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Exam Feedback October 2020 Part 2 Exam Feedback

VWJETTY

Active Member
Hi, could somebody kindly confirm the total number of questions in FRM Part 2 Oct 2020 exam as well as the approx. no. of numerical (quantitative / requiring calculations) questions versus approx. no. of theoretical questions ?

Probably 2/3 theo and 1/3 quant? Even though those ratio's don't go into 80 evenly but it's all a wash in the exam anyways.
 

txiong

New Member
Hi,
Just want to provide some update on how I feel about the exam.

I remember the cybersecurity appears in multiple questions, which I was not prepared for. There were definitely some tricky questions where I think they intentionally phrased to test if you actually know the material. At least, they didn't really give you simple information to fill in the formula.

For the current issue, I don't believe they dive in much. As long as you read the paper and memorizing the critical item listed, you should be fine. Both Machine learning and climate change were heavily tested in the exam. I was a bit surprised that they only had one question related to SOFR vs. LIBOR since it's such a heated topic in the industry.

David's Formula sheet definitely helped me to remember some of the formulas that were rarely used in either the practice questions or practice exams. I was lucky enough to found out there's a formula for the expected short rate by using the Vasicek formula (Long term and short term) right before the exam. There's one question about that.

Liquidity cost questions appear multiple times. However, they are not really that hard. If you remember that Liquid Cost should be divided by two, you should be fine. The following of the topic appears in the exam also:
  1. Marginal VaR Calculation
  2. Time-Weighted and Dollar-Weighted return
  3. Using ratios to determine which asset should be invested. Note that the question didn't point out which ratio you should use. They stated that you should use Mean-variance as criteria, so I used the sharp ratio. (Not sure if I'm right), lol
  4. The leverage ratio and Net Stable Fund Ratio appear multiple times.
  5. Funding cost (FVA) appeared once
  6. RAROC calculation and criteria
  7. calculation of CVA (given PD). I was not sure what exactly the PD is, whether it's marginal or conditional. Since there's not much information, I just used it as marginal.
  8. Netting Factor calculation
  9. Merton model for Equity value, where they give you the price of the debt and the FV. I used FV to calculate but didn't get the exact number. They give you some rounded number and tell you to choose the nearest one. I found that annoying.
  10. ULC appears once. SImple formula calculation
  11. DV01 Hedge with regression.
  12. Implied Smile converted to distribution and if it's overvalued or undervalue assuming log-normal
  13. Backtest VaR both qualitative and quantitative on how many losses exceed the threshold is reasonable.
  14. Conditional Prepayment Rate for Mortgage back securities. Again, I was saved by David's formula sheet.
  15. Term structure, Ho-lee and Vasicek models.
  16. Comparison between two EVT: GED vs GPD.
  17. Comparison between Var, ES, and SRM.
I hope this is useful. I remember them cuz I summarized my formula sheet before the exam. I was able to get most of them. However, some of the questions are tricky.

Cheers,
Frank
 

mattheweidinger

Active Member
Can anyone comment on the sanitation requirements during the exam? I was told by GARP that you could bring your own mask, but GARP would swap it out for one of their own. Was this the case?
 

mcrisk7

Member
Can anyone comment on the sanitation requirements during the exam? I was told by GARP that you could bring your own mask, but GARP would swap it out for one of their own. Was this the case?

No. They did not provide any mask. I used my own. But since it's on their page, it is still possible that they provide them I another country. Just can speak for Germany (Frankfurt).
 
Can anyone comment on the sanitation requirements during the exam? I was told by GARP that you could bring your own mask, but GARP would swap it out for one of their own. Was this the case?
They did provide masks in Switzerland (Zurich/Spreitenbach), you had to switch to the GARP mask and put your own one on the table (probably so they could see, who has already switched).
The mask was a pretty standard single use hygene type paper mask.
 

seevvlee

New Member
Can anyone comment on the sanitation requirements during the exam? I was told by GARP that you could bring your own mask, but GARP would swap it out for one of their own. Was this the case?
They provided masks in Singapore and we had to swap it. Nothing much else though.
 

toddler

New Member
They did provide masks in Switzerland (Zurich/Spreitenbach), you had to switch to the GARP mask and put your own one on the table (probably so they could see, who has already switched).
The mask was a pretty standard single use hygene type paper mask.
Plus I think if for medical reasons you have to wear your own specific mask, you could contact GARP before in order to get an exemption - you probably need a doctor's attestation.
 

