FRM Study Guide Changes 2015

2015
FRM Exam
Study Guide
Changes
2014-2015
FRM Exam Study Guide Changes 2014-2015
FRM EXAM PART I CHANGES

FOUNDATIONS OF RISK MANAGEMENT
Additions
1.
Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, 2nd Edition
(New York: McGraw-Hill, 2014).
2.
Chapter 1. Risk Management: A Helicopter View (Appendix 1.1. Typology of Risk Exposures)
Chapter 2. Corporate Risk Management: A Primer
Chapter 4. Corporate Governance and Risk Management
James Lam, Enterprise Risk Management: From Incentives to Controls, 2nd Edition
(Hoboken, NJ: John Wiley & Sons, 2014).
3.
Chapter 4. What is ERM?
Implementing Robust Risk Appetite Frameworks to Strengthen Financial Institutions, Institute of International
Finance, June 2011.
4.
John Hull, Risk Management and Financial Institutions, 3rd Edition (New York: John Wiley & Sons, 2012).
5.
Chapter 6. The Credit Crisis of 2007
Principles for Eective Data Aggregation and Risk Reporting, (Basel Committee on Banking Supervision
Publication, January 2013).
Deletions
1.
Risk Taking: A Corporate Governance Perspective, (International Finance Corporation, World Bank Group, June 2012).
2.
Understanding and Communicating Risk Appetite, (COSO, written by Dr. Larry Rittenberg and Frank Martens,
January 2012).
Updates
1.
Edwin J. Elton, Martin J. Gruber, Stephen J. Brown and William N. Goetzmann, Modern Portfolio Theory and
Investment Analysis, 9th Edition (Hoboken, NJ: John Wiley & Sons, 2014). Now using 9th Edition, 2014.
2.
Chapter 13. The Standard Capital Asset Pricing Model
Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 10th Edition (New York: McGraw-Hill, 2013).
Now using 10th Edition, 2013.
Chapter 10. Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Knowledge Point Changes

The knowledge points are unchanged but have been reordered as follows:
Basic risk types, measurement and management tools
Creating value with risk management
The role of risk management in corporate governance
Enterprise Risk Management (ERM)
Financial disasters and risk management failures
The Capital Asset Pricing Model (CAPM)
Risk-adjusted performance measurement
Multi-factor models
Information risk and data quality management
Ethics and the GARP Code of Conduct
2015 Global Association of Risk Professionals. All rights reserved.
QUANTITATIVE ANALYSIS
Additions
1.
John Hull, Risk Management and Financial Institutions, 3rd Edition (Boston: Pearson Prentice Hall, 2012).
2.
Chapter 11. Correlation and Copulas
Francis X. Diebold, Elements of Forecasting, 4th Edition (Mason, Ohio: Cengage Learning, 2006).
Chapter 5. Modeling and Forecasting Trend (Section 5.4 onlySelecting Forecasting Models Using the Akaike and
Schwarz Criteria)
Chapter 7. Characterizing Cycles
Chapter 8. Modeling Cycles: MA, AR, and ARMA Models
Deletions
None
Updates
1.
Michael Miller, Mathematics and Statistics for Financial Risk Management, 2nd Edition
(Hoboken, NJ: John Wiley & Sons, 2013). Now using 2nd Edition, 2013.
2.
Chapter 2. Probabilities
Chapter 3. Basic Statistics
Chapter 4. Distributions
Chapter 6. Bayesian Analysis (New Reading) (Pages 113-124 only)
Chapter 7. Hypothesis Testing and Confidence Intervals
John Hull, Options, Futures, and Other Derivatives, 9th Edition (New York: Pearson Prentice Hall, 2014).
Now using 9th Edition, 2014.
Chapter 23. Estimating Volatilities and Correlations for Risk Management

