Financial Risk Manager (FRM®) - Part I

Week One Introduction Foundations of Risk Management I

• Basic risk types, measurement and management tools
• Creating value with risk management
• Enterprise Risk Management (ERM)
• Data aggregation and risk reporting

Workshop: Build and apply basic risk management tools

Topical practice exam questions

Week Two Foundations of Risk Management II

• The role of risk management in corporate governance
• Financial disasters and risk management failures
  • Chase Manhattan and their involvement with Drysdale Securities
  • Kidder Peabody
  • Barings
  • Allied Irish Bank
  • Union Bank of Switzerland (UBS)
  • Société Générale
  • Long Term Capital Management (LTCM)
  • Metallgesellschaft
  • Bankers Trust
  • JPMorgan, Citigroup, and Enron
• Ethics and the GARP Code of Conduct

Workshop: Examine the specifics of some of the major disasters above

Topical practice exam questions

Week Three Foundations of Risk Management III

• The Capital Asset Pricing Model (CAPM)
• Risk-adjusted performance measurement
  • Sharpe ratio
  • Treynor ratio
  • Jensen's alpha
  • Sortino ratio
  • Tracking error
• Multifactor models
  • Estimation and interpretation of factor betas

Workshop: Build and estimate CAPM and multi-factor models. Calculate risk-adjusted performance ratios

Topical practice exam questions

Week Four Quantitative Analysis I

• Discrete and continuous probability distributions
• Estimating the parameters of distributions
• Population and sample statistics
• Linear regression with single and multiple regressors

Workshop: Illustrate empirical distributions, calculate sample statistics, examine Excel statistical functions. Use Excel to estimate linear regressions and interpret the results

Topical practice exam questions

Week Five Quantitative Analysis II

• Bayesian analysis
  • Bayes theorem
• Statistical inference and hypothesis testing
  • Type I and Type II errors
• Time series analysis and forecasting
  • Seasonal and other cyclical effects

Workshop: Conduct simple hypothesis tests, calculate Bayesian probabilities. Examine financial and economic time series data

Topical practice exam questions

Week Six Quantitative Analysis III

• Estimating correlation and volatility using EWMA and GARCH models
• Volatility term structures
• Correlations and copulas
• Simulation methods
  • Monte Carlo methods
  • Bootstrapping

Workshop: Build variance forecasting models. Examine correlations and build simple Gaussian copulas. Build simple simulations

Topical practice exam questions

Week Seven Financial Markets and Products I

• Structure and functions of financial institutions
  • Financial intermediation
  • Banks
  • Insurance companies
  • Pension plans and investment managers
  • Conflicts of interest
• Structure and mechanics of OTC and exchange markets
  • Role of central clearing house
• Foreign exchange risk

Workshop: Illustrate margin calculations, identify arbitrage opportunities

Topical practice exam questions

Week Eight Financial Markets and Products II

• Structure, mechanics, and valuation of forwards, futures, swaps, and options
  • Investment versus consumption assets
  • Vanilla swap structures
  • Put & call options (European, American, exotic)
• Hedging with derivatives
  • Short selling
  • Basis risk

Workshop: Price forwards, futures, swaps and options, calculate hedge ratios. Examples of hedging strategies

Topical practice exam questions

Week Nine Financial Markets and Products III

• Interest rates and measures of interest rate sensitivity
  • Risk-free rate, LIBOR, repo rates etc.
  • Duration, modified duration and convexity
• Corporate bonds
  • Zero-coupon bonds and Certificates of Deposit
  • Callable bonds
  • Credit default risk and credit spread risk
• Mortgage-backed securities
  • Prepayment and negative convexity

Workshop: Calculate forward rates from spot rates. Calculate bond prices, duration measures, and convexity

Topical practice exam questions

Week Ten Valuation and Risk Models I

• Value-at-Risk (VaR)
  • Coherent risk measures
• Expected shortfall (ES)
• Stress testing and scenario analysis

Workshop: Calculate VaR, ES (CVaR), example of a stress test. Valuation models

Topical practice exam questions

Week Eleven Valuation and Risk Models II

• Option valuation
  • Black-Scholes-Merton
  • Binomial
  • The "Greeks"
• Fixed income valuation
  • "clean" & "dirty" bond prices
  • Day-count conventions
• Hedging

Workshop: Valuation models - Black-Scholes model etc.

Topical practice exam questions

Week Twelve Valuation and Risk Models III

• Country and sovereign risk models and management
• External and internal credit ratings
• Expected and unexpected losses
• Operational risk

Topical practice exam questions

Course review and conclusions