Basel II readings

[ravishankar80]

Hi David,

I have until now avoided doing the core reading on Basel II norms .(300 plus page document) . I have relied on your notes.Not sure if that alone is enough however I am sure I will not be able to read the 300 pages , retain and recall it.Are there any sections/pages you feel are more important that should be read from the original document? Thanks


Ravi

 

[ravishankar80]

As an added note I cannot see the multi-factor models like Pykthin,Duellmann and Masschelein in the reading? Are they part of this reading?

 

[ahnnecabiles]

Hi David,

Same as Ravi, I have not read the 300-page Basel II readings. Do you think we still have to or your notes will suffice, anyways according to GARP it won't be tested in full details?

Thanks

 

[David Harper CFA FRM]

Hi Ravi and Chinquee,

In addition to the notes, please note the screencast Episode OpRisk C reviews Basel II. Also, I think my 14-part summary of Basel II does a decent job of quickly introducing Basel II. Chinquee, you ask "Do you think we still have to or your notes will suffice, anyways according to GARP it won’t be tested in full details?" Please do NOT consider my notes sufficient without any other review (source reading, etc); it is too risky unless you have some Basel fluency. Also, GARP forgot the AIMs for Basel. That does not mean they won't test. Assume they WILL test Basel. What i have said is, they test Basel at the "principles level" and not at the the detail level. But please understand that historically, this is still quite a bit of material (e.g., scope, pillars, basic and advanced approaches for each, market risk backtest).

What is different this year is: GARP forgot the AIMs. I have queried them many, many times this year about what they will do, and no definitive answer has come back. Therefore, the safest is to plan for it to be tested (e.g., last year there were 40+ AIMs which was 6-8% of the test.).

Please also note last year I recorded a screencast overview of the our Basel map (last year, Nov 2007. I may try an improvement this year). Several customers said they liked this for a quick review.

About the source readings:

* I would definitely read the Explanatory Note on the IRB Risk Weight functions (20 pages, high density)

* I would review the Studies on credit risk concentration (Ravi, this contains the sector concentration methodologies to which you refer). You might emphasize the start and don't worry too much about bogging down on the model details. But i would be familiar with the concentration ideas

* Regarding the source framework (the 300 page doc), I would at the very least try to read
- First pillar: Constituents of (regulatory) Capital
- First pillar: Credit Risk, Approaches
- First pillar: Market (esp. VAR internal models approach)
- First pillar: operational risk (given the new oprisk readings, e.g., DB LDA, I expect test of this)
- Second and Third Pillar: probably do not need a "deep dive" here, cursory review
- Annex 10: (this is part of the 1996 Market Risk Amendment) the backtesting of VaR models

Also, keep up with the blog - I plan to screencast key basel before the exam...

David

 

[ahnnecabiles]

Thanks so much!