"Computing Var & ES using POT" not in 2014 AIMs but still in questions sets

[Steve Jobs]

Hi,
In the comparison sheet prepared by you guys, the above AIM is excluded in 2014 AIMs, but the questions were not removed from the questions set of Dowd chapter. I guess we don't have to practice and memories this formula any more, right?

 

[David Harper CFA FRM]

Hi @Steve Jobs Yes that is TRUE: we have not updated that PQ set yet. I've been requesting the translation of "compute" VaR & ES using POT into a conceptual (describe, explain) verb for years, so I'm glad it's finally not a time trap (as it was never really testable). Thanks,

 

[Steve Jobs]

Thanks for that!

 

[Steve Jobs]

It seems that the sections where the parameters explained are too theoretical and have no purpose without the numerical examples of calculating VaR and ES.

 

[David Harper CFA FRM]

I don't follow you. Um, yes that's often true about parameters. If this is a criticism of the notes (is it?), I will tag an try to incorporate into the update. If it's about the practice questions, I don't know what you mean.

 

[Steve Jobs]

Yeah, about the note and the assigned reading.

 

[Razor425]

hi, exactly what is tail shape parameter in the POT, bit confused on this. Dropbox and video include this but does not really state what it is?

 

[cdbsmith]

David,

I understand that @Steve Jobs would like to have the questions, related to AIMs that have been removed from the 2014 list, to also be removed from the practice sets, which is completely understandable. However, I like that the questions are still there, and prefer that they not be removed. My position is that @Steve Jobs can simply skip such questions while practicing, but other members, such as myself, would like to also decide for ourselves which questions we want practice. That is, I don't want @Steve Jobs indirectly making decisions for me. I'm sure there are other paid members who would agree with my concern.

Thanks!

 

[David Harper CFA FRM]

Hi @cdbsmith

Thank you very much, I am sincerely grateful for this feedback ... and, please understand, we basically already agree you such that we do not discard questions unless and until they become obviously irrelevant (but that is actually a high bar given the exam's methodology). There are few issues:

• The least important is my personal preference to retain the questions simply because they represent my hard work (I just want to be honest about this fact: that is "hurts" to discard questions, especially if they have been discussed and refined over the years by way of customer engagement). Okay, but this is not a good reason, it's just true for me.
  
• The best argument for retaining old questions that do not strictly match current AIMs is simply that the AIMs do not represent a literal blueprint for the exam. The AIMs are detailed "knowledge points" that support the topics and subtopics, as concepts, which constitute the testable body. This testable body is less discrete over time (year to year), and more continuous that the annual updates might suggest to those unfamiliar with the methodology. There are many examples; eg., econometric concepts have been basically unchanged despite three (3) author changes; many counterparty risk sub-topics have yet to "season" into high testability. To eliminate questions merely because a reading or AIM switched is often short-sighted.
• There is a difference between a question that is a "deep dive" into a relevant concept; versus a question that is no longer relevant. Many questions (like old EVT questions) exceed likely testing; I wrote questions about calculating EVT answers because the AIM persisted, but I don't think the exam question (calculate POT) ever appeared.
  
• It is still highly understandable that many of our customers only want to see questions that are at least somewhat predicative of exam questions. I mean, even if a customer can skip questions, it's not necessarily high convenience. Our current approach is to retain such question sets but relegate them to the appendix. Elton Chapter 5,13, 14 is good example. Last year, all three chapters were assigned. This year:
  • Chapter 5 remains highly relevant (consider two of its AIMs, these are extremely testable: Calculate the expected return and volatility of a portfolio of risky assets. Explain how covariance and correlation affect the expected return and volatility of a portfolio of risky assets)
  • Chapter 13 is the only one retained
  • Chapter 14 was dropped (Nonstandard Forms of Capital Asset Pricing Models) and we should not expect any of it to be tested
    
    So my approach with these questions are: keep 5 and 13 in the body and move 14 to the appendix, see note https://forum.bionicturtle.com/threads/2014-part-1-published-materials.7593/#post-28418

I hope that is at least interesting! Thanks,

 

[cdbsmith]

Thanks for the response, David!

Definitely appreciate your perspective on the questions. That said, moving the questions, related to the old AIMs, to the appendix in the updated practice questions sets is consistent with what you did with several chapters in some of the Part 1 Study Notes (e.g., in "Foundations of Risk Management" you include an appendix with four chapters from 2012 that were omitted for 2013). I was very appreciative of that because, though the chapters were omitted for 2013, the information is still useful. For instance, the CAS framework for risk management is still used in practice by several institutions. In other words, just because the CAS framework was not in the 2013 AIMs doesn't mean existing (and aspiring) risk management practitioners shouldn't know and understand it. It may be irrelevant for the current exam, but it is still highly relevant in practice.

My point simply is that I'm trying to learn to be a successful and competent risk management professional, not simply learn enough to pass a test. As you implied in your above comments, it is "fools gold" to try to predict what will be on the actual test. However, if I'm successful at truly learning how to apply risk management concepts, it won't matter what is on the exam.

The reason I subscribed to Bionic Turtle is that your approach seems to be consistent with my goals and expectations around learning financial risk management. I believe that is why you do not "reset" the forum discussion threads. I mean, just reading through some of the threads have greatly enhanced my learning and understanding. Some of the discussion threads have been going on for years with truly in depth back-and-forth responses, all of which is viewable to anyone who wants to look. That is, in my humble opinion, one of the several reasons why I believe BT simply has no true competition as related to financial risk management education.

For me, the process of learning financial risk management and going through the FRM certification process is really just the beginning of a permanent commitment that will be a continuous learning process. So, please continue putting out the high quality risk management material and I will continue coming back for more long after I attain the FRM certification.

Thanks again!