It’s exam week! All of the discussions in our forum are extremely helpful to those who are studying for the FRM exam so thank you to our members for asking great questions and also for providing informative answers! David found some very informative articles this week, and we hope you enjoy reading through them 
Financial Risk Forum Discussions
General
Members continue to share their practice exam scores (fascinating!) https://www.bionicturtle.com/forum/threads/practice-exam-scores-and-actual-exam-result.7650/page-3
More helpful adds to the Study Plan Guide (What is the best way to study?) https://www.bionicturtle.com/forum/threads/bionic-turtle-study-plan-guide.8670/page-2#post-42239 “Practice, practice, practice … “This is where I really love BT”
What is the passing score for FRM part 1 and part 2? https://www.bionicturtle.com/forum/threads/what-is-the-passing-grade-for-frm-part-1-and-part-2.9579/
FRM Part 1 November 2016 – Is it possible? https://www.bionicturtle.com/forum/threads/frm-part-i-november-2016-is-it-possible.9471/
WhatsApp Group(s) https://www.bionicturtle.com/forum/threads/whatsapp-group-for-frm-may16-part1.9200/
Chartered accountant to CFA https://www.bionicturtle.com/forum/threads/chartered-accountant-to-financial-risk-analyst.9297/
Our developer added forum discussion previews, aren’t they helpful time-savers?! e.g., https://www.bionicturtle.com/forum/find-new/6021854/posts
Quantitative P1.T2
bpdulog gets a zero on the calculator when solving for a binomial PMF https://www.bionicturtle.com/forum/threads/p1-t2-310-probability-distributions-ii-miller-chapter-4.7036/page-2#post-42281
What are skew and kurtosis of single bond with PD = x https://www.bionicturtle.com/forum/threads/p1-t2-307-skew-and-kurtosis-miller.6825/
CAPM covariance https://www.bionicturtle.com/forum/threads/p2-t8-18-statistical-significance-of-alpha.5578/#post-42214
Products P1.T3
FRA. In regard to a forward rate agreement (FRA), we can value it today (T0) or estimate the cash settlement at T2 for interest paid at T3 https://www.bionicturtle.com/forum/threads/l1-t3-160-valuation-of-forward-rate-agreement-fra.4510/#post-42253
Options. How can we remember that impact of interest rate on option value? https://www.bionicturtle.com/forum/threads/greeks.6207/page-2#post-42186
Valuation P1.T4
Bond duration-convexity and option delta-gamma are both Taylor Series https://www.bionicturtle.com/forum/threads/var-option-bond.9568/
What does Tuckman mean exactly by the carry-roll-down? https://www.bionicturtle.com/forum/threads/p1-t4-317-carry-roll-down-realized-forwards-and-unchanged-term-structure.6941/#post-42213
ellenlcy observes that the definition of yield curve “flattening” or “steepening” can be counter-intuitive https://www.bionicturtle.com/forum/threads/p1-t4-314-forward-rate-curve-trades.6898/#post-42210
Market Risk P2.T5
An illustration of the inherent trade-off faced in selecting a cutoff in the value at risk (VaR) backtest https://www.bionicturtle.com/forum/threads/bt-notes-on-backtesting-var.6615/#post-42198
Ace_Ashmant on the meaning of risk reversal R(25) = σ(call, 25) – σ(put, 25) and the fact that ATM call options tend to have a delta higher than 0.5 https://www.bionicturtle.com/forum/threads/p2-t5-410-implied-volatility-smile-and-the-implied-asset-distribution.7582/#post-42188
Delo shows an alternative answer to solving for the implied forward rate (LIBOR vs OIS) https://www.bionicturtle.com/forum/threads/p2-t5-506-risk-free-rate-versus-libor-and-the-overnight-indexed-swap-ois-rate.8235/#post-42283
NNath asks for clarification on the difference between risk-world and risk-neutral probabilities https://www.bionicturtle.com/forum/threads/l2-t5-42-risk-neutral-drift.3555/#post-42296
