Condensed Note of FRM Part 1: Foundations of Risk Management

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  • Reading time:8 mins read


A quick understanding and review of all important concepts of Foundations of Risk Management (FRM) for FRM part 1 exam.

What you will learn

Understand what are included in the FRM section of FRM Part 1

Have a condensed summary of key concepts

Act as a chance for candidates to find out any knowledge missing

Reinforce the concepts by using examples

Description

In this course, we have condensed the content from the Foundations of Risk Management (FRM) book of FRM Part 1 exam. It is our target to let those candidates who have not started studying can pick up all necessary concepts needed for the exam within a short time frame (and a reasonable price), with the subsequent aid of exam bank. Candidates who have a brief understanding are also welcomed to check if there is anything missing from your previous study.

Note that we currently do not have intention to provide videos for explaining the concepts since we believe practices are more efficient in reinforcing your knowledge. Having said that, if there are large demands on videos for certain topics, we would like to create.

The course includes the following topics for FRM section of FRM Part 1 exam (2022):

1. The Building Blocks of Risk Management

2. How Do Firms Manage Financial Risk?

3. The Governance of Risk Management

4. Credit Risk Transfer Mechanisms


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5. Modern Portfolio Theory and Capital Asset Pricing Model

6. The Arbitrage Pricing Theory and Multifactor Models of Risk and Return

7. Principles for Effective Data Aggregation and Risk Reporting

8. Enterprise Risk Management and Future Trends

9. Learning from Financial Disasters

10. Anatomy of the Great Financial Crisis of 2007-2009

11. GARP Code of Conduct

English
language

Content

Introduction

Introduction

[FRM-1] The Building Blocks of Risk Management

Risk, Risk Management & Risk Taking
Tools to Measure and Manage Risk
Expected Loss & Unexpected Loss
Relationship between Risk and Reward
Key Classes of Risks
Challenges in Risk Aggregation

[FRM-2] How Do Firms Manage Financial Risk?

Strategies to Manage Risks
Risk Appetite
Hedging Risks
Methods to Hedge Risks
Risk Management Tools and Instruments

[FRM-3] The Governance of Risk Management

Corporate Risk Governance after GFC
Best Practices for Governance
Risk Management Role
Risk Appetite & Business Strategy
Interdependence of Functional Units
Audit Committee

[FRM-4] Credit Risk Transfer Mechanisms

Credit Derivatives
Traditional Approaches to Mitigate Credit Risk
Role of Credit Derivatives in GFC
Securitization, SPV, and OTD Model

[FRM-5] Modern Portfolio Theory and Capital Asset Pricing Model

MPT, Efficient Frontier, and CML
CAPM, Beta, and SML
Estimate and Interpret Beta
Sharpe/Treynor/Information/Sortino Ratio & Jensen’s Alpha

[FRM-6] The Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Arbitrage Pricing Theory (APT)
Factor Betas and Multifactor Model
Hedging using Multifactor Model

[FRM-7] Principles for Effective Data Aggregation and Risk Reporting

Benefits of Effective RDARR
Challenges to Having Strong RDARR
Key Principles of Risk Data Aggregation
Characteristics of Data/IT Architecture & Risk Reporting Practices

[FRM-8] Enterprise Risk Management and Future Trends

ERM vs Silo-based Risk Management
Best Practices of ERM
Risk Culture, its Measurements and Challenges
Role of Scenario Analysis in ERM
Use of Scenario Analysis in Stress Testing and Capital Planning

[FRM-9] Learning From Financial Disasters

Interest Rate Risk (S&L Crisis)
Funding Liquidity Risk (Lehman, Continental, Northern)
Implementing Hedging Strategy (MGRM)
Model Risk (Niederhoffer, LTCM, London Whale)
Rogue Trading & Misleading Reporting (Barings)
Financial Engineering & Complex Derivatives (BT, Orange County, Sachsen)
Reputational Risk (Volkswagen)
Corporate Governance (Enron)
Cyber Risk (SWIFT)

[FRM-10] Anatomy of the Great Financial Crisis of 2007-2009

Overview of GFC during 2007-2009
Roles of Subprime Mortgage & CDO
Roles of Financial Institutions
Short-term Wholesale Funding Markets
Responses of Central Banks

[FRM-11] GARP Code of Conduct

Principles & Professional Standards
Rules of Conduct
Consequences of Violation

[Optional] Learning Objectives of FRM Part 1

[Optional] Foundations of Risk Management (20%) (Slide)
[Optional] Quantitative Analysis (20%) (Slide)
[Optional] Financial Markets and Products (30%) (slide)
[Optional] Valuations and Risk Models (30%) (Slide)

Bonus Section

Bonus Lecture
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