In my opinion… the worst reading is Reading 45: Credit Analysis Models
I second. However, be prepared to see it on actual exam since it’s a new topic.
All my notes ecompass are the importance of PV expected loss… and reduced form vs. strucutral… seems to be the majority of the material. I am not memorizing or even looking at any formula in the reading… except the fact that PV of expected loss = Risk free bond PV - Risky Bond PV
This reading is very very simple bro.
I had to learn a book on credit analysis while preparing for FRMl2.
I agree it’s the worst! One of my largest fears is that there will be 1 item set on the entire exam for Fixed Income and two or three of the six questions will be on this topic, making all of the itme spent on MBS, ABS, embedded options, CDO’s, tranching, etc. hardly worth anything and those topics require a lot of effort.
Everything that is in the CFAI curriculum is fair game for the exam, so it’s risky skipping anything. You can get crushed on an entire item set if you’re not well prepared and that can easily be the difference between passing and not.
I agree with you on all accounts…
are you memorizing all the insane credit risk measures? theres no way in hell anyone can committ all that to memory… and plus none of the EOC have anything to do with any of those nutty formulas
I’m pretty sure the extent of the question possibly asked is understand reduced form/strutural model
^ I’m going to keep it conceptual with this chapter. Memorizing the formulas for that stuff is just too much.
I was worried on that chapter too until I did the EOCs and they were cake. If they throw an entire set off that on the exam, viritually no one will get it right except maybe Rahul Roy.
^^^^ LMFAO topperharley
Good to know Topper. I’m yet to cover this area so will keep this in mind.
May be a silly question but can someone please explain how the cash flow in the examples presented in the data sets in this reading came about? I don’t see the invested amount or face value in the question, so just wondering how the cash flow was calculated. Thanks!
Tempted to say no. What confuses me thought is that the examples presented in the chapter indeed calculate with these formulas, meaning what?
The formulas are actually no worse that Black Scholes and can be rationalised, yet I am a bit put off by the amount of time this relatively short chapter will chop off my schedule.
The least favourite chapter so far.
Thank God…someone feels the way I do…spent an entire trying to make some sense out of the stupid models…finally have gone in for a tactical retreat for the time being. Will come back, with more patience hopefully