FRM Changes

2013

FRMExaminationStudy GuideChanges2012 to 2013

FRM® Examination Study Guide Changes for 2013

© 2013 Global Association of Risk Professionals. All rights reserved. 1

NEW READINGS

FRM PART I—TOPICS AND READINGS

New Readings for Foundations of Risk Management

1. “Risk Taking: A Corporate Governance Perspective,” (International Finance Corporation, World Bank Group, June 2012).

Freely available on the GARP Digital Library.

2. Anthony Tarantino and Deborah Cernauskas, Risk Management in Finance: Six Sigma and Other Next Generation

Techniques (Hoboken, NJ: John Wiley & Sons, 2009).

• Chapter 3 .............................Information Risk and Data Quality Management

New Readings for Quantitative Analysis

3. Michael Miller, Mathematics and Statistics for Financial Risk Management (Hoboken, NJ: John Wiley & Sons, 2012).

• Chapter 2 .............................Probabilities

• Chapter 3 .............................Basic Statistics

• Chapter 4 .............................Distributions

• Chapter 5 .............................Hypothesis Testing & Confidence Intervals

New Readings for Financial Markets and Products

4. John B. Caouette, Edward I. Altman, Paul Narayanan, and Robert W.J. Nimmo, Managing Credit Risk, 2nd Edition

(New York: John Wiley & Sons, 2008).

• Chapter 6 .............................The Rating Agencies

Moved to this section from the Valuation and Risk Models section.

New Readings for Valuation and Risk Models

5. Linda Allen, Jacob Boudoukh and Anthony Saunders, Understanding Market, Credit and Operational Risk:

The Value at Risk Approach (Oxford: Blackwell Publishing, 2004).

• Chapter 2 .............................Quantifying Volatility in VaR Models

Moved to this section from the Quantitative Analysis section.

2 © 2013 Global Association of Risk Professionals. All rights reserved.


FRM PART II—TOPICS AND READINGS

New Readings for Market Risk Measurement and Management

1. “Messages from the Academic Literature on Risk Measurement for the Trading Book,” Basel Committee on

Banking Supervision, Working Paper, No. 19, Jan 2011.

New Readings for Credit Risk Measurement and Management

2. Allan Malz, Financial Risk Management: Models, History, and Institutions (Hoboken, NJ: John Wiley & Sons, 2011).

• Chapter 6 .............................Credit and Counterparty Risk

• Chapter 7 .............................Spread Risk and Default Intensity Models

• Chapter 8 .............................Portfolio Credit Risk

• Chapter 9 .............................Structured Credit Risk

3. Jon Gregory, Counterparty Credit Risk: The New Challenge for Global Financial Markets

(West Sussex, UK: John Wiley & Sons, 2010).

• Chapter 2 .............................Defining Counterparty Credit Risk

• Chapter 3 .............................Mitigating Counterparty Credit Risk

• Chapter 4 .............................Quantifying Counterparty Credit Exposure, I

• Chapter 5 .............................Quantifying Counterparty Credit Exposure, II: The Impact of Collateral

• Chapter 7 .............................Pricing Counterparty Credit Risk, I

New Readings for Operational and Integrated Risk Management

4. Malz, Financial Risk Management: Models, History, and Institutions (Hoboken, NJ: John Wiley & Sons, 2011).

• Chapter 11, Section 11.1 ......Assessing the Quality of Risk Measures

• Chapter 12............................Liquidity and Leverage

5. “Principles for the Sound Management of Operational Risk,” (Basel Committee on Banking Supervision

Publication, June 2011).

6. “Observations on Developments in Risk Appetite Frameworks and IT Infrastructure,” Senior Supervisors Group,

December 2010.

7. Til Schuermann. “Stress Testing Banks,” April 2012.



New Readings for Regulatory Reference

8. “Operational Risk—Supervisory Guidelines for the Advanced Measurement Approaches,” (Basel Committee on

Banking Supervision Publication, June 2011).

9. 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.

New Readings for Risk Management and Investment Management

10. Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 9th Edition (New York: McGraw-Hill, 2010).

