Home 》FRM 》 Program Outline 》
Part I Exam
FOUNDATIONS OF RISK MANAGEMENT — Weight | 20%
- The role of risk management in corporate governance
- Basic risk types, measurement and management tools
- Creating value with risk management
- The Capital Asset Pricing Model (CAPM)
- Multi-factor models
- Risk-adjusted performance measurement
- Enterprise Risk Management (ERM)
- Information risk and data quality management
- Financial disasters and risk management failures
- Ethics and the GARP Code of Conduct
QUANTITATIVE ANALYSIS — Weight | 20%
- Discrete and continuous probability distributions
- Population and sample statistics
- Statistical inference and hypothesis testing
- Estimating the parameters of distributions
- Graphical representation of statistical relationships
- Linear regression with single and multiple regressors
- The Ordinary Least Squares (OLS) method
- Interpreting and using regression coefficients, the t-statistic, and other output
- Hypothesis testing and confidence intervals
- Heteroskedasticity and multicollinearity
- Simulation methods
- Estimating correlation and volatility using EWMA and GARCH models
- Volatility term structures
FINANCIAL MARKETS AND PRODUCTS — Weight | 30%
- Mechanics of OTC and exchange markets
- Forwards, futures, swaps and options
- Mechanics
- Pricing and factors that affect it
- Uses in hedging and hedging strategies
- Delivery options
- Interest rates and measures of interest rate sensitivity
- Derivatives on fixed income securities, interest rates, foreign exchange, futures, commodities, and equities
- Foreign exchange risk
- Corporate bonds
- Rating agencies
VALUATION AND RISK MODELS — Weight | 30%
- Value-at-Risk (VaR)
- Applied to stock, currencies, and commodities
- Applied to linear and non-linear derivatives, and securities with embedded options
- Structured Monte Carlo, stress testing, and scenario analysis
- Limitations as a risk measure
- Coherent risk measures
- Volatility models
- Option valuation
- Pricing options using binomial trees
- The Black-Scholes-Merton Model
- The “Greeks”
- Fixed income valuation
- Discount factors, spot rates, forward rates, and yield to maturity
- Arbitrage and the Law of One Price
- One-factor measures of price sensitivity
- Key rate exposures and multi-factor measures of price sensitivity
- Hedging and immunization
- Country and sovereign risk models and management
- External and internal credit ratings
- Expected and unexpected losses
- Operational risk
- Stress testing and scenario analysis
Part II Exam
MARKET RISK MEASUREMENT AND MANAGEMENT — Weight | 25%
- VaR and other risk measures
- Parametric and non-parametric methods of estimation
- VaR mapping
- Backtesting VaR
- Expected shortfall (ES) and other coherent risk measures
- Modeling dependence: correlations and copulas
- Extreme value theory (EVT)
- Term structure models of interest rates
- Volatility: smiles and term structures
- Discount rate selection
- Exotic options
- Mortgages and mortgage-backed securities (MBS)
- Structure, markets, and valuation
CREDIT RISK MEASUREMENT AND MANAGEMENT — Weight | 25%
- Credit analysis
- Default risk: Quantitative methodologies and risk neutral valuations
- Expected and unexpected losses
- Credit VaR
- Counterparty risk
- Mitigation techniques
- Credit exposure profiles
- Collateralization and netting effects
- Pricing credit value adjustments (CVA)
- Credit derivatives
- Mechanics and structure
- Valuation and spreads
- Structured finance and securitization
- The structuring and securitization process
- Agency problems and moral hazard
- Subprime mortgages and securitization
OPERATIONAL AND INTEGRATED RISK MANAGEMENT — Weight | 25%
- Calculating and applying risk-adjusted return on capital (RAROC)
- Liquidity risk
- Model risk
- Model validation
- Evaluating the performance of risk management systems
- Validating VaR models
- Enterprise Risk Management (ERM)
- Economic capital
- Operational loss data
- Frequency and severity distributions
- Modeling and fitting distributions
- Failure mechanics of dealer banks
- Risk appetite frameworks
- Data aggregation and risk reporting
- Regulation and the Basel Accords
- Minimum capital requirements
- Methods for calculating credit, market, and operational risk
- Liquidity risk management
- Stress testing
- Revisions to the Basel II Accord
- The Basel III framework
- Comparing Basel II/III to Solvency II
RISK MANAGEMENT AND INVESTMENT MANAGEMENT — Weight | 15%
- Portfolio construction
- Portfolio risk measures
- Risk budgeting
- Risk monitoring and performance measurement
- Portfolio-based performance analysis
- Hedge funds
- Hedge fund strategies
- Due diligence and fraud detection
- Liquidity
- Risk management of hedge funds
CURRENT ISSUES IN FINANCIAL MARKETS — Weight | 10%
- Risk management case studies
- Reference interest rates
- Comparative regulations for OTC derivatives
- Sovereign credit default swaps: roles and regulations
- Capital planning at large banks
- The European credit crisis and transmission of sovereign risks