FRM Foundations of Risk Management

This area focuses on a candidate’s knowledge of foundational concepts of risk management and how risk management can add value to an organization and includes:

• Basic risk types, measurement, and management tools
• Creating value with risk management
• Risk governance and corporate governance
• Credit risk transfer mechanisms
• The Capital Asset Pricing Model (CAPM)
• Risk-adjusted performance measurement
• Multifactor models
• Data aggregation and risk reporting
• Financial disasters and risk management failures
• Ethics and the GARP Code of Conduct
• Enterprise risk management (ERM)

Quantitative Analysis

This area tests a candidate’s knowledge of basic probability and statistics; regression and time series analysis; and various quantitative techniques useful in risk management such as:

• Discrete and continuous probability distributions
• Estimating the parameters of distributions
• Population and sample statistics
• Bayesian analysis
• Statistical inference and hypothesis testing
• Measures of correlation
• Line regression with single and multiple regressors
• Time series analysis and forecasting
• Simulation methods

Financial Markets and Products

This area tests the candidate’s knowledge of financial products and the markets

in which they trade including:

• Structures and functions of financial institutions
• Structure and mechanics of over-the-counter (OTC) and exchange markets
• Structure, mechanics, and valuation of forwards, futures, swaps, and options
• Hedging with derivatives
• Interest rates and measures of interest rate sensitivity
• Foreign exchange risk
• Corporate bonds
• Mortgage-backed securities

Valuation and Risk Models | 30%

This area will test a candidate’s knowledge of valuation techniques and risk models such as:

• Value-at-Risk (VaR)
• Expected shortfall (ES)
• Estimating volatility and correlation
• Economic and regulatory capital
• Stress testing and scenario analysis
• Option valuation
• Fixed income valuation
• Hedging
• Country and sovereign risk models and management
• External and internal credit ratings
• Expected and unexpected losses
• Operational risk

Market Risk Measurement and Management

This area tests a candidate’s knowledge of market risk measurement and

management techniques. These include:

• VaR and other risk measures
• Parametric and non-parametric methods of estimation
• VaR mapping
• Back testing VaR
• Expected shortfall and other coherent risk measures
• Extreme Value Theory (EVT)
• Modeling dependence: correlations and copulas
• Term structure models of interest rates
• Volatility: Smiles and term structures
• Fundamental Review of the Trading Book

Credit Risk Measurement and Management

This area focuses on a candidate’s understanding of credit risk management with

some focus given to structured finance and credit products such as collateralized

debt obligations and credit derivatives. Areas of knowledge include:

• Credit analysis
• Default risk: Quantitative methodologies
• Expected and unexpected loss
• Credit VaR
• Counterparty risk
• Credit derivatives
• Structured finance and securitization

Operational Risk and Resiliency

This area addresses a candidate’s knowledge of two areas of increasing

importance for many firms — operational risk management and operational

resilience in the face of changing market conditions. This includes:

• Principles for sound operational risk management
• Risk appetite frameworks and enterprise risk management
• Risk culture and conduct
• Analyzing and reporting operational loss data
• Model risk and model validation
• Risk-adjusted return on capital (RAROC)
• Economic capital frameworks and capital planning
• Stress testing banks
• Third-party outsourcing risk
• Risks related to money laundering and financing of terrorism
• Regulation and the Basel Accords
• Cyber risk and cyber resilience
• Operational resilience

Liquidity and Treasury Risk Measurement and Management

This area tests a candidate’s understanding of liquidity and treasury risk

measurement and management techniques. These include:

• Liquidity risk principles and metrics
• Liquidity portfolio management
• Cash-flow modeling, liquidity stress testing, and reporting
• Contingency funding plan
• Funding models
• Funds transfer pricing
• Cross-currency funding
• Balance sheet management
• Asset liquidity

Risk Management and Investment Management

This area focuses on a candidate’s knowledge of risk management techniques

applied to the investment management process, including:

• Factor theory
• Portfolio construction
• Portfolio risk measures
• Risk budgeting
• Risk monitoring and performance measurement
• Portfolio-based performance analysis
• Hedge funds

Current issues in financial markets

This area tests a candidate’s knowledge of current issues in financial

markets, including:

• Artificial intelligence (AI), machine learning, and “big data”
• Risk management implications of COVID-19
• Phasing out of LIBOR/Reference rates
• Climate risk
• Cyber resiliency in the wider financial system
• Digital currencies