Credit Risk P2.T6
Stuti asks how we get to the idea that “because equity is a call option on firm value, it is a portfolio consisting of delta units of firm value plus a short position in the risk-free asset.” https://www.bionicturtle.com/forum/threads/risk-free-debt-merton-model.9512/#post-42211
Maged asks about the difference: Credit VaR vs Credit value adjustment (CVA) https://www.bionicturtle.com/forum/threads/credit-var-vs-cva.9563/
Does PFE influence CVA? https://www.bionicturtle.com/forum/threads/p2-t6-417-credit-value-adjustment-cva.7814/#post-42236
PFE under convenient but unrealistic assumption of normality https://www.bionicturtle.com/forum/threads/p2-t6-411-expected-ee-and-potential-future-exposure-pfe.7748/#post-42208
Why does Gregory say CVA is lower for an upward-sloping credit curve? https://www.bionicturtle.com/forum/threads/gregory-cva.9571/
Operational Risk P2.T7
NNath asks if there is a general rule (mnemonic) for determining the allocation of market variables to liquidity horizons (good question!) https://www.bionicturtle.com/forum/threads/liquidity-horizon-in-frtb-hull-ch-17.9564/
Basel III’s capital conservation buffer https://www.bionicturtle.com/forum/threads/p2-t7-404-basel-iii-capital-ratios.7936/#post-42280
Deepak Chitnis observes that Malz’ spread risk factor, in liquidity-adjusted value at risk (LVaR), is not really a confidence “interval” https://www.bionicturtle.com/forum/threads/p2-t7-511-transaction-liquidity-risk-and-liquidity-adjusted-var-malz.8393/#post-42290
Kavita.bhangdia asks what Tuckman means by the use of repo (repurchase agreement) to finance a long position in a security https://www.bionicturtle.com/forum/threads/p2-t7-513-repurchase-agreements-repos-tuckman.8412/#post-42293
QuantMan2318 explains the stressed value at risk (SVaR) in Basel III https://www.bionicturtle.com/forum/threads/p2-t7-520-basel-2-5-with-stressed-var-irc-and-crm-hull.8503/#post-42154
Investment Risk P2.T8
QuantMan2318 interprets Constantinides on illiquid assets https://www.bionicturtle.com/forum/threads/ang-chapter-13-illiquid-assets-asset-allocation-with-transaction-costs.9560/
Sample Practice Questions
Does leptokurtosis imply higher peaks? https://www.bionicturtle.com/forum/threads/p1-6-mean-standard-deviation-correlation-skewness-and-kurtosis-garp12-p1-6.5037/
A classic question on bond CVaR with more than one possible answer https://www.bionicturtle.com/forum/threads/garp-2016-practise-exam-problem-34-garp16-p2-34.9565/ and the 2015 variation on the same https://www.bionicturtle.com/forum/threads/2015-practice-exam-part-2-cvar-garp15-p2-11.9546/
Pension fund surplus https://www.bionicturtle.com/forum/threads/pension-fund-surpls-garp16-p2-8.9577
Which beta should we use for the Treynor ratio? https://www.bionicturtle.com/forum/threads/2016-frm-part-ii-practice-exam-q-a-garp16-p2-74.9575/
General Financial Risk Related News
Risk
This article is all about value at risk (VaR): JPMorgan Trading Risk Rose, Rivals Hit Brakes With Markets Amok http://www.bloomberg.com/news/articles/2016-05-12/jpmorgan-trading-risk-rose-rivals-hit-brakes-with-markets-amok “VaR isn’t without detractors. One complaint is that it assumes outcomes will tend to remain within historic norms, looking at past patterns and failing to anticipate the impact of potential disasters. So while managers, regulators and analysts use it as a tool for gauging risk-taking, regulators focused on systemic stability have increasingly relied on stress-testing in recent years to gauge how well firms are positioned for worst-case scenarios.”
