How Can I Pass the FRM Part 2 exam?

Two weeks ago, I was worried. I was struggling to understand many of the concepts for the Part 2 FRM exam and neither Schweser nor The Bionic Turtle were helping. 

Schweser's FRM materials, in my opinion, are not up to the standards of their CFA materials. For example, instead of prerecorded videos given by several charterholders in their fields of expertise, one instructor gives a live three hour class for eight weeks that is then archived on the Schweser site. The videos are not edited and while watching them last year in preparation for Part 1, I felt my time would have been better spent reading their Study Guides instead.

The Bionic Turtle presentation is more comprehensive than Schweser's. David Harper, the founder of Bionic Turtle, provides a detailed analysis of the readings, referring to the writers of each chapter by name, and makes me realize that each writer's perspective is of paramount importance. For example, Dowd's definition of VaR is not consistent with Jorion's definition. In a sample of 300, 99% VaR can either be defined as the third largest loss, the second largest loss, or a combination of the two. Schweser points out this distinction as well, but is less inclined to mention the names of the writers.

BT does a wonderful job of explaining Macauley's duration, however. Much better than Schweser. The reason for this is because David Harper begins with Macauley's, then derives modified duration and DV01 from it. Conceptually, the order makes perfect sense and I was able to finally understand a concept that had eluded me for years. (The CFA Institute focuses on effective duration and devotes less energy in dealing with its duration predecessors.)

However, BT's explanation of CVA (credit valuation adjustment) was unclear to me. Schweser didn't help. And there were other concepts as well that were troubling me.

I felt that I was in danger of falling behind. I did a google search for other FRM providers and found Christopher Cooper and the FRM Study Course.

According to the website, www.frmstudycourse.com, Mr. Cooper sells books he has written himself as well as providing direct and immediate availability for students who have questions. This access is very important to me. When I would submit questions to Schweser, I would often have to wait a week or so for a response. By the time the response came, I had often not only forgotten the question, but was less enthusiastic about reading the answer (which usually didn't address my concerns as thoroughly as I would have liked).

Anyway, I read the five sample pages from the FRM Study Course and was very impressed. This material was better written and clearer than both Schweser and BT. I didn't feel as if I were plodding through one dryly written sentence after another (as I do with Schweser a good deal of the time). I was stimulated.

Here's a sample from the FRM Study Course website:

AIMS: Calculate the change in a bond’s price given duration, convexity, and a change in interest rates.
If you only remember one formula from this reading, remember this one:

(Change in B) / B = -D (change in y) + 1/2 C (change in y^2)

But more important than memorizing an equation, understand how convexity improves the risk profile of a portfolio with the same duration but different convexities. Know that all else being equal, bonds with the greatest convexity tend to have payments expressed over a very long period of time, at least when concentrated. Therefore, the 30YR bond has far greater convexity than a zero coupon bond which has none. By matching the first and second order measures of rate risk, a portfolio is effectively immune to parallel shifts in the term structure of rates, but you should know that it is still exposed to nonparallel shifts of the yield curve.

When I read the above excerpt, I felt as if I had learned something about convexity that hadn't occurred to me before. I knew the formula, but didn't know how a practitioner in the field would apply it.

Christian Cooper is head of USD Derivatives Trading with Jefferies & Co in New York. His real world experience comes across in his writing. I've always been concerned with how to translate the academic material I'm learning into knowledge and experience I can use in the real world. In my opinion, the FRM Study Course bridges this gap.

I thought that this would be the missing link in my studies, so I eagerly ordered the books for Part 2. Or tried to. After a couple of failed attempts to complete the transaction online, I emailed Mr. Cooper and discovered that the Part 2 books were not available for 2012. 

I then decided to take the unprecedented step of ordering the Part 1 books, even though I had passed Part 1 last November. I was that enthusiastic. Literally within minutes of making my purchase, Christian sent me an email asking me whether I really wanted to do this. I thought that with a deeper understanding of Part 1, the Part 2 curriculum, which builds upon the earlier material, would be easier for me to learn. But I wasn't sure, and wrote back to Christian saying I wasn't sure.

The next morning, Christian wrote back, saying it wasn't right to take my money to sell me books for a test that I already passed. He gave me a refund.

So even though I haven't read through the FRM Study Course from cover to cover, I can recommend it with confidence. Christian Cooper is among a handful of providers (along with Schweser and the Bionic Turtle) who have been approved by GARP to teach the FRM curriculum. (The full list is viewable on www.garp.org.)

I believe that one of the reasons the FRM Study Course isn't as well-known as some of its competitors is because there are no videos; therefore, no exposure on YouTube.

Have any of you in the WSO community used the FRM Study Course to prepare for the exam? If so, what do you think?