As we have seen that quite a lot of portion of FRM Exam is based on numerical calculations and some of those questions are tough as well. We thought that it is best to find a set of questions, that are purely formula based (And if you know the formula, you can easily do them) and how many of them require deeper understanding of material and how many require combinations of formulas and concepts (maybe interpreting the data, and finding the relevant values to be used and then combining 2-3 formulas to get to the result).
If we look at the FRM Exam Practice Paper 2009, we find that 50% of the questions are purely formula based questions. This is good news!
If you are able to understand the question, remember few formulae, use the calculator properly and make no silly mistakes, you can crack a majority of the numerical questions as well!
Within the formula based questions for Value at Risk, the most common question (usually multiple number of questions are based on this concept) is related to finding the portfolio VaR. Calculating the portfolio VaR requires the calculation of portfolio volatility, for which we have the simple formula:
VaR(Portfolio)= wa^2*σa^2 + wb^2*σb^2 + 2*wa*wb*σa*σb*Corelation(a,b)
Similarly another common formula is calculating the annual VaR from daily VaR (or changing the time duration of VaR) or calculating the significance intervals. These again use simple formulas:
VaR (for time period T) = VaR(Daily) * Sqrt(T)
VaR (Significance Level alpha) = Z (Alpha) * Sigma
Similarly Questions on Quantitative Analysis, which are formula based, are based on EWMA, GARCH formulas, which are quite simple to calculate, if you know the formula.
Typical formulas would be:
Return = ln(P(t)/P(t-1))
(Sigma(n))^2 = lambda * (Sigma(n-1))^2 + (1 – lambda) * U(n-1)^2
Similarly the formula based questions from the rest of the parts of the FRM exam are not very difficult. If you are able to remember them and apply them in the FRM Exam, your chances of success would be very high.
EduPristine realized this long ago that covering full Risk Management Syllabus on the last day and remembering a whole lot of formulas can be a daunting task. Pristine summarizes a whole lot of important concepts, formulas and questions based on those formulas in VisualizeFRM®.
You can also refer to GARP website for FRM exam updates.
If we look at the FRM Exam Practice Paper 2009, we find that 50% of the questions are purely formula based questions. This is good news!
If you are able to understand the question, remember few formulae, use the calculator properly and make no silly mistakes, you can crack a majority of the numerical questions as well!
Within the formula based questions for Value at Risk, the most common question (usually multiple number of questions are based on this concept) is related to finding the portfolio VaR. Calculating the portfolio VaR requires the calculation of portfolio volatility, for which we have the simple formula:
VaR(Portfolio)= wa^2*σa^2 + wb^2*σb^2 + 2*wa*wb*σa*σb*Corelation(a,b)
Similarly another common formula is calculating the annual VaR from daily VaR (or changing the time duration of VaR) or calculating the significance intervals. These again use simple formulas:
VaR (for time period T) = VaR(Daily) * Sqrt(T)
VaR (Significance Level alpha) = Z (Alpha) * Sigma
Similarly Questions on Quantitative Analysis, which are formula based, are based on EWMA, GARCH formulas, which are quite simple to calculate, if you know the formula.
Typical formulas would be:
Return = ln(P(t)/P(t-1))
(Sigma(n))^2 = lambda * (Sigma(n-1))^2 + (1 – lambda) * U(n-1)^2
Similarly the formula based questions from the rest of the parts of the FRM exam are not very difficult. If you are able to remember them and apply them in the FRM Exam, your chances of success would be very high.
EduPristine realized this long ago that covering full Risk Management Syllabus on the last day and remembering a whole lot of formulas can be a daunting task. Pristine summarizes a whole lot of important concepts, formulas and questions based on those formulas in VisualizeFRM®.
You can also refer to GARP website for FRM exam updates.
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