The Very Long Bet: 100-Year Bonds That Pay Peanuts http://www.wsj.com/articles/long-dated-bonds-find-favor-as-investors-try-to-dodge-negative-yields-1462978982
Getting a handle on product liability http://www.polecat.com/blog/product-liability “Product liability poses manifold risks to companies in terms of lost revenue and reputation damage. These vulnerabilities have significantly increased in recent years largely due to stricter product safety laws, the growing popularity of social media, and the increasing complexity of global supply chains.”
Simple Stuff: What is risk? http://alephblog.com/2016/05/15/simple-stuff-what-is-risk/ “Here is my simple definition of risk: Risk is the probability that an entity will not meet its goals, and the degree of pain it will go through depending on how much it missed the goals.”
Data and analytics
A spreadsheet for uncertainty (whoa, cool!) https://www.getguesstimate.com/ “For any cell you can enter confidence intervals (lower and upper bounds) that can represent full probability distributions. 5000 Monte Carlo simulations are performed to find the output interval for each equation, all in the browser.”
Using Stock Market Data in Excel (i.e., with Quandl’s Excel add-in) https://www.quandl.com/blog/using-stock-market-data-excel
How Best to Collect Data from Financial Companies (Office of Financial Research) https://financialresearch.gov/from-the-director/2016/05/10/how-best-to-collect-data-from-financial-companies/
Regulation and corruption:
President Obama’s Efforts on Financial Transparency and Anti-Corruption: What You Need to Know https://www.whitehouse.gov/blog/2016/05/06/president-obamas-efforts-promote-financial-transparency-and-combat-corruption-what
US tax havens: The new Switzerland https://next.ft.com/content/cc46c644-12dd-11e6-839f-2922947098f0
BCBS 239, Heightened Standards and Operational Risk http://www.garp.org/#!/risk-intelligence/detail/a1Z400000033tkKEAQ/bcbs-239-heightened-standards-operational-risk “In contrast to financial risks, there is no upside — only downside — to accepting an operational risk.”
Dark money: London’s dirty secret https://next.ft.com/content/1d805534-1185-11e6-839f-2922947098f0
Banks cull accounts in fight against corruption https://next.ft.com/content/123550f6-16d7-11e6-9d98-00386a18e39d “The three lenders [Deutsche Bank, Barclays and UBS] have decided to close the accounts of between 20,000 and 35,000 customers each in their corporate and investment banking operations.”
U.S. Treasury:
Treasury’s Complaint Box Overflows as U.S. Bond Market Splinters http://www.bloomberg.com/news/articles/2016-05-08/treasury-s-complaint-box-overflows-as-u-s-bond-market-splinters
A Deeper Look at Liquidity Conditions in the Treasury Market https://www.treasury.gov/connect/blog/Pages/A-Deeper-Look-at-Liquidity-Conditions-in-the-Treasury-Market.aspx
U.S. Department of the Treasury Opportunities and Challenges in Online Marketplace Lending https://www.treasury.gov/connect/blog/Pages/ICYMI-News-on-Marketplace-Lending-White-Paper-.aspx
FinTech:
Wells Fargo to Launch Faster Loan to Fight Online Rivals http://www.wsj.com/articles/wells-fargo-to-launch-faster-loan-to-fight-online-rivals-1462872608 “The Wells Fargo loan, dubbed FastFlex, ranges from $10,000 to $35,000. It is funded as soon as the next business day, days or weeks faster than other Wells Fargo loan offerings, with a weekly repayment schedule. It represents a test of whether the bank can develop its own technology to compete with Silicon Valley firms, which often chide traditional lenders for being slow-moving and unwilling to innovate.”
