2015 FRM Study Guide Changes
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 Effective 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.
1
FRM® Exam Study Guide Changes 2014-2015
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 only—Selecting 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 Point Changes
Knowledge points have been reordered and modified as follows:
•
Discrete and continuous probability distributions
•
Estimating the parameters of distributions
•
Population and sample statistics
•
Bayesian analysis (New—Reflects added reading)
•
Statistical inference and hypothesis testing
•
Correlations and copulas (New—Reflects 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
2
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
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 Today’s 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 Point Changes
Knowledge points have been consolidated and modified 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 (New—Moved from Part II—Market Risk Measurement)
•
Rating agencies
© 2015 Global Association of Risk Professionals. All rights reserved.
3
FRM® Exam Study Guide Changes 2014-2015
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 II—Market 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 Point Changes
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
4
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
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 Models—Can We Apply Them to Finance?
•
Chapter 4. Financial Correlation Modeling—Bottom-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 I—Valuation)
John Hull, Options, Futures, and Other Derivatives, 9th Edition.
•
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. Appendix—Modeling 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.
John Hull, Options, Futures, and Other Derivatives, 8th Edition.
•
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
Knowledge Point Changes
•
“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.
© 2015 Global Association of Risk Professionals. All rights reserved.
5
FRM® Exam Study Guide Changes 2014-2015
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.
Knowledge Point Changes
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)
6
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
OPERATIONAL AND INTEGRATED RISK MANAGEMENT
Additions
1.
Bruce Tuckman, Angel Serrat, Fixed Income Securities: Tools for Today’s 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 Effective 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
Knowledge Point Changes
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)
© 2015 Global Association of Risk Professionals. All rights reserved.
7
FRM® Exam Study Guide Changes 2014-2015
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 13.5—Portfolio 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
Knowledge Point Changes
All subpoints under “Hedge Funds” have been eliminated.
8
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
CURRENT ISSUES IN FINANCIAL MARKETS
Additions
1.
Roe, M. (2013) Clearinghouse Overconfidence. California Law Review, 101 (6), pp. 1641-1703.*
2.
O’Hara, 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
Knowledge Point Changes
Five new knowledge points have been created to reflect 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 Global Association of Risk Professionals. All rights reserved.
9
2015 FRM Committee Members
Dr. René Stulz (Chairman) .................................Ohio State University
Richard Apostolik .................................................Global Association of Risk Professionals
Richard Brandt .......................................................Citibank
Dr. Christopher Donohue ...................................Global Association of Risk Professionals
Hervé 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
Creating a culture of risk awareness®
Global Association of
Risk Professionals
111 Town Square Place
14th Floor
Jersey City, New Jersey 07310
U.S.A.
+ 1 201.719.7210
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London, EC2M 4YN
U.K.
+ 44 (0) 20 7397 9630 www.garp.org About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members and
Affiliates from banks, investment management firms, government agencies, academic institutions, and corporations from more than
195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive 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 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 Effective 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.
1
FRM® Exam Study Guide Changes 2014-2015
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 only—Selecting 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 Point Changes
Knowledge points have been reordered and modified as follows:
•
Discrete and continuous probability distributions
•
Estimating the parameters of distributions
•
Population and sample statistics
•
Bayesian analysis (New—Reflects added reading)
•
Statistical inference and hypothesis testing
•
Correlations and copulas (New—Reflects 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
2
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
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 Today’s 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 Point Changes
Knowledge points have been consolidated and modified 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 (New—Moved from Part II—Market Risk Measurement)
•
Rating agencies
© 2015 Global Association of Risk Professionals. All rights reserved.
3
FRM® Exam Study Guide Changes 2014-2015
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 II—Market 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 Point Changes
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
4
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
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 Models—Can We Apply Them to Finance?
•
Chapter 4. Financial Correlation Modeling—Bottom-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 I—Valuation)
John Hull, Options, Futures, and Other Derivatives, 9th Edition.
•
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. Appendix—Modeling 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.
John Hull, Options, Futures, and Other Derivatives, 8th Edition.
•
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
Knowledge Point Changes
•
“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.
© 2015 Global Association of Risk Professionals. All rights reserved.
5
FRM® Exam Study Guide Changes 2014-2015
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.
Knowledge Point Changes
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)
6
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
OPERATIONAL AND INTEGRATED RISK MANAGEMENT
Additions
1.
Bruce Tuckman, Angel Serrat, Fixed Income Securities: Tools for Today’s 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 Effective 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
Knowledge Point Changes
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)
© 2015 Global Association of Risk Professionals. All rights reserved.
7
FRM® Exam Study Guide Changes 2014-2015
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 13.5—Portfolio 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
Knowledge Point Changes
All subpoints under “Hedge Funds” have been eliminated.
8
© 2015 Global Association of Risk Professionals. All rights reserved.
FRM® Exam Study Guide Changes 2014-2015
CURRENT ISSUES IN FINANCIAL MARKETS
Additions
1.
Roe, M. (2013) Clearinghouse Overconfidence. California Law Review, 101 (6), pp. 1641-1703.*
2.
O’Hara, 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
Knowledge Point Changes
Five new knowledge points have been created to reflect 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 Global Association of Risk Professionals. All rights reserved.
9
2015 FRM Committee Members
Dr. René Stulz (Chairman) .................................Ohio State University
Richard Apostolik .................................................Global Association of Risk Professionals
Richard Brandt .......................................................Citibank
Dr. Christopher Donohue ...................................Global Association of Risk Professionals
Hervé 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
Creating a culture of risk awareness®
Global Association of
Risk Professionals
111 Town Square Place
14th Floor
Jersey City, New Jersey 07310
U.S.A.
+ 1 201.719.7210
2nd Floor
Bengal Wing
9A Devonshire Square
London, EC2M 4YN
U.K.
+ 44 (0) 20 7397 9630 www.garp.org About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members and
Affiliates from banks, investment management firms, government agencies, academic institutions, and corporations from more than
195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive professional education and training for professionals of all levels. www.garp.org.
© 2014 Global Association of Risk Professionals. All rights reserved. 11-18-14
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