Knowledge points have been reordered and modied as follows:
Discrete and continuous probability distributions
Estimating the parameters of distributions
Population and sample statistics
Bayesian analysis (NewReflects added reading)
Statistical inference and hypothesis testing
Correlations and copulas (NewReflects added reading)
Estimating correlation and volatility using EWMA and GARCH models
Volatility term structures
Linear regression with single and multiple regressors (Subpoints have been deleted)
Time series analysis
Simulation methods
FINANCIAL MARKETS AND PRODUCTS

Additions
1.
2.
John Hull, Options, Futures, and Other Derivatives, 9th Edition.
Chapter 10. Mechanics of Options Markets
Chapter 26. Exotic Options
Bruce Tuckman, Angel Serrat, Fixed Income Securities: Tools for Todays Markets, 3rd Edition (New York: Wiley, 2011)
Chapter 20. Mortgages and Mortgage-Backed Securities
Deletions
1.
Helyette Geman, Commodities and Commodity Derivatives: Modeling and Pricing for Agriculturals, Metals and Energy
(West Sussex, England: John Wiley & Sons, 2005).
Chapter 1. Fundamentals of Commodity Spot and Futures Markets: Instruments, Exchanges and Strategies
Updates
1.
2.
John Hull, Options, Futures, and Other Derivatives, 9th Edition. Now using 9th Edition, 2014.
Chapter 1. Introduction
Chapter 2. Mechanics of Futures Markets
Chapter 3. Hedging Strategies Using Futures
Chapter 4. Interest Rates
Chapter 5. Determination of Forward and Futures Prices
Chapter 6. Interest Rate Futures
Chapter 7. Swaps
Chapter 11. Properties of Stock Options
Chapter 12. Trading Strategies Involving Options
Anthony Saunders and Marcia Millon Cornett, Financial Institutions Management: A Risk Management Approach,
8th Edition (New York: McGraw-Hill, 2014). Now using 8th Edition, 2014.
Chapter 13. Foreign Exchange Risk

Knowledge points have been consolidated and modied as follows:
Structure and mechanics of OTC and exchange markets
Structure, mechanics, and valuation of forwards, futures, swaps and options (Subpoints consolidated)
Hedging with derivatives
Interest rates and measures of interest rate sensitivity
Foreign exchange risk
Corporate bonds
Mortgage-backed securities (NewMoved from Part IIMarket Risk Measurement)
Rating agencies
VALUATION AND RISK MODELS

Additions
1.
Gerhard Schroeck, Risk Management and Value Creation in Financial Institutions (New York: Wiley, 2002).
Chapter 5. Capital Structure in Banks (Pages 170-186 only).
Deletions
1.
Michael Ong, Internal Credit Risk Models: Capital Allocation and Performance Measurement
(London: Risk Books, 2003).
2.
Chapter 4. Loan Portfolios and Expected Loss
Chapter 5. Unexpected Loss
Bruce Tuckman, Fixed Income Securities, 3rd Edition (Hoboken, NJ: John Wiley & Sons, 2011).
Chapter 6. Empirical Approaches to Risk Metrics and Hedges (Moved to Part IIMarket Risk)
Updates
1.
John Hull, Options, Futures, and Other Derivatives, 9th Edition. Now using 9th Edition, 2014
Chapter 13. Binomial Trees
Chapter 15. The Black-Scholes-Merton Model
Chapter 19. The Greek Letters

Knowledge points have been consolidated and expanded and reordered as follows:
Value-at-Risk (VaR) (Subpoints deleted)
Expected shortfall (New Knowledge point)
Stress testing and scenario analysis
Option valuation (Subpoints deleted)
Fixed income valuation (Subpoints deleted)
Country and sovereign risk models and management
External and internal credit ratings
Expected and unexpected losses
Operational risk
FRM EXAM PART II CHANGES

