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624, Mastermind IV, Royal Palