David Harper CFA FRM
FRM Exam (week of 3/14)
- @Kenji identified several errors in the originally published 2016 Part 2 Practice Exam, see https://www.bionicturtle.com/forum/threads/2016-frm-part-ii-practice-exam-q-a.9350/. These were corrected by GARP. I think errors are very instructive, regardless. For example, the practice exam includes the estimation of ES via VaR quantiles.
- @PortoMarco79 re-asked a question we get every year, basically: given Miller contains Calculus, do you need to know calculus to sit for the exam? I wrote to Bill May, asking him (me) “Especially because the Miller reading utilizes (basic) calculus, we are often asked, Do I need to know any calculus?". Bill replied helpfully (see thread that prompted this question here @ https://www.bionicturtle.com/forum/...ility-functions-miller.6728/page-3#post-40734), emphasis mine:
"David, This is a not uncommon question for us as well. Let me respond in two parts:
1) The FRM Candidate Guide describes the general quantitative level of the Exam thusly:
Q. How quantitative is the FRM Exam? A. The FRM Exam has a quantitative component, but these quantitative concepts are presented in the context of questions that approximate real-world situations that risk managers would face. The level of mathematical rigor of the FRM Exam is consistent with an advanced undergraduate or introductory graduate level finance course at most universities.
2) Specifically regarding calculus, the FRM Exam does not explicitly require an understanding of calculus and, as a perusal of the learning objectives will indicate, does not test directly on differentiation, integration, or other aspects of calculus. That being said, an understanding of calculus, not to mention matrix manipulation that is typically associated with linear algebra, would likely prove beneficial to candidates as they prepare for the Exam. Many of tools and techniques related to probability, statistics, modelling, and estimation draw on these concepts and the better candidates understand these topics the better prepared they are likely to be. I hope that helps. Bill"
- @brian.field initiated a good technical discussion on LIBOR/swap rates versus zero rates here @ https://www.bionicturtle.com/forum/threads/hull-swaps-example-10-1-in-text.9327/. This includes a tricky, more basic question: what’s the difference between a zero and swap rate? Sorry to toot my own horn, but I recently recorded a short video here at my 5-minute YouTube video on "Swap versus Spot rates"
- Brian also asks a good question (What’s the solution to correlations spiking during stress?) at https://www.bionicturtle.com/forum/threads/naive-observation.9385/
- Brian also summarized the issues around ES and VaR for a discrete distribution https://www.bionicturtle.com/forum/threads/var-and-es-for-discrete-rv.9407/
- Which liquidity-adjusted VaR (LVaR)? While there are several variations, GARP routinely asks for the most straightforward approach https://www.bionicturtle.com/forum/threads/lvar.9391/
- Illustration of the contrast between a bond’s realized return and its yield (we do not expect the realized return to equal the yield unless the coupons are reinvested at exactly the yield) https://www.bionicturtle.com/forum/...zed-return-ytm-re-investment-of-coupons.9383/
- From the Bank for International Settlements (BIS)
- Revised framework for market risk capital requirements (Jan 2016) http://www.bis.org/bcbs/publ/d352.htm
- Proposed revisions to the operation risk capital framework (March 2016) http://www.bis.org/press/p160304.htm
- Consultation on revisions to the Pillar 3 disclosure framework (March 2016) http://www.bis.org/press/p160311.htm
- FINRA 2016 priorities emphasize risk management http://www.finra.org/industry/2016-regulatory-and-examination-priorities-letter
- Negative interest rates
- @QuantMan2318 asked about negative yields https://www.bionicturtle.com/forum/threads/bonds-with-negative-interest-rates.9392/
- Thank goodness Damodaran himself weighed in on this important issue at http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html
- A heated p-value controversy! The true “error rate” is (much higher) than the p-value: The ASA issued a statement on p-values (http://trtl.bz/asa-pvalues). This re-sparked a lot of debate about the seemingly innocent p-value; for example, a 0.05 p-value does not imply the false positive rate is 5.0%, it can be much higher (http://trtl.bz/1UHpeji). Here is one of my favorite tutorials (http://trtl.bz/pvalue-tutorial) and his helpful “How to Correctly Interpret P Values” (http://trtl.bz/pvalue-interpret). Here is a word-friendly article on the p value “crisis” (http://trtl.bz/1MsGdiA)
- Here is a short illustration of type of possible pilot error ("The problem is that with large samples, significance tests pounce on tiny, unimportant departures from the null hypothesis") https://matloff.wordpress.com/2016/03/07/after-150-years-the-asa-says-no-to-p-values/
- This is good, why the p-value is still useful http://www.r-statistics.com/2016/03...ault-reflections-on-the-recent-asa-statement/
- Interesting 3-part interview with Edward Altman, who created the Z-score, and Larry Cao of CFA Institute. Did you know that his reliance on fundamentals caused him to be presciently pessimistic in 2007? Where does he think we are in the credit cycle today? “I believe a bubble is building in the credit market today. A bubble is defined as unsustainable prices in an asset class” https://blogs.cfainstitute.org/inve...s-a-bubble-building-in-global-credit-markets/
- Three lines of defense: GARP explains the "Three lines of defense" (ie, business/front line, independent risk management, and internal audit) at http://trtl.bz/occ3lines. Here is how the Federal Reserve Bank of New York applies (speech by Joshua Rosenberg) at http://www.bis.org/review/r160316c.htm (Here is the referenced IIA Position Paper @ http://trtl.bz/1TUwUQx ). But Andrew Smart asks if it is time to kill the 3-lines model https://www.linkedin.com/pulse/time-kill-three-lines-defence-model-andrew-smart
- Fear of Basel IV @ http://trtl.bz/1RrL3xX
- The problem with benchmarking: FT explains research that says portfolio managers with tight tracking error (versus benchmark) effective pay (lose to) momentum investors http://trtl.bz/1R5Vkmi
- Hull and White on risk-neutral valuation and scenario analysis in "Models and Measures" Part 1 and Part 2
- Calculus is so last century http://www.wsj.com/articles/calculus-is-so-last-century-1457132991
- Cool quant blog! How to learn advanced math without university http://trtl.bz/learn-adv-math. And, Careers in Quantitative Finance (http://trtl.bz/careers-quant-finance) includes Risk Management. "The science of computing and managing the credit and market risk borne by traders and portfolio managers has grown greatly in complexity and importance since the financial crisis. Finding people with the technical expertise to handle these computations has become a challenge for financial firms and regulators alike."
- Data science
- How to replace s pie chart (so cool!) http://varianceexplained.org/r/improving-pie-chart/