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Exam Feedback November 2020 Part 1 Exam Feedback

Nicole Seaman

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We hope that everyone did well on the FRM Part 1 exam on Saturday! :) We would love to hear any feedback that you have about the exam. How did it go? Did you encounter unexpected questions? How was the experience with all of the new COVID guidelines? Thank you in advance for any feedback you can provide!
 
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arnaudp

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I wrote part 1 in Singapore last Saturday with about 250 other test takers in the morning session split into 5x separate room. Exam went flawlessly despite the additional, covid-related, safety measures in place which had little to no impact on the whole experience

As for the exam, it felt much harder than the GARP-provided mock exam, more on-par with a BT mock exam. Balance was roughly 50/50 quant vs qualitative.

Questions called for in-depth knowledge of the study material with some quite unexpected (some would say obscure) parts of the material being tested (Cook's distance, Jarque-Bera & Dickey-Fuller test, AMA vs SMA...) while other more obvious and very much expected material did not get tested at all (0 questions on swaps, duration & convexity, exotic options, VaR calculation, key rates, very little on fixed income, ...). Overall GARP tested true understanding of the material and not only your ability to spit out a formula without understanding it.

Quant calculations were not intrinsically difficult but qualitative questions called for deep understanding of the material and most of the time two questions looked decently correct.
Exam was designed so that you had to have studied the material in great details, there are just no possible shortcuts to me. I felt that GARP did a great job in designing a rather comprehensive exam with some surprises along the way.

Overall, I think I got close to 50% of the questions correct, 20% incorrect, 15% educated guess, 15% complete guess. To my own assessment, I'm likely to fail this part.
 

FRMNinjaLeonardo

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#3
There is one question about the delta hedge of a long call position. The question provides a one-step binomial tree of the stock price (with S0 and up movement S1 and down movement S1). I could get the volatility with changes of up movement, but the question does not provide risk-free rate. Does anyone have some thought on this question?
There are two choices of short stock, two choices of long stock. I choice short stock (the delta is about 0.7xx) since the option is ITM and close to maturity (1 month).
 

arnaudp

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#4
There is one question about the delta hedge of a long call position. The question provides a one-step binomial tree of the stock price (with S0 and up movement S1 and down movement S1). I could get the volatility with changes of up movement, but the question does not provide risk-free rate. Does anyone have some thought on this question?
There are two choices of short stock, two choices of long stock. I choice short stock (the delta is about 0.7xx) since the option is ITM and close to maturity (1 month).
This delta hedging question from the binomial tree has been haunting me since Saturday :) I got as far as you and had to give up & move on. I went with short stock as well. It actually destabilised me quite a bit as I kept thinking about it over the next questions.
 
#5
There is one question about the delta hedge of a long call position. The question provides a one-step binomial tree of the stock price (with S0 and up movement S1 and down movement S1). I could get the volatility with changes of up movement, but the question does not provide risk-free rate. Does anyone have some thought on this question?
There are two choices of short stock, two choices of long stock. I choice short stock (the delta is about 0.7xx) since the option is ITM and close to maturity (1 month).
I remember thinking about that too then concluding that because they didn't give much information, they probably wanted a simple delta = (fu - fd)/(Su - Sd)
 

thanhtam92

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#8
There is one question about the delta hedge of a long call position. The question provides a one-step binomial tree of the stock price (with S0 and up movement S1 and down movement S1). I could get the volatility with changes of up movement, but the question does not provide risk-free rate. Does anyone have some thought on this question?
There are two choices of short stock, two choices of long stock. I choice short stock (the delta is about 0.7xx) since the option is ITM and close to maturity (1 month).
yeah, I was spending too much time on that one and was wondering whether they gave us missing information. I tried to assume risk free rate equals 0 but still cannot get the right answer. That question is strange.

I am also surprised that there are not much questions involving VaR using delta-gamma approach and none for Swap or Quoted/Dirty price of the bond even though I have practiced quite a lot on that. What do you guys think?
 