MARKET RISK MEASUREMENT AND MANAGEMENT
Additions
1.
2.
Gunter Meissner, Correlation Risk Modeling and Management (New York: Wiley, 2014).
Chapter 1. Some Correlation Basics: Properties, Motivation, Terminology
Chapter 2. Empirical Properties of Correlation: How Do Correlations Behave in the Real World?
Chapter 3. Statistical Correlation ModelsCan We Apply Them to Finance?
Chapter 4. Financial Correlation ModelingBottom-Up Approaches (Sections 4.3.0 (intro), 4.3.1, and 4.3.2 only)
Bruce Tuckman, Fixed Income Securities, 3rd Edition (Hoboken, NJ: John Wiley & Sons, 2011).
3.
Chapter 6. Empirical Approaches to Risk Metrics and Hedges (Moved from Part IValuation)
Chapter 9. OIS Discounting, Credit Issues, and Funding Costs
Deletions
1.
Kevin Dowd, Measuring Market Risk, 2nd Edition (West Sussex, England: John Wiley & Sons, 2005).
2.
Chapter 5. AppendixModeling Dependence: Correlations and Copulas
Jacob Boudoukh, Matthew Richardson and Robert F. Whitelaw, The Best of Both Worlds: A Hybrid Approach to
Calculating Value at Risk, Stern School of Business, NYU.
3.
John Hull and Alan White, Incorporating Volatility Updating into the Historical Simulation Method for Value at Risk,
Journal of Risk, October 1998.
4.
John Hull and Alan White, LIBOR vs. OIS: The Derivatives Discounting Dilemma, April 2013. Forthcoming in the
Journal of Investment Management.
5.
6.
7.
Chapter 25. Exotic Options
Pietro Veronesi, Fixed Income Securities (Hoboken, NJ: John Wiley & Sons, 2010).
Chapter 8. Basics of Residential Mortgage Backed Securities
Frank Fabozzi, Anand Bhattacharya, William Berliner, Mortgage-Backed Securities, 3rd Edition
(Hoboken, NJ: John Wiley & Sons, 2011).
Chapter 1. Overview of Mortgages and the Consumer Mortgage Market
Chapter 2. Overview of the Mortgage-Backed Securities Market
Chapter 10. Techniques for Valuing MBS
Updates
1.
John Hull, Options, Futures, and Other Derivatives, 8th Edition. Now using 9th Edition, 2014.
Chapter 20. Volatility Smiles
Exotic Options has been deleted.
Mortgages and Mortgage-backed securities (MBS) along with the subpoint of Structure, markets and valuation
have been consolidated and moved to FRM Exam Part I.
CREDIT RISK MEASUREMENT AND MANAGEMENT

The changes in this section reflect an update to the 2nd Edition of the Jon Gregory book, as well as the chapter on wrongway risk being re-added to the curriculum.
Additions
None
Deletions
None
Updates
1.
Allan Malz, Financial Risk Management: Models, History, and Institutions (Hoboken, NJ: John Wiley & Sons, 2011).
Chapter 8. Only Sections 8.1, 8.2 and 8.3 will be covered.

The knowledge points have been consolidated to the following:
Credit analysis
Default risk: Quantitative methodologies (Risk neutral valuations has been deleted)
Expected and unexpected loss
Credit VaR
Counterparty risk (Subpoints deleted)
Credit derivatives (Subpoints deleted)
Structured finance and securitization (Subpoints deleted)
OPERATIONAL AND INTEGRATED RISK MANAGEMENT