New Crowdfunding Rules Let the Small Fry Swim With Sharks http://www.nytimes.com/2016/05/15/business/dealbook/new-crowdfunding-rules-let-the-small-fry-swim-with-sharks.html
Private Lenders Remodel the Mortgage Market http://www.wsj.com/articles/private-lenders-remodel-the-mortgage-market-1462984898
Banking:
Banking’s New Normal http://www.newyorker.com/magazine/2016/05/16/dodd-frank-and-bankings-new-normal “Banks performed dismally last year, and their 2016 first-quarter-earnings reports show that this one is off to an even worse start. Returns on equity have fallen. Bonuses and salaries are being slashed; in the past quarter, Goldman Sachs cut the amount it set aside for compensation by forty per cent. Payroll is down, too: banks have eliminated tens of thousands of jobs in the past couple of years and are now embarking on a new round of severe job cuts.”
Nine years later, RMBS woes still haunt banks http://www.risk.net/operational-risk-and-regulation/opinion/2457373/nine-years-later-rmbs-woes-still-haunt-banks
An Investment Banker’s Worst Nightmare http://www.wsj.com/articles/an-investment-bankers-worst-nightmare-1462895679
Shadow banking’s enduring perils http://ineteconomics.org/ideas-papers/blog/shadow-bankings-enduring-perils
Financial Institutions Alert: New Credit Impairment Models Coming Soon https://blog.protiviti.com/2016/05/11/financial-institutions-alert-new-credit-impairment-models-coming-soon/ Protiviti’s Practical Implications of IFRS 9 Impairment http://trtl.bz/0516-pov-ifrs-9
Hedge Funds:
Big Insurers Send a Wake-Up Call to Hedge Fund Investors http://www.nytimes.com/2016/05/13/business/big-insurers-send-a-wake-up-call-to-hedge-fund-investors.html
Hedging on the Case Against Hedge Funds http://www.bloomberg.com/view/articles/2016-05-12/hedging-on-the-case-against-hedge-funds
Hedge Fund Star: We Are ‘Under Assault’ http://www.wsj.com/articles/hedge-fund-star-we-are-under-assault-1463071444
The Vultures’ Vultures: How A New Hedge-Fund Strategy Is Corrupting Washington http://www.huffingtonpost.com/entry/vulture-fund-lobbying_us_57350001e4b077d4d6f2a374
CFA Institute:
69th CFA Institute Annual Conference May 8th – 11th https://annual.cfainstitute.org/
Our Asset Manager Code Meets Investor, Industry Needs, But Don’t Ask Us https://blogs.cfainstitute.org/marketintegrity/2016/05/10/our-asset-manager-code-meets-investor-industry-needs-but-dont-ask-us/ “There are now more than 1,300 firms that claim compliance with the Asset Manager Code. Notable recent compliant firms include MFS Investment Management, T. Rowe Price, and PIMCO.”
Reports:
Third party risk management from the perspective of C-level and senior executives by Ponemon Institute. Press release http://trtl.bz/shared-assessments-pr and report is here: http://trtl.bz/tone-at-top
Director-Shareholder Insights: Board composition – Key trends and developments http://www.pwc.com/us/en/governance-insights-center/publications/pwc-board-composition-key-trends-and-developments.html and report is here: http://trtl.bz/0516-pwc-board-composition
Books:
Khouw and Guthner, The Options Edge http://readingthemarkets.blogspot.com/2016/05/khouw-and-guthner-options-edge.html Their book is here at http://amzn.to/1TjOYAS
Chain of Title (How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud) By David Dayen http://www.nytimes.com/2016/05/15/books/review/chain-of-title-by-david-dayen.html
Heads or Tails: Financial Disaster, Risk Management and Survival Strategy in the World of Extreme Risk http://amzn.to/1XfAMf5
School:
Duke University offers a Coursera Specialization in Master Statistics with R https://www.coursera.org/specializations/statistics
Thierry Roncalli’s Lecture Notes on Risk Management & Financial Regulation http://www.thierry-roncalli.com/RiskManagement.html
Brilliant has a primer on matrices https://brilliant.org/wiki/matrices/
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