We have seen that a large portion of the FRM Exam is based on numerical calculations. Some of those questions are quite tough too. So, we thought it 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 take a look at the FRM Exam Practice Paper for 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, try and remember few formulae, use the calculator and make no silly mistakes. You can crack a majority of the numerical questions if you follow those guidelines!
For formula based questions in 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*ÃÆ’a^2 + wb^2*ÃÆ’b^2 + 2*wa*wb*ÃÆ’a*ÃÆ’b*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, formula based questions from the rest of the FRM exam are not very difficult. If you are able to remember the formulae and apply them in the FRM Exam, your chances of success are very high!
EduPristine knows that covering the entire syllabus of Risk Management on the last day and remembering a whole lot of formulae can be a daunting task. So to make matters simple for you, EduPristine has summarized a whole lot of important concepts, formulae and questions based on formulae in Visualize FRM®.
EduPristine will also be uploading sample questions based on this analysis, so that students can use them to see their preparation levels. EduPristine will also be conducting specific sessions to discuss questions that are of the level of FRM Examination.
To register for these sessions, please contact us!
To guarantee your success at passing the FRM exam at one go, follow the link to Boost Your #FRM Exam Prep for many more tips and solutions!