Phew! The FRM exam is over, and we hope all candidates did well on the exam! There were some great discussions in the forum this week, and David found some really informative articles that we are sharing with you here đź™‚

**Financial RiskÂ Forum Discussions**

**May 2016 FRM Feedback**

- Part 1 https://www.bionicturtle.com/forum/threads/may-2016-part-1-exam-feedback.9609
- Part 2 https://www.bionicturtle.com/forum/threads/may-2016-part-2-exam-feedback.9610

**QuantitativeÂ P1.T2**

- Difference between probability of observing a random observation and the probability of observing a sample mean https://www.bionicturtle.com/forum/threads/p1-t2-312-mixture-distributions.7103/page-2#post-42309
- You should be able to convey any simple Bayes Theorem question into either a table or a tree https://www.bionicturtle.com/forum/threads/p1-t2-500-bayes-theorem.8320/page-2#post-42507

- Which return, discrete or continuous, in GARCH(1,1), does it make a difference? https://www.bionicturtle.com/forum/threads/l1-t2-108-volatility-forecast-with-garch-1-1.3955/page-2
- Using calculator for Poisson distribution https://www.bionicturtle.com/forum/threads/p1-t2-310-probability-distributions-ii-miller-chapter-4.7036/page-2#post-42418

**Products P1.T3**

- When converting a Eurodollar rate (from actual/360 with quarterly compounding) to continuous compounding on an actual/365 day count, does the sequence matter? https://www.bionicturtle.com/forum/threads/l1-t3-168-day-count-conventions.4553/page-3#post-42329
- The difference between ROA and net interest margin (NIM) https://www.bionicturtle.com/forum/threads/p1-t3-502-foreign-exchange-fx-hedges.8809/#post-42325

**Valuation P1.T4**

- Node notion in a binomial tree; e.g., which is node[4,4]? https://www.bionicturtle.com/forum/threads/p1-t4-412-binomial.8080/#post-42407
- Are VaR models less useful immediately after a crisis? https://www.bionicturtle.com/forum/threads/p1-t4-504-stress-testing-methodology-bis.8507/#post-42476
- Simple illustration of linear approximation versus full revaluation using a stock option as an example https://www.bionicturtle.com/forum/threads/one-last-question-delta-normal-vs-full-revaluation.9607/
- When a question says â€śday yield volatility is 1.0%,â€ť is this a percent or a percentage? https://www.bionicturtle.com/forum/threads/p1-t4-410-value-at-risk-linear-versus-non-linear.8072/#post-42517

**Market Risk P2.T5
**

- What is the correct discount rate when collateral is posted? http://trtl.bz/p2-t5-408-risk-free-rate
- Does sequence matter in calculating Kendallâ€™s Tau? https://www.bionicturtle.com/forum/threads/concordant-and-discordant-values.9453/#post-42479
- Could an increase in interest rate volatility cause an increase in the yield? https://www.bionicturtle.com/forum/threads/p2-t5-300-interest-rate-expectations.6660/#post-42512

**Credit Risk P2.T6**

- What is the the meaning of the default time density function (aka, marginal default probability) and what exactly are the differences between cumulative, conditional and joint default probability? https://www.bionicturtle.com/forum/threads/p2-t6-307-hazard-rate-malz-section-7-2.6932/#post-42369
- What is the role of recovery and CVA in replacement cost? https://www.bionicturtle.com/forum/…erparty-risk-terms-continued.7125/#post-42401
- Credit exposure profile of credit default swap (CDS) https://www.bionicturtle.com/forum/threads/p2-t6-407-credit-exposure.7704/
- How do we CALCULATE expected exposure (EE)? https://www.bionicturtle.com/forum/threads/p2-t6-411-expected-ee-and-potential-future-exposure-pfe.7748/page-2#post-42409
- How can Gregory say that an increase in the recovery rate implies an increase in the implied default probability? https://www.bionicturtle.com/forum/threads/cva.9590/
- Zero correlation does not imply independence, but there is an exception https://www.bionicturtle.com/forum/threads/p2-t6-309-default-correlation-malz-sections-8-1-and-8-2.6955/page-2#post-42477
- Is weighted average life (WAL) less than weighted average maturity (WAM), and does WAL include principal repayments? https://www.bionicturtle.com/forum/threads/weighted-average-life-wal-choudhary-chapter-12.9398/#post-42514
- What is the difference between a securitization SPE and a trust? https://www.bionicturtle.com/forum/threads/p2-t6-610-securitization-process-choudhry.9328/#post-42513

**Operational Risk P2.T7**

- Challenging Basel III capital adequacy question https://www.bionicturtle.com/forum/threads/basel-iii-capital-ratios.9600/

**Investment Risk P2.T8**

- What is volatility of equity market neutral (zero beta) portfolio? https://www.bionicturtle.com/forum/threads/p2-t8-406-equity-market-neutral-hedge-funds.7768/
- Why donâ€™t we need position weights when computing diversifies portfolio value at risk (VaR)? in https://www.bionicturtle.com/forum/threads/p2-t8-400-diversified-portfolio-value-at-risk-var.7700/#post-42510
- On the differences between global macro and equity market neutral hedge fund strategies https://www.bionicturtle.com/forum/threads/p2-t8-407-hedge-fund-strategies.7777
- Unlike correlation, beta is not symmetrical https://www.bionicturtle.com/forum/threads/beta-doubt.9584/

