FRM Part II study guide
FRM Part II · Work through your exam, one topic at a time.
The Financial Risk Manager (FRM) certification, administered by GARP, is a two-part professional credential for people who assess, measure and monitor financial risk in real-world situations. FRM Part II is the second of the two multiple-choice exams: 80 questions that emphasize applying the tools and techniques introduced in Part I. The FRM Part II study guide has 6 sections and about 2,095 words.
01Market Risk Measurement and Management
Market risk questions revolve around quantifying tail losses and then testing whether the number is credible. Be fluent in the three VaR engines - variance-covariance (delta-normal), historical simulation, and Monte Carlo - and know when each fails.
341 words, about 2 min02Credit Risk Measurement and Management
Merton treats equity as a call option on firm assets struck at debt face value. Default occurs when asset value falls below the barrier at maturity.
334 words, about 2 min03Operational Risk and Resilience
Operational risk is loss from inadequate or failed internal processes, people, systems, or external events. It excludes strategic and reputational risk but includes legal risk.
341 words, about 2 min04Liquidity and Treasury Risk Measurement and Management
Funding liquidity is the ability to meet cash obligations; market liquidity is the ability to trade without moving price. They reinforce each other in a liquidity spiral: falling prices trigger margin calls, forced sales deepen the price fall, haircuts rise, and funding dries up.
356 words, about 2 min05Risk Management and Investment Management
Sharpe ratio uses total volatility and suits fully diversified portfolios; Treynor uses beta and suits a sleeve inside a larger portfolio. Jensen's alpha is the CAPM intercept.
365 words, about 2 min06Current Issues in Financial Markets
Current Issues is drawn from a rotating set of recent practitioner and regulatory readings, so the specific papers change each exam cycle. Treat the assigned reading list as authoritative and use the themes below as the scaffold on which to hang the details.
358 words, about 2 min