GARP seems to use two different definitions of “credit CVaR” in the FRM Part II mock — which one is correct?
Hi all,
I’m preparing for FRM Part II and noticed something confusing in the GARP mock exam regarding credit CVaR terminology.
In one question (e.g., Q37 mock 2), the solution treats “95% CVaR” as:
- CVaR = (quantile of credit loss at 95%) − Expected Loss (EL)
So effectively it’s the unexpected loss at the confidence level:
- ULq=VaR - EL
They even mention that if the 95th percentile of unrecovered loss is the same across loans, then comparing CVaR reduces to comparing EL only.
But in another question (e.g., Q76 mock 2, the single exposure + WCDR problem), the solution computes “99.9% CVaR” as:
- CVaR = EAD × WCDR × (1 − Recovery)
i.e. just the loss quantile itself:
- VaRq(L)=EAD⋅LGD⋅WCDR
If I apply the Q37 definition to Q76, I’d subtract EL and get a different answer (and one of the distractors matches that).
So it looks like the mock uses two different definitions of “credit CVaR”:
- quantile loss VaR
- quantile loss minus EL VaR−EL
Has anyone else noticed this?
Which definition should we follow for the actual exam (or is it context-dependent and we must infer from wording like “less expected loss”)? Any guidance from the curriculum or past exam experience would be appreciated.