Week in Financial Education (May 17, 2021)
Welcome to another Week in Financial Education! This week saw some great questions and fascinating insights. I will just highlight the instructive example of a flawed solution in the 2021 practice paper (as usual, the impetus is candidates’ justifiable confusion). This one is tricky because the correct answer is coincident with two implicit assumptions, but the approach will break under other conditions! One thing we’ve always cared about here (at Bionic Turtle) is mastery of the fundamentals. We don’t just want you to pass the exam. We want you to take away a robust toolkit. Part of that toolkit is fluency in the fundamental building blocks of finance, including its vocabulary. What exactly is meant by an “interest rate factor” and what are the possible instances of such a factor? The question (below) that we analyzed refers to bond yield, spread, and the implied hazard rate. Yield and hazard rates do have specific definitions, but spread requires clarification. (As another example, the question ultimately asks for “risk-neutral” cumulative default probability; what step in the solution does this risk-neutral assumption enable?). I hope you appreciate that we support your aspirations as a Professional by seeking to assist in the clarifications that constitute a robust and coherent toolbox.
1. [Exam Feedback] We have some great feedback about the Part 2 FRM exam that was administered over the weekend! https://trtl.bz/3hwvL3b
2. [P1.T1] punchi’s good idea for checking plausibility of a portfolio under CAPM https://trtl.bz/2SIxLuH
3. [P1.T1] Does the CML also map to systematic (beta) risk? https://trtl.bz/33NNwCZ
4. [P1.T2] Why log returns are stationary but lognormal prices are not https://trtl.bz/3yhzxDh
5. [P1.T3] The lease rate is a net convenience yield https://trtl.bz/3bvG57H
6. [P1.T4] Gaussian copula lookup https://trtl.bz/33QA3tW
7. [P2.T5] Dowd’s semiparametric methods https://trtl.bz/3ohKdxo
8. [P2.T6] Counterparty terms: market-to-market (MTM), credit exposure, future value, and potential future value https://trtl.bz/3w9SMgg
9. [P2.T6] Do credit spreads mean revert? https://trtl.bz/3bvFnax
10. [P2.T6] GARP’s flawed solution to its classic spread/hazard question https://trtl.bz/3huQOD1
11. [P2.T6] Questions about collateralization (margin) calculations https://trtl.bz/3w6Kd5Y
12. [P2.T8] More on GARP’s repo question https://trtl.bz/3bu6oLH
13. [P2.T9] Grinold’s alpha as a product of skill, volatility, and expectation https://trtl.bz/3ePdGvB
14. [P2.T8] sohinichowdhury asked a fun question: what is the semi-annual dollar-weighted return (aka, IRR)? https://trtl.bz/3w8c3yH
Curated Links (items you might like)
1. Risk & Finance
- The Ultimate Guide to Inflation by Lyn Alden https://www.lynalden.com/inflation/
- Axios Capital (another efficient letter) https://trtl.bz/2S3jo44
- Tech, inflation, and the tyranny of the numerator https://lt3000.blogspot.com/2021/05/tech-inflation-and-tyranny-of-numerator.html
- ERM Retooling: Applying problem definition process to risk and opportunity management by Carol Williiams https://trtl.bz/2S0cPza
- How to Calculate Risk Based on Where Your Profits Come From https://trtl.bz/3waDLLb
- GARP U.S. Regulators Lag on FRTB as Europe Deadline Approaches https://trtl.bz/33LnH6F
- Anatomy of a $2 Million Darkside Ransomware Breach https://zetter.substack.com/p/anatomy-of-one-of-the-first-darkside
- The Colonial Pipeline Incident (Brink) https://trtl.bz/2RVUSla
- Security bulletins (Chertoff Group): Cybersecurity Executive Order https://trtl.bz/2RZuoiy and Colonial Pipeline Incident https://trtl.bz/2RX1sbh
- The Ransomware Superhero of Normal, Illinois https://www.propublica.org/article/the-ransomware-superhero-of-normal-illinois
- A Closer Look at the DarkSide Ransomware Gang https://krebsonsecurity.com/2021/05/a-closer-look-at-the-darkside-ransomware-gang/
- We’re not ready for the next big climate disasters (NYT) https://trtl.bz/3uSY53n
- The New Basel Framework for Climate Risk Management: Pros and Cons https://trtl.bz/33NB6ef Dr. Marco Folpmers (who always writes helpful articles) refers to BIS: Climate-related risk drivers and their transmission channels https://www.bis.org/bcbs/publ/d517.htm
- The biggest climate stress test so far (Klement on Investing) ttps://trtl.bz/2RnNEGK Refers to the Network for Greening the Financial System (NGFS) https://www.ngfs.net/en
4. Data etc.
- Coursera Conference 2021 Highlights https://trtl.bz/2QrRxtQ
- DataCamp Digest May 2021 https://www.datacamp.com/community/blog/digest-may-2021
- The Future of AI Regulation (Part 4) https://trtl.bz/2RWRMxh
- Time series forecasting at Microsoft (3rd of 3) https://trtl.bz/33Re1r4
Week in Financial Education (May 17, 2021)
Welcome to another Week in Financial Education! This week saw some great questions and fascinating insights. I will just highlight the instructive example of a...
Week in Financial Education (May 10, 2021)
Welcome to the latest week in financial education (WIFE)! As the May exams have started, we experienced another busy week. We are grateful for some...
What Your Colleagues Are Saying
I took the exam in Sydney and had a similar feeling about the exam being more qualitative (but no less rigorous). However, I felt I was better prepared thanks to the BT's relentless focus on throwing real life examples and methods.
I subscribed to BT for my Part 1 FRM exam and just wanted to say thanks for the depth and breadth of the study materials and practice questions. I found out that I scored in the top quartile of every topic and I absolutely could not have done this without using BT - I spent many, many hours going over the practice questions and answers! I wanted to express my appreciation and gratitude to your team for your hard work in creating these materials. Thanks!
The BT scripts, practice questions, global topic drills and mock exams were a great help in understanding the concepts (which I could already apply on the job!) and where structured in such a manner that the breadth and depth where optimal for exam preparation - clearly the exam would have been a catastrophe without BT!
Passed first time. Happy all the hard work paid off. BT was the right choice. Thanks David and Nicole for your work and commitment.
Passed! 1,4,1,2,1,4! Thank you David and Nicole for your efforts! Thank you BT! Couldn't have done it otherwise. I'm a mechanical engineer who had a career in petroleum services, then I decided to switch career to financial risk management. Passed part 1 from the first time with top quartiles and passed part 2 from the first time as well. All with BT! BT is always the recommendation I give to people aiming at the FRM designation! Thank you again!
Passed Part I and Part II first time - absolutely could not have done it without BT. Like a few others I didn't even both buying the GARP books for Part II and went solely with BT materials. Just read, answered questions, watched videos, read, more questions, and... more questions! All the practice question taking looked to pay off. Thanks again Bionic Turtle for a great curriculum. Keep up the fantastic work!