus 5%of portfolio.
on q54: it should be 0.32 autocorrelation 1 lag.
Do you remember your answer for question 2? Based on BT discussion the correct way to solve is to take the BINOM.INV function on excel which gives you 7 defaults. So, I believe Credit VAR = (7-4)*6mil = 18 mil. I definitely got this one wrong, I chose 11.xx%
 
Do you remember your answer for question 2? Based on BT discussion the correct way to solve is to take the BINOM.INV function on excel which gives you 7 defaults. So, I believe Credit VAR = (7-4)*6mil = 18 mil. I definitely got this one wrong, I chose 11.xx%
If I am not mistaken 4 defaults are given which reflects the UL and you’ve got to deduct the EL (portfolio value * pd * lgd) from it. I don’t know the exact result anymore but it was on the list to choose from.
 
If I am not mistaken 4 defaults are given which reflects the UL and you’ve got to deduct the EL (portfolio value * pd * lgd) from it. I don’t know the exact result anymore but it was on the list to choose from.
Agreed. I took the same approach- # of defaults were already given at the requested percentile.
 
Do you know which ccp reading mentioned that formula? I was curious about that question as well.



Do you know the logic behind why 3/2 power?
I followed Schweser Notes where it was mentioned that
Liquidation costs can be significant for large positions or concentrated positions. A proper
disposition of an unusually large position would often take additional time beyond the stated risk horizon to achieve, therefore resulting in a liquidation horizon that is greater than the risk horizon. As a result, there is a nonlinear relationship between liquidation
costs and portfolio size. A typical risk measure such as SD, VaR, or ES has a 1:1 linear relationship to portfolio notional size (N). In contrast, the relationship between liquidation cost to position size is N x N^(1/2), or N^(3/2) . For example, if N is doubled, SD, VAR, and ES
would double as well but liquidation costs would increase by 2.83 times (2^(3/2))
.
 
This year this group is not that active. While checking last years review ppl were discussing a lot.
Is it because exam was tough or ppl dont remember questions and answers?
 

Amarnadh D

Member
Subscriber
Hi...I'm little bit late to share my experience and views on the exam.

As usual exam is dominated by theory questions this time too. 1/4th of the exam is on quantitative part. My paper starts with a questions on difference b/w Filtered historical simulation and historical simulations. Answers to all first 10 questions and similarly all quantitative questions were spot on except 2 problems (i.e RAROC & CPR).

As someone mentioned in the previous chats, current issues is a free lunch in frm part2. I was able to answer all of them.

Below are the questions I remember:

  • Difference b/w Filtered historical simulation and historical simulation. Ans C is the right option i.e conditional probability and variance & covariance matrix
  • Calculation of Expected shortfall
  • Calculation of Ho-Lee
  • Calculation of LVaR
  • Calculation of CVaR
  • Calculation of Lognormal VaR
  • Calculation of CPR
  • Calculation of EL using Hazard Rate and PD.
  • Calculation of Hedging using Beta
  • Calculation of Distance to Default (DD)
  • Question on QQ plot when comparing standard distribution assumption
  • Question on Corporate Retail Banking
  • Question on type of wrong way risk (WWR)
  • Question on Risk Neutralization
  • Question on alphas
  • Question on Mapping i.e from Principal to Duration and from Duration to Cash flow – What is the reason?
  • Question on parameters of POT and GEV
  • Question on Asset liability Management
  • Question on difference b/w Policy Mix & Asset Management VaRs
  • Question on Value mapping and – Negative impact & pull down the prices
  • RAROC question using alternative asset & it’s impact on RAROC decision making
  • Hedge fund – difference b/w Merger & distress strategies
  • Straight forward question on Unsmoothing
  • Stress test – Losses due to Combination of unemployment & MBS
  • 2 questions on SOFR: a) difference b/w SOFR & LIBOR & b) Base for calculating SOFR prices
  • 2 questions of CCP mechanism
  • 1 question of Deep learning which is a combination of supervised & unsupervised methods
  • Difference b/e Market & Operations risk distributions
  • Ops Risk – Identify the frequency & severity
  • 1 question on ML/FT – straight forward
 
This year this group is not that active. While checking last years review ppl were discussing a lot.
Is it because exam was tough or ppl dont remember questions and answers?
I can't remember a lot of the questions/answers. Even reading over others' posts about the exam questions not everthing rings a bell.
 
What was the answer to incremental VaR
1. For the 75 bonds of 6mil, 4 defaults at 95% CVaR = 4*6mil-6*75*PD*LGD (can't remember the parameters)
2. Incremental VaR questions were IVaR = VaR with both portfolios - VaR of the single position
3. Basel 3 guidelines - this one I think was retail mortgages split by LTV. It wasn't the A-IRB answer as the text says that this has been taken away as an option for banks and corps which was part of the sentence.
4. SOFR question - I think the answers were weighted median for the one, the other one I think was comparing LIBOR as this was it was collateralised?
5. Ho-Lee lower 2nd node: think it was like 1.06%?
6. Credit rating from A to min BBB - I think this was 0.27%?
7. QQ plot: mass in the center and tails are different
8. AML and terrorism financing - don't open accounts for anonymous clients
9. Pt-P(t-1)=0.24-0.68P(t-1) - I picked autocorrelation = 0.32
10. Special % rate - I got 389, I picked special rate but I'm not sure???
11. RMU question - think this was monitoring and analysing and communicating
12. Joint PD = rho*sqrt(PDaPDb(1-PDa)(1-PDb))+PDaPDb
13. Conditional PD question was ((1-exp(-0.09*2)-(1-exp(-0.09))/exp(-0.09)
14. There was a question about VaR = IM and if you increase the notional from 50 to 100, what does it become? I had no idea here.
 

Nicole Seaman

Chief Admin Officer
Staff member
Subscriber
Thread starter #114
Has the cutoff of the last exam of 16 November already been determined by GARP?
@Kakirup

No, the pass rates have not been released by GARP yet. When they do release them, we will post in the forum and update our pass rate graph here: https://www.bionicturtle.com/forum/threads/what-is-the-pass-rate-for-the-frm.10093/. I wouldn't expect the pass rates to be released until the results are released. For the November exams GARP generally releases the pass rates in January.
 
They don't disclose the cut-off they disclose the pass rate.
We can’t look at a cut-off as THE deciding factor for passing the exam.

As per GARP, ‘The exam result is determined by many factors and is not predetermined nor is it a specific percentage of the points either for individual modules areas or for the entire exam. The exam results are determined by the FRM/ERP Committee(s).‘
 
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