Financial Risk Manager

FRM syllabus

The FRM® exam is split into five major topic areas. The topics were selected by the FRM Committee as topics that risk managers who work in practice today have to master. The topics are reviewed yearly to ensure the FRM exam is kept timely and relevant. These five topics, with their weight on the FRM exam, are listed below.

• Market Risk Measurement and Management – 30%
• Credit Risk Measurement and Management – 25%
• Operational and Integrated Risk Management, Legal – 25%
• Risk Management and Investment Management – 10%
• Quantitative Analysis – 10%

Market Risk Measurement and Management

Market risk is the risk of losses due to movements in the financial market prices or volatilities. The syllabus for market risk introduces candidates to the necessary tools to measure, manage, and monitor these risks and cover the following broad topics:

• the valuation and risks of derivatives on fixed income securities, interest rates, foreign exchange, equities, and commodities
• the valuation and risks of fixed income securities, including interest rates
• value-at-risk, its implementation and shortcomings, and methodologies – delta/normal/variance/covariance, historical simulation, and Monte Carlo
• foreign exchange risks
• measuring and managing corporate risk exposures, including stress testing

Credit Risk Measurement and Management

Credit risk is the risk of losses due to non-payment of a loan or a credit by the debtor or creditor. The syllabus for credit risk introduces candidates to the necessary tools to measure, manage, and monitor these risks, and cover the following broad topics:

• measuring credit risk exposures
• counterparty risks
• managing credit risk exposures

Operational and Integrated Risk Management, Legal

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk is an integral part of the risk management process and has a relationship across the various risk types. The syllabus covers the following broad topics:

• operational risks
• integrated risk management
• legal consideration and the Basel II Accord
  

Risk Management and Investment Management

Risk management process also applies to portfolio management. The syllabus for risk management in investment management focuses on traditional investment management to introduce the broad framework of portfolio management, including its risks and risk management principles. In the last several years, hedge funds emerged as major players in the financial markets. The risks hedge funds take are considerable, and the nature of the hedge fund industry necessitates specific risk management considerations. The syllabus covers the following broad topics:

• traditional investment risk management
• hedge fund risk management

Quantitative Analysis

Quantitative analysis is essential in the risk management process. The syllabus for quantitative analysis introduces you to the necessary tools to measure risks and covers the following broad topics:

• probability distributions
• mean, standard deviation, correlation, skewness, and kurtosis
• estimating parameters of distributions
• hypothesis testing
• linear regression and correlation
• statistical properties and forecasting of correlation, covariance, and volatility
• Monte Carlo analysis
• extreme value theory; basic principles