FRM Part I study guide
FRM Part I · Work through your exam, one topic at a time.
FRM Part I is the first level of the Financial Risk Manager (FRM®) certification, a credential that GARP describes as "the mark of excellence in managing financial risk." It is aimed at practitioners who need a rigorous, structured command of how risk is measured, modelled and managed: analysts and associates in market, credit, operational and enterprise risk functions, plus auditors, regulators, consultants and quantitatively trained professionals moving into risk roles. The syllabus is organised into four broad areas - foundations of risk management, quantitative analysis, financial markets and products, and valuation and risk models. The FRM Part I study guide has 4 sections and about 1,092 words.
01Foundations of Risk Management
Foundations questions test whether you can separate risk (measurable dispersion of outcomes) from uncertainty (unquantified). Enterprise risk management (ERM) aggregates market, credit, liquidity, operational, and strategic risk; the trap is treating ERM as simple risk avoidance rather than risk-adjusted value maximization.
272 words, about 1 min02Quantitative Analysis
Candidates must handle probability rules, Bayes' theorem, discrete and continuous distributions, moments, covariance and correlation, regression, hypothesis testing, and simulation. For a two-asset portfolio, variance is w1^2 sigma1^2 + w2^2 sigma2^2 + 2 w1 w2 rho sigma1 sigma2; the covariance term is the most common omission.
257 words, about 1 min03Financial Markets and Products
Know the mechanics and economics of forwards, futures, options, swaps, and the institutions that trade them. A forward is OTC and customizable, with counterparty credit risk; a futures contract is exchange-traded, standardized, marked to market daily, and backed by a clearinghouse.
293 words, about 1 min04Valuation and Risk Models
Master binomial option pricing, Black-Scholes-Merton (BSM), the Greeks, fixed-income sensitivity, VaR, expected shortfall, and credit risk models. In a one-period binomial model, risk-neutral probability p = (e^(rT)-d)/(u-d); the option value is e^(-rT)[p Cu + (1-p) Cd].
270 words, about 1 min