VWJETTY

Active Member
No they told us to throw away our masks and then gave us these blue/white paper masks to wear. Someone didn't want to wear it and was asked to leave otherwise. So their masks are mando. What was that one question about climate risk? I can't recall what it was. Wasn't quantitative but it was really confusing for me and I sat there for a hot minute on it. If anyone remembers, please let me know bc I ended up going with A or B if I remember correctly.
 
No they told us to throw away our masks and then gave us these blue/white paper masks to wear. Someone didn't want to wear it and was asked to leave otherwise. So their masks are mando. What was that one question about climate risk? I can't recall what it was. Wasn't quantitative but it was really confusing for me and I sat there for a hot minute on it. If anyone remembers, please let me know bc I ended up going with A or B if I remember correctly.

It says on the GARP Homepage:

https://www.garp.org/#!/post/exam-safety

If a candidate does not wear their mask properly or removes the GARP provided mask during the exam, including while in the exam room, restroom, or other public areas, the proctor will give the candidate a warning. After the third warning, an Exam Policy Violation will be completed, and the candidate will promptly be dismissed from the exam room.

If you are required to wear a special mask for medical reasons, you must contact [email protected] on or before October 15, 2020 so special permission can be granted.

I think this is important, because the situation for the November and maybe the January exams is likely to be the same. Not sure what happens when they switch to CBT though.

About the climate risk, as far as I remember is was something about how to incorporate the risk in the risk framework - one answer was "assume normally distributed impacts" another one was "ingore it" which IMHO are both false. Unfortunately i don't rember the correct answer.
 
does anyone know the answer of a question regarding the volatility smile?
In the money currency put option when valued using lognormal distribution, the option value will be less than actual value. Because of the volatility smile, the actual value should be more. Thus I selected an option which stated that option value is underestimated.
 

VWJETTY

Active Member
In the money currency put option when valued using lognormal distribution, the option value will be less than actual value. Because of the volatility smile, the actual value should be more. Thus I selected an option which stated that option value is underestimated.

You sure about that? Isn't the volatility smile saying that for ITM Put that the implied value of the option is worth MORE than actual? Because of tail risk there is a chance of far moves/volatility from like economic crisis/turmoil.

Whereas for ITM options, they tend to cover and be more closer to properly valued.

I think I chose the exact opposite of what you've selected. But then again I forgot what the question was originally asking as well, so you could be right.
 
You sure about that? Isn't the volatility smile saying that for ITM Put that the implied value of the option is worth MORE than actual? Whereas for ITM options, they tend to cover and be more closer to properly valued.

I think I chose the exact opposite of what you've selected. But then again I forgot what the question was originally asking as well, so you could be right.
For foreign currency option except for at the money options, both call and put whether in or out of the money will have more actual value then suggested by lognormal distribution(implied value). So basically the value is underestimated.
 

seevvlee

New Member
You sure about that? Isn't the volatility smile saying that for ITM Put that the implied value of the option is worth MORE than actual? Because of tail risk there is a chance of far moves/volatility from like economic crisis/turmoil.

Whereas for ITM options, they tend to cover and be more closer to properly valued.

I think I chose the exact opposite of what you've selected. But then again I forgot what the question was originally asking as well, so you could be right.
I actually went with VWJETTY.. I would think like he/she was saying, it depends on the phrasing of the question? I can't remember if they were asking for the actual versus priced with BSM or priced with BSM versus actual. Could be part of the question's trickiness to frame it in a reverse way. I recall putting it as higher because I thought they were asking about the actual relative to BSM price.
 
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