• Chapter 13............................Empirical Evidence on Security Returns

11. G. Constantinides, M. Harris and R. Stulz, eds., Handbook of the Economics of Finance, Volume 2B

(Oxford: Elsevier, 2013).

• Chapter 17 ............................Hedge Funds, by William Fung and David Hsieh

New Readings for Current Issues in Financial Markets

12. Jaime Caruana and Stefan Avdjiev, “Sovereign Creditworthiness and Financial Stability: An International

Perspective.” Banque de France Financial Stability Review, No. 16 (April 2012), pp. 71-85.

13. Li Lian Ong and Martin Čihák, “Of Runes and Sagas: Perspectives on Liquidity Stress Testing Using an Iceland

Example.” IMF Working Paper WP/10/156, July 2010.

14. Andrew G. Haldane and Benjamin Nelson, “Tails of the Unexpected.” Speech from “The Credit Crisis Five Years On:

Unpacking the Crisis” Conference at the University of Edinburgh (Bank of England, June 8 2012.)

15. Andrew G. Haldane and Vasileios Madouros, “The Dog and the Frisbee.” Speech from the Federal Reserve Bank of

Kansas City’s 36th Economic Policy Symposium (Bank of England, August 31 2012).

16. Gerald Rosenfield, Jay Lorsch, Rakesh Khurana (eds.), Challenges to Business in the Twenty-First Century, (Cambridge:

American Academy of Arts & Sciences, 2011), Chapter 2, “Challenges of Financial Innovation,” by Myron S. Scholes.

17. Ananth Madhavan, “Exchange-Traded Funds, Market Structure and the Flash Crash,” October 2011.



DELETED READINGS


Deleted Readings from Foundations of Risk Management

1. Philippe Jorion, Value-at-Risk: The New Benchmark for Managing Financial Risk, 3rd Edition (New York:

McGraw-Hill, 2007).

• Chapter 1 ..............................The Need for Risk Management

2. René Stulz, Risk Management & Derivatives (Florence, KY: Thomson South-Western, 2002).

• Chapter 3 .............................Creating Value with Risk Management

3. Edwin J. Elton, Martin J. Gruber, Stephen J. Brown and William N. Goetzmann, Modern Portfolio Theory and

Investment Analysis, 8th Edition (Hoboken, NJ: John Wiley & Sons, 2009).

• Chapter 16............................The Arbitrage Pricing Model APT—A New Approach to Explaining Asset Prices

4. Casualty Actuarial Society, Enterprise Risk Management Committee, “Overview of Enterprise Risk Management,”

May 2003.

Deleted Readings from Quantitative Analysis

5. James Stock and Mark Watson, Introduction to Econometrics, Brief Edition (Boston: Pearson Education, 2008).

• Chapter 2 .............................Review of Probability

• Chapter 3 .............................Review of Statistics

6. Svetlozar Rachev, Christian Menn, and Frank Fabozzi, Fat-Tailed and Skewed Asset Return Distributions:

Implications for Risk Management, Portfolio Selection and Option Pricing (Hoboken, NJ: John Wiley & Sons, 2005).

• Chapter 2 .............................Discrete Probability Distributions

• Chapter 3 .............................Continuous Probability Distributions

7. Allen, Boudoukh and Saunders, Understanding Market, Credit and Operational Risk:

The Value at Risk Approach (Oxford: Blackwell Publishing, 2004).

• Chapter 2 .............................Quantifying Volatility in VaR Models

Moved to Valuation section.

Deleted Readings from Valuation and Risk Models

8. Allen, Boudoukh and Saunders, Understanding Market, Credit and Operational Risk:

The Value at Risk Approach.

• Chapter 5 .............................Extending the VaR Approach to Operational Risks

9. Caouette, Altman, Narayanan, and Nimmo, Managing Credit Risk, 2nd Edition (New York: John Wiley & Sons, 2008).

• Chapter 6 .............................The Rating Agencies

Moved to Financial Markets and Products section.




Deleted Readings from Credit Risk Measurement and Management

1. Eduardo Canabarro and Darrell Duffie, “Measuring and Marking Counterparty Risk” in ALM of Financial Institutions,

ed. Leo Tilman (London: Euromoney Institutional Investor, 2003).