Additions
1.
Bruce Tuckman, Angel Serrat, Fixed Income Securities: Tools for Todays Markets, 3rd Edition (New York: Wiley, 2011).
2.
Chapter 12. Repurchase Agreements and Financing
Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice,
Board of Governors of the Federal Reserve System, August 2013 (Moved from 2014 Current Issue readings).
3.
John Hull, Risk Management and Financial Institutions, 3rd Edition (New York: John Wiley & Sons, 2012).
Chapter 12. Basel I, Basel II and Solvency II
Chapter 13. Basel 2.5, Basel III, and Dodd-Frank
Deletions
1.
Mo Chaudhury, A Review of the Key Issues in Operational Risk Capital Modeling, The Journal of Operational Risk,
Volume 5/Number 3, Fall 2010: pp. 37-66.
2.
Eric Cope, Giulio Mignola, Gianluca Antonini and Roberto Ugoccioni, Challenges and Pitfalls in Measuring
Operational Risk from Loss Data, The Journal of Operational Risk, Volume 4/Number 4, Winter 2009/10: pp. 3-27.
3.
Principles for Eective Data Aggregation and Risk Reporting, (Basel Committee on Banking Supervision
Publication, January 2013).
4.
Nadine Gatzert, Hannah Wesker, A Comparative Assessment of Basel II/III and Solvency II, Working Paper,
Friedrich-Alexander-University of Erlangen-Nuremberg, Version: October 2011.*
Updates
None

The knowledge points have been consolidated and augmented as follows:
Principles for sound operational risk management (New)
Enterprise Risk Management (ERM)
Modeling operational loss distributions (Consolidation of Operational loss data and subpoints)
Liquidity risk (including repurchase agreements and funding risks)
Model risk
Risk appetite frameworks
Risk-adjusted return on capital (RAROC)
Economic capital frameworks and capital allocation (Expansion of Economic Capital knowledge point)
Stress testing banks (New)
Evaluating the performance of risk management systems
Failure mechanics of dealer banks
Regulation and the Basel Accords (Subpoints deleted)
RISK MANAGEMENT AND INVESTMENT MANAGEMENT

Additions
1.
Andrew Ang, Asset Management: A Systematic Approach to Factor Investing

(New York: Oxford University Press, 2014).
Chapter 13. Illiquid Assets (Excluding Section 13.5Portfolio Choice with Illiquid Assets)
Deletions
1.
Andrew W. Lo, Risk Management for Hedge Funds: Introduction and Overview, Financial Analysts Journal, Vol. 57,
No. 6 (November-December 2001), pp. 16-33.*
Updates
None

All subpoints under Hedge Funds have been eliminated.
CURRENT ISSUES IN FINANCIAL MARKETS

Additions
1.
Roe, M. (2013) Clearinghouse Overconfidence. California Law Review, 101 (6), pp. 1641-1703.*
2.
OHara, M. (2014). High-Frequency Trading and Its Impact on Markets. Financial Analysts Journal, 70, 3. pp. 18-27.*
3.
Clark, C. (2010). Controlling Risk in a Lightning-Speed Trading Environment.*
4.
Clark, C. (2011). How Do Exchanges Control the Risk of High Speed Trading?*
5.
Clark, C. and Ranjan, R. (2012). How Do Proprietary Trading Firms Control the Risks of High Speed Trading?*
6.
Report on Cyber Security in the Banking Sector, New York State Department of Financial Services. May 2014.*
7.
Framework for Improving Critical Infrastructure Cybersecurity, National Institute of Standards and Technology.*
8.
The Changing Landscape for Derivatives, by John Hull, Joseph L. Rotman School of Management University
of Toronto.*
9.
Hull, J. and White, A. (2014). Valuing Derivatives: Funding Value Adjustments and Fair Value, Financial Analysts
Journal 70 (3), pp. 46-56.*
Deletions
All previous readings have been deleted.
Updates
None

Five new knowledge points have been created to reect the new readings as follows:
Role of clearinghouses in limiting systemic risk
Evolution of high frequency trading (HFT)
Risk management in an HFT environment
Current environment for derivatives trading
Funding value adjustments
An asterisk after a reading title indicates that the reading is freely available on the GARP website.
2015 FRM Committee Members

