Financial Risk Manager

FRM Part I syllabus (NEW)

The FRM® Part I exam is split into four major topic areas. The topics were selected by the FRM Committee as topics that risk managers who work in practice today have to master. These four topics, with their weight on the FRM exam, are listed below.

• Foundations of Risk Management - 20%
• Quantitative Analysis– 20%
• Financial Markets and Products - 30%
• Valuations and Models - 30%

Foundations of Risk Management

• Creating value with risk management
• Market efficiency, equilibrium and the Capital Asset Pricing Model (CAPM)
• Performance measurement and attribution
• Sharpe ratio and information ratio
• Tracking error
• Factor models and Arbitrage Pricing Theory
• Risk management failures
• Case studies
• Ethics

Quantitative Analysis

• Mean, standard deviation, correlation, skewness, and kurtosis
• Probability distributions
• Estimating parameters of distributions
• Linear regression and correlation, hypothesis testing
• Statistical inference
• Estimating correlation and volatility
• EWMA, GARCH models
• Maximum likelihood methods
• Volatility term structures
• Simulation methods

Financial Markets and Products

• Clearing house mechanisms, structural hubs, exchanges
• Netting, collateral and downgrade triggers
• Futures, forwards, swaps, and options
• Derivatives on fixed‐income securities, interest rates, foreign exchange, equities, and commodities
• Measuring portfolio exposures
• American options, effects of dividends, early exercise
• Trading strategies with derivatives
• Minimum variance hedge ratio
• Cheapest to deliver bond, conversion factors
• Commodity derivatives, cost of carry, lease rate, convenience yield
• Basis risk
• Foreign exchange risk
• Corporate bonds
• Debt equity swaps, loan sales, Brady bonds
  

Valuation and Risk Models

• Value‐at‐Risk (VaR)
  • Definition and methods
  • Delta‐normal valuation, full revaluation, historical simulation, Monte Carlo simulation methods
• Applications of VaR for market, credit and operational risk
• VaR of linear and non‐linear derivatives
• VaR for fixed income securities with embedded options
• Structured Monte Carlo
• Term structure of interest rates
• Discount factors, arbitrage, yield curves
• Bond prices, spot rates, forward rates
• DV01, duration and convexity, duration based hedging
• Credit rating agencies, credit ratings
• Credit transition matrices
• Sovereign risk and country risk evaluation