Frm Study Guide Changes 2014-Web

2014

FRMExaminationStudy GuideChanges2013 to 2014

FRM® Examination Study Guide Changes for 2014

© 2014 Global Association of Risk Professionals. All rights reserved. 1

FRM PART I CHANGES

FOUNDATIONS OF RISK MANAGEMENT

Additions:

1. “Understanding and Communicating Risk Appetite” (COSO, written by Dr. Larry Rittenberg and Frank Martens,

January 2012).

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

• Chapter 10................................Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Deletions:

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 5..................................Delineating Efficient Portfolios

• Chapter 14 ................................Nonstandard Forms of Capital Asset Pricing Models

Knowledge Point Changes:

• “The role of risk management” has been changed to “The role of risk management in corporate governance” to better

reflect the curriculum material.

• “Modern Portfolio Theory” has been removed to reflect the removal of Elton Chapter 5.

• “Standard and non-standard forms of the Capital Asset Pricing Model” has been changed to “The Capital Asset

Pricing Model” to reflect the removal of Elton Chapter 14.

• “Index models” has been changed to “Multi-factor models” to reflect the inclusion of Bodie/Kane/Marcus Chapter 10.

• “Information risk and data quality management” has been added to reflect the (prior) inclusion of Tarantino and

Cernauskas Chapter 3.

• “Case studies” has been removed since the case studies are adequately covered under “Financial disasters and risk

management failures.”

2 © 2014 Global Association of Risk Professionals. All rights reserved.


QUANTITATIVE ANALYSIS

Additions:

1. Dessislava Pachamanova and Frank Fabozzi, Simulation and Optimization in Finance

(Hoboken, NJ: John Wiley & Sons, 2010).

• Chapter 4 .................................Simulation Modeling

Deletions:

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

(New York: McGraw Hill, 2007).

• Chapter 12 ................................Monte Carlo Methods


• “Monte Carlo Methods” has been changed to “Simulation methods” to reflect the two changes above.



FINANCIAL MARKETS AND PRODUCTS

Additions:

1. The Institute for Financial Markets, Futures and Options (Washington, DC: The Institute for Financial Markets, 2011).

• Chapter 1...................................Introduction: Futures and Options Markets

• Chapter 2..................................Futures Industry Institutions and Professionals

• Chapter 7..................................Hedging with Futures and Options

Deletions:

None.


None.



VALUATION AND RISK MODELS

Additions:

1. Daniel Wagner, Managing Country Risk: A Practitioner’s Guide to Effective Cross-Border Risk Analysis

(Boca Raton, FL: Taylor & Francis Group, 2012).

• Chapter 3..................................Assessing Country Risk

• Chapter 4 .................................Country Risk Assessment in Practice

Deletions:

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

• Chapter 23 ...............................Country Risk Models


• Two minor knowledge points under Value-at-Risk: “Applied to linear and non-linear derivatives” and “Applied to fixed

income securities with embedded options” have been combined into one minor knowledge point.

• “Fundamental Analysis” as a minor knowledge point under “Country and sovereign risk models and management”

has been removed to reflect the section’s focus on risk management.



FRM PART II CHANGES

MARKET RISK MEASUREMENT AND MANAGEMENT

Additions:

1. 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.

2. John Hull and Alan White, “Incorporating Volatility Updating into the Historical Simulation Method for Value at Risk,”

Journal of Risk, October 1998.

3. John Hull and Alan White, “LIBOR vs. OIS: The Derivatives Discounting Dilemma,” April 2013. Forthcoming in the

Journal of Investment Management.

Deletions:

None.


• “Discount rate selection” has been added to reflect the inclusion of “LIBOR vs. OIS: The Derivatives Discounting Dilemma.”

• “Fixed income securities” and “Risk neutral pricing” have been replaced by “Term structure models of interest rates”

to streamline the list.



CREDIT RISK MEASUREMENT AND MANAGEMENTThe changes in this section reflect an update to the 2nd Edition of the Jon Gregory book, as well as the chapter on wrong-

way risk being re-added to the curriculum.

Additions:

1. Jonathan Golin and Philippe Delhaise, The Bank Credit Analysis Handbook (Hoboken, NJ: John Wiley & Sons, 2013).

• Chapter 1...................................The Credit Decision

• Chapter 2..................................The Credit Analyst

2. Jon Gregory, Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial

Markets, 2nd Edition. (West Sussex, UK: John Wiley & Sons, 2012). ISBN 978-1118316672.