2. Eduardo Canabarro (editor), Counterparty Credit Risk (London: Risk Books, 2009).

• Chapter 6 .............................Pricing and Hedging Counterparty Risk: Lessons Re-Learned?, by Eduardo Canabarro

3. Arnaud de Servigny and Olivier Renault, Measuring and Managing Credit Risk.

• Chapter 4 .............................Loss Given Default

4. John Hull, Options, Futures, and Other Derivatives, 8th Edition.

• Chapter 23...........................Credit Risk

• Chapter 24...........................Credit Derivatives

5. Allen, Boudoukh and Saunders, Understanding Market, Credit and Operational Risk: The Value at Risk Approach.

• Chapter 4 .............................Extending the VaR Approach to Non-tradable Loans

6. Michael Ong, Internal Credit Risk Models: Capital Allocation and Performance Measurement.

• Chapter 6 .............................Portfolio Effects: Risk Contributions and Unexpected Losses

Deleted Readings from Operational and Integrated Risk Management

7. Philippe Carrel, The Handbook of Risk Management (West Sussex, UK: John Wiley & Sons, Ltd, 2010).

• Chapter 16............................Liquidity, the Ultimate Operational Risk

• Chapter 17 ............................Analysing and Measuring Liquidity Risk

• Chapter 18............................Funding Risk

• Chapter 19............................Managing and Mitigating Liquidity Risks

8. Patrick De Fontnouvelle, Eric S. Rosengren and John S. Jordan, 2006. “Implications of Alternative Operational Risk

Modeling Techniques.” Ch. 10 in Mark Carey and René Stulz (eds.), Risks of Financial Institutions, NBER, 475-505.

And comment by Andrew Kuritzkes 505-511.

Deleted Readings from Basel Reference

9. “Developments in Modelling Risk Aggregation,” (Basel Committee on Banking Supervision Publication,

October 2010).



Deleted Readings from Risk Management and Investment Management

10. Eugene Fama and Kenneth French, 2004. “The Capital Asset Pricing Model: Theory and Evidence,” Journal of

Economic Perspectives 18:3, 25-46.

11. Amir E. Khandani and Andrew W. Lo, “An Empirical Analysis of Hedge Funds, Mutual Funds, and U.S. Equity

Portfolios,” June 24, 2009.

12. Leslie Rahl (editor), Risk Budgeting: A New Approach to Investing (London: Risk Books, 2004).

• Chapter 6..................................Risk Budgeting for Pension Funds and Investment Managers Using VaR,

by Michelle McCarthy

Deleted Readings from Current Issues in Financial Markets

13. Gregory Connor, Thomas Flavin, and Brian O’Kelly, “The U.S. and Irish Credit Crises: Their Distinctive Differences

and Common Features,” (March 2010).

14. Report to the Boards of Directors of Allied Irish Banks, P.L.C., Allfirst Financial Inc., and Allfirst Bank Concerning

Currency Trading Losses Submitted by Promontory Financial Group and Wachtell, Lipton, Rosen & Katz,

(March 12, 2002).

15. Gary Gorton, “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007+,” (May 9, 2009).

16. IMF, “Global Financial Stability Report (Summary Version),” (September 2011).

• Chapter 3 .............................Toward Operationalizing Macroprudential Policies: When to Act? (excluding Annex)

17. Arthur M. Berd (editor), Lessons From the Financial Crisis (London: Risk Books, 2010).

• Chapter 4 .............................The Collapse of the Icelandic Banking System, by René Kallestrup and David Lando

• Chapter 9 .............................Measuring and Managing Risk in Innovative Financial Instruments, by Stuart M. Turnbull

• Chapter 20 ..........................Active Risk Management: A Credit Investor’s Perspective, by Vineer Bhansali



UPDATED TOPICS AND READINGS

GENERAL UPDATES

1. Some of the readings for the FRM Part I and Part II curriculum are freely available on the GARP Digital Library.

These readings can be downloaded at the following website:

http://www.garpdigitallibrary.org/display/frm_course_pack.asp

2. The subgroup of readings previously titled, “Readings for Basel Reference” in the Operational and Integrated Risk

Management section has been changed to “Readings for Regulatory Reference” in order to cover other important

international regulatory frameworks which may be addressed.