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#9
Content

Overall, it was fair and feasible if you really took the time with the material, and it was achievable even if you didn't have the background from a degree or work experience. I finished most of the exam in 3 hours, then spent the last hour thinking over ~10 questions I was less sure of and checking my work; part of that was deliberately moving quickly to make sure I saved time in case a question really tripped me up later. I majored in a completely different field, so I probably studied >300 hours.

Both BT and GARP materials were a must:
  • BT materials - videos, study notes, and practice questions for sure - are vastly better for explaining the quantitative concepts and preparing your for the material. They are definitely more difficult than the exam and they twist your brain to prepare you for both the quantitative and theory questions.
  • GARP materials were a must for the theory questions many of which had answers quoted directly from the text book, so it was good to remember reading phrases verbatim. You wouldn't get that in the BT notes, which makes sense as they are notes. I found GARP's explanation of quantitative material rather poor and convoluted, so I just skimmed those sections for the few concepts that weren't in the BT notes so I didn't get myself confused.
I did think a few questions were unfair, mainly the Jarque-Bera test which had two correct answers. Seems like the "best" answer hinged on remembering that the 5% significance critical value was 5.99. I thought this was unfair because the chi-squared distribution is way less common than the normal distribution, yet we were provided a Z-table and not a chi-squared table. The question didn't even really test if you know that JB followed a chi-squared distribution, just that you memorized some random value (whereas they said up front we didn't even have to memorize critical values for the normal like 1.64 = 95% 1-tailed, etc.). It would have been much fairer for them to provide a chi-squared table or test if people knew the distribution.

In general, I found many theory questions had multiple correct answers but one best answer; GARP should have asked for the best answer, not the correct answer. This was also the case with the LTCM question in the practice exam (LTCM ultimately failed because of liquidity - best answer - but did also have extremely high leverage).

I suppose all this should be handled by the curve but I found it annoying that there were ambiguous questions in there and felt like I needed that extra quantitative prep to make up for it.

Logistics

Logistically, I thought the security theater was a little over the top; felt like I was getting on a plane, didn't appreciate it or see the value-add as the SATs and other standardized tests were definitely not like this. The proctors rush you through the room; after checking in, couldn't stay in the room with my belongings to finish my breakfast, random rules about what you can bring in the room, and did not understand on what grounds they could tell you you had to wear their mask; seems less safe and sanitary to have them touch it then me put it on my face, but I put it in the category of Retain risk. :) It was a little harder to take the test with the mask on, so I was glad I was extra-prepared.

Otherwise, logistically things were smooth. I was surprised to see over half of the participants appeared to no-show. Not sure if they were late deferrals after admission tickets were available or they legit just didn't come at the last minute; bizarre to me considering the cost of the exam.
 

voko

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#10
I wrote the exam in Montreal. Although there were 32 seats, only 12 or 13 participants showed up. I didn't experience any problem related with Covid measures. I think that measures were satisfactory.
The exam was not a hard one compared to BT questions. It was not that much harder than GARP mock exam.
I think much focus should be devoted to details.
I can confidently say that BT practice questions cover all topics and quite satisfactory for the exam.
 
#15
I thought about simple delta during the exam, but I remember the exam did not provide the option price
Now that I think about it if you p, u, and d, you can solve for e^(rt) and therefore r. My instinct is still that they wanted something like this section in Topic 4, Chapter 14 of the GARP text where they calculate delta using changes in the intrinsic value:

Figure 14.1.PNG
 
#17
There is also a question about the par rate that can be calculate involving Swap and LIBOR rate? I was unable to get that one cause I was struggling with all the info they provided so I just randomly guess it given it is a upward spot curve.
 
#20
I dont remember the stock prices so cannot backtrack whether I get it right or wrong lol
I find it hard to resist deliberating but ultimately for your own sanity you have to stop because even right after putting your pencil down it's easy for your memory to start changing after second-guessing. :) We don't know what the pass score will be and we'll never know how we did on each question.
 
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