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The FRM is primarily a test of concepts not authors

David Harper CFA FRM

David Harper CFA FRM
Staff member
Manish Vij asked me here, a good question, why did I retain Tuckman Chapter 21 MBS practice questions as that reading has been dropped in the 2012 FRM syllabus?

I retained it because the FRM is primarily a test of concepts and, ideally, concepts from a practitioner viewpoint and not primarily a comprehension test of individual authors.

Personally, I think there are advantages to GARP's appraoch: 1. selfishly, it creates more of a market for us; 2. it discourages rote memorization; 3. in theory, it encourages more practical, relevant learning ... but also disadvantages: 1. flexibility gives "air cover" for a less rigorous exam development methodology, 2. it taxes the candidate with ambiguity which manifests as a need to over-study in order to increase passing confidence.

But from the perspective of "which practice questions are most relevant?," I think:
  • Due to the conceptual approach (which includes a partial manifestation of "rolling over" year-to-year), recent and current GARP practice (questions) exams are highly relevant; the key drawback is they don't publish very many, so (eg) 2012 only gave us 20 P1 and 25 P1, which is by definition a highly truncated view of the testable (potential) set. But, I don't advise going any further back than 2009 (or maybe 2008 when the exam split), the error rate prior to those years is so atrocious (25%, 32%) that it's counterproductive (e.g., questions that assume you will assume a 10-year coupon bond has a duration of 7.0 years).
  • As Part 1 is largely foundational and somewhat timeless, currently (I can't speak for next year; we have a conference call with GARP next week about 2013) year-to-year author rotations in P1, for the last two+ year, have not been acutely meaningful. For example,
    • The econometrics foundation is pretty stable such that you could use either Gujarati or Stock and Watson, really (see my vigorous agreement with LL that we should return/refresh the Gujarati asap http://www.bionicturtle.com/forum/threads/gujarati.6132/)
    • The most important P1 texts are: Hull by far (and his 8th edition is essentially similar to the 7th is essentially similar to the 6th); Jorion which hasn't changed; and Tuckman which barely changes in the new edition. In summary, 80 or 90% of P1 is pretty "concept stable" at this point.
  • Part 2 is a totally different story: it churns significantly and the main way GARP has handled churn is by not testing a lot of the material on the margin. My take on current Part 2 is that it is a combination of (i) fewer core, timeless concepts (Jorion's portfolio VaR) that are highly testable and (ii) a larger set of high-churn, topical material that has a lower chance of being tested. An example of (ii) is the rotation of technical OpRisk material that rarely seems to find it's way onto the exam.