Dr. Ren Stulz (Chairman) .................................Ohio State University
Richard Apostolik .................................................Global Association of Risk Professionals
Richard Brandt .......................................................Citibank
Dr. Christopher Donohue ...................................Global Association of Risk Professionals
Herv Geny ..............................................................London Stock Exchange
Keith Isaac, FRM ....................................................TD Bank
Steve Lerit, CFA .....................................................UBS Wealth Management
William May .............................................................Global Association of Risk Professionals
Michelle McCarthy ................................................Nuveen Investments
Dr. Victor Ng ...........................................................Goldman Sachs & Co
Dr. Elliot Noma .......................................................Garrett Asset Management
Dr. Matthew Pritsker ............................................Federal Reserve Bank of Boston
Dr. Samantha Roberts, FRM..............................Capital One
Liu Ruixia..................................................................Industrial and Commercial Bank of China
Dr. Til Schuermann ...............................................Oliver Wyman
Nick Strange............................................................Bank of England, Prudential Regulation Authority
Serge Sverdlov .......................................................Redmond Analytics
Alan Weindorf ........................................................Visa
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professional education and training for professionals of all levels. www.garp.org.
2014 Global Association of Risk Professionals. All rights reserved. 11-18-14

FRM Study Guide Changes 2015

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2015

FRM Exam Study Guide Changes 2014-2015

FRM EXAM PART I CHANGES

Chapter 2. Corporate Risk Management: A Primer

Chapter 4. Corporate Governance and Risk Management

Chapter 4. What is ERM?

Chapter 6. The Credit Crisis of 2007

Chapter 13. The Standard Capital Asset Pricing Model

Knowledge Point Changes

Basic risk types, measurement and management tools

Creating value with risk management

The role of risk management in corporate governance

Enterprise Risk Management (ERM)

Financial disasters and risk management failures

The Capital Asset Pricing Model (CAPM)

Risk-adjusted performance measurement

Information risk and data quality management

Ethics and the GARP Code of Conduct

2015 Global Association of Risk Professionals. All rights reserved.

FRM Exam Study Guide Changes 2014-2015

Chapter 11. Correlation and Copulas

Chapter 7. Characterizing Cycles

Chapter 8. Modeling Cycles: MA, AR, and ARMA Models

Chapter 3. Basic Statistics

Chapter 6. Bayesian Analysis (New Reading) (Pages 113-124 only)

Chapter 7. Hypothesis Testing and Confidence Intervals

Chapter 23. Estimating Volatilities and Correlations for Risk Management

Knowledge Point Changes

Discrete and continuous probability distributions

Estimating the parameters of distributions

Population and sample statistics

Bayesian analysis (NewReflects added reading)

Statistical inference and hypothesis testing

Correlations and copulas (NewReflects added reading)

Estimating correlation and volatility using EWMA and GARCH models

Volatility term structures

Time series analysis

2015 Global Association of Risk Professionals. All rights reserved.

FRM Exam Study Guide Changes 2014-2015

FINANCIAL MARKETS AND PRODUCTS

John Hull, Options, Futures, and Other Derivatives, 9th Edition.

Chapter 10. Mechanics of Options Markets

Chapter 26. Exotic Options

Chapter 20. Mortgages and Mortgage-Backed Securities

Chapter 2. Mechanics of Futures Markets

Chapter 3. Hedging Strategies Using Futures

Chapter 4. Interest Rates

Chapter 5. Determination of Forward and Futures Prices

Chapter 6. Interest Rate Futures

Chapter 11. Properties of Stock Options

Chapter 12. Trading Strategies Involving Options

Chapter 13. Foreign Exchange Risk

Knowledge Point Changes

Structure and mechanics of OTC and exchange markets

Hedging with derivatives

Interest rates and measures of interest rate sensitivity

Foreign exchange risk

Mortgage-backed securities (NewMoved from Part IIMarket Risk Measurement)

2015 Global Association of Risk Professionals. All rights reserved.

FRM Exam Study Guide Changes 2014-2015

VALUATION AND RISK MODELS

Chapter 5. Capital Structure in Banks (Pages 170-186 only).

Chapter 4. Loan Portfolios and Expected Loss