**InstructiveÂ Practice Questions**

- Confusing an observation with the sample mean https://www.bionicturtle.com/forum/threads/2016-practice-exam-question-30-garp16-p1-30.9593/
- A terrible Black-Scholes question https://www.bionicturtle.com/forum/threads/garp-2015-practice-exam-question-11-garp15-p1-11.9588/
- What is the spread risk factor? https://www.bionicturtle.com/forum/threads/spread-risk-factor.9591/
- Lognormal versus normal VaR https://www.bionicturtle.com/forum/threads/lognormal-vs-normal-var-garp16-p2-2.9612/
- A classic volatility question: is EMWA a special case of GARCH(1,1) but where the long-term volatility is zero? https://www.bionicturtle.com/forum/threads/2016-practice-exam-question-29-garp16-p1-29.9458/
- Conflicting questions about the conditional default probability versus the joint default probability https://www.bionicturtle.com/forum/threads/same-q-about-default-prob-2-different-answers-is-that-true-or-what-garp16-p2-33.9592/
- Internally inconsistent portfolio value at risk (VaR) question https://www.bionicturtle.com/forum/threads/2016-frm-part-ii-practice-exam-q-a-garp16-p2-70.9596/
- Estimate of risk-neutral default probability given bond yields https://www.bionicturtle.com/forum/threads/implied-default-probability-from-bond-yields-garp16-p2-55.9597/

**General Financial Risk Related News**

**Risk**

- Simple stuff: what is risk? http://alephblog.com/2016/05/15/simple-stuff-what-is-risk/ In the comments is mentioned this article by Glyn Holton, Defining Risk http://trtl.bz/glyn-holton-defining-risk
- Political risk advisers (Economis) http://www.economist.com/news/business/21699138-policy-wonks-win-big-when-going-gets-tough-risk-premiums
- World Bank launches pandemic risk insurance market https://next.ft.com/content/53c690f6-1f39-11e6-aa98-db1e01fabc0c
- Shareholders Warming to Increased Climate Risk Disclosure http://www.glasslewis.com/shareholders-warming-to-increased-climate-risk-disclosure/

- Week 7: How To Get No Cost FX Hedging? https://www.linkedin.com/pulse/week-7-how-get-cost-hedging-jeffrey-warner-cfa
- Deutsche Bank Probes Trades That Made Employees Millions http://www.wsj.com/articles/deutsche-bank-scrutinizes-trades-compliance-review-1463688746?

**Credit and Interest Rates**

- Balance Due: Credit-Card Debt Nears $1 Trillion as Banks Push Plastic http://www.wsj.com/articles/balance-due-credit-card-debt-nears-1-trillion-as-banks-push-plastic-1463736600
- A Battle Brews Over Negative Rates on Mortgages http://www.wsj.com/articles/in-spain-and-portugal-bankers-and-borrowers-fight-over-negative-rates-1463287864 â€śEurope already has a precedent: Banks in Denmark are paying thousands of borrowers interest on their home loans, nearly four years after the central bank introduced negative interest rates.â€ť
- Libor alternatives put on the table https://next.ft.com/content/fa8cac0a-1ea2-11e6-b286-cddde55ca122 â€śThe two suggested alternatives are the Overnight Bank Funding Rate and the General Collateral Repo Rate.â€ť Here is the Alternative Reference Rates Committeeâ€™s (ARRC) report http://trtl.bz/05-22-arrc-libor-interim-report

- Investorsâ€™ Flight From Negative Rates Flattens Yield Curve http://www.wsj.com/articles/flood-of-foreign-cash-flattens-yield-curve-1463512016 â€śThe premium that investors receive for holding 10-year U.S. government debt instead of two-year notes fell to 0.94 percentage point. A year ago, the gap was 1.65 points â€¦ The duration of U.S. government bonds, reflecting their sensitivity to rising interest rates, hit its highest level last week in 15 years at 6.29, according to Barclays PLC data. The high duration risk reflects the low yields on outstanding debt, which exposes them to larger losses for any given yield increase, and a longer average maturity, reflecting government efforts to lock in low rates.â€ť
- WSJ Duration calculator http://graphics.wsj.com/government-bond-duration-calculator/ from Bond Buyers Canâ€™t Stop Themselves as Risks Hit a 15-Year High http://www.wsj.com/articles/bond-buyers-cant-stop-themselves-as-risks-hit-a-15-year-high-1463507077

**Other:Â **

- Jack Treynor (of the Treynor ratio, and much more) died. Jack L. Treynor and the Birth of the Quants https://blogs.cfainstitute.org/investor/2016/05/20/jack-l-treynor-and-the-birth-of-the-quants/
- Leverage ratio blamed for big swap unwind charges http://www.risk.net/insurance-risk/feature/2458615/leverage-ratio-blamed-for-big-swap-unwind-charges
- Big Data Boom Also Creates New Compliance Burden http://blogs.wsj.com/riskandcompliance/2016/05/17/big-data-boom-also-creates-new-compliance-burden
- The Great Foreclosure Fraud http://prospect.org/article/great-foreclosure-fraud from Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud http://amzn.to/1TpabwE