• Chapter 3..................................Defining Counterparty Credit Risk

• Chapter 4 .................................Netting, Compression, Resets, and Termination Features

• Chapter 5..................................Collateral

• Chapter 8..................................Credit Exposure

• Chapter 10................................Default Probability, Credit Spreads, and Credit Derivatives

• Chapter 12 ................................Credit Value Adjustment

• Chapter 15 ................................Wrong Way Risk

Deletions:

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

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

Replaced by the 2nd Edition Gregory chapters above.

• 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


• “Credit analysis” has been added to reflect the Golin and Delhaise reading.

• “Default risk” and its sub-bullets have been combined to make “Default risk: Quantitative methodologies and risk

neutral valuations” in order to streamline the list.

• “Tranching, subordination, and support” has been replaced by “Subprime mortgages and securitization” in order to

streamline the list.

• The sub-bullets under “Credit derivatives” have been condensed to make “Mechanics and structure” and “Valuation

and spreads” in order to streamline the list.



OPERATIONAL AND INTEGRATED RISK MANAGEMENT

Additions:

1. “Principles for Effective Data Aggregation and Risk Reporting,” (Basel Committee on Banking Supervision

Publication, January 2013).

2. “Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools,” (Basel Committee on Banking

Supervision Publication, January 2013).

Deletions:

3. “Basel III: International Framework for Liquidity Risk Measurement,” (Basel Committee on Banking Supervision

Publication, December 2010).


• “Data aggregation and risk reporting” has been added to reflect the proposed new Basel data aggregation reading.



RISK MANAGEMENT AND INVESTMENT MANAGEMENT

Additions:

1. Kevin R. Mirabile, Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits,

and Fund Performance (Wiley Finance). ISBN 978-1118281222.

• Chapter 11 .................................Performing Due Diligence on Specific Managers and Funds

Deletions:

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

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

3. David P. Stowell, An Introduction to Investment Banks, Hedge Funds, and Private Equity (Academic Press, 2010).

• Chapter 11 .................................Overview of Hedge Funds

• Chapter 12 ................................Hedge Fund Investment Strategies

• Chapter 16 ................................Overview of Private Equity

4. Stephen Brown, William Goetzmann, Bing Liang, Christopher Schwarz, “Trust and Delegation,” May 28, 2010.

5. Greg N. Gregoriou and François-Serge Lhabitant, “Madoff: A Riot of Red Flags,” December, 2008.


• “Tests of the Capital Asset Pricing Model” has been removed due to the removal of Bodie, Kane and Marcus Chapter 13.

• “Private Equity” has been removed due to the removal of Stowell Chapter 16.

• “Portfolio and component VaR” has been replaced by “Portfolio risk measures.”



CURRENT ISSUES IN FINANCIAL MARKETS

Additions:

1. U.S. House of Representatives Subcommittee Report on MF Global (through p. 75), November 2012.*

2. “JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses—Executive Summary,” U.S. Senate

Subcommittee on Investigations, April 2013.*

3. "Towards Better Reference Rate Practices: A Central Bank Perspective," Working Group Established by the BIS

Economic Consultative Committee, March 2013.*

4. “OTC Derivatives: A Comparative Analysis of Regulation in the United States, European Union, and Singapore.”

(Rajarshi Aroskar, IFM Review of Futures Markets, Volume 21, March 2013).*

5. “A New Look at the Role of Sovereign Credit Default Swaps,” IMF Global Financial Stability Report, Chapter 2,

April 2013.*

6. “Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice,”

Board of Governors of the Federal Reserve System, August 2013.

Deletions:

7. All except for Caruana and Avdjiev, “Sovereign Creditworthiness and Financial Stability: An International Perspective.”


• The previous Current Issues knowledge points have been replaced by six new knowledge points to reflect the new

readings as follows:

• Risk management case studies

• Reference interest rates

• Comparative regulations for OTC derivatives

• Sovereign credit default swaps: roles and regulations

• Capital planning at large banks

• The European credit crisis and transmission of sovereign risks

2014 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

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

Steve Lerit, CFA.......................................................................UBS Wealth Management

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

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

Adolfo Montoro, FRM............................................................Deutsche Bank

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 ........................................................................Scanlon Associates

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

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

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

Creating a culture of risk awareness®

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www.garp.org

© 2014 Global Association of Risk Professionals. All rights reserved. 11-22-13

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.

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