Updated Readings for Financial Markets and Products

1. Frank Fabozzi (editor), The Handbook of Fixed Income Securities:

The chapter in 7th Edition (New York: McGraw-Hill, 2005) is replaced by chapter in 8th Edition

(New York: McGraw-Hill, 2012).

2013 FRM Study Guide (8th Edition) 2012 FRM Study Guide (7th Edition)

Chapter 12, Corporate Bonds Chapter 13, Corporate Bonds

2. Robert McDonald, Derivatives Markets:

The chapter in 2nd Edition (Boston: Addison Wesley, 2006) is replaced by the chapter in 3rd Edition

(Boston: Addison Wesley, 2013).

2013 FRM Study Guide (8th Edition) 2012 FRM Study Guide (7th Edition)

Chapter 6, Commodity Forwards and Futures Chapter 6, Commodity Forwards and Futures

Updated Readings for Valuation and Risk Models

3. Bruce Tuckman, Fixed Income Securities:

The chapters in 2nd Edition (Hoboken: John Wiley & Sons, 2002) are replaced by the chapters in 3rd Edition

(Hoboken: John Wiley & Sons, 2011).

2013 FRM Study Guide (3rd Edition) 2012 FRM Study Guide (2nd Edition)

Chapter 1, Prices, Discount Factors, and Arbitrage Chapter 1, Bond Prices, Discount Factors, and Arbitrage

Chapter 2, Spot, Forward and Par Rates Chapter 2, Bond Prices, Spot Rates, and Forward Rates

Chapter 3, Returns, Spreads and Yields Chapter 3, Yield to Maturity

Chapter 4, One-Factor Risk Metrics and Hedges Chapter 5, One-Factor Measures of Price Sensitivity

Chapter 5, Multi-Factor Risk Metrics and Hedges

Chapter 6, Empirical Approaches to Risk Metrics and Hedges




Updated Readings for Market Risk Measurement and Management

1. Bruce Tuckman, Fixed Income Securities:

The chapters in 2nd Edition (Hoboken: John Wiley & Sons, 2002) are replaced by the chapters in 3rd Edition

(Hoboken: John Wiley & Sons, 2011).

2013 FRM Study Guide (3rd Edition) 2012 FRM Study Guide (2nd Edition)

Chapter 7, The Science of Term Structure Models Chapter 6, Measures of Price Sensitivity Based on

Chapter 8, The Evolution of Short Rates and the Parallel Yield Shifts

Shape of the Term Structure Chapter 7, Key Rate and Bucket Exposures

Chapter 9, The Art of Term Structure Models: Drift Chapter 9, The Science of Term Structure Models

Chapter 10, The Art of Term Structure Models:

Volatility and Distribution

2013 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................................................................................Thomson Reuters

Kai Leifert, FRM .......................................................................Northern Trust Global Investments

Steve Lerit, CFA.......................................................................UBS

William May...............................................................................Global Association of Risk Professionals

Michelle McCarthy ..................................................................Nuveen Investments

Ezra Uzi Moualem, FRM .......................................................The Financial Institute of Israel & ZRisk

Dr. Victor Ng .............................................................................Goldman Sachs & Co

Dr. Elliot Noma.........................................................................Garrett Asset Management

Liu Ruixia....................................................................................Industrial and Commercial Bank of China

Robert Scanlon ........................................................................Standard Chartered Bank

Dr. Til Schuermann .................................................................Oliver Wyman

Serge Sverdlov.........................................................................Redmond Analytics

Alan Weindorf ..........................................................................Visa

Creating a culture of risk awareness.®

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© 2012 Global Association of Risk Professionals. All rights reserved. 12-5-12

About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated topreparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members andAffiliates from banks, investment management firms, government agencies, academic institutions, and corporations from more than195 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 comprehensiveprofessional education and training for professionals of all levels. www.garp.org.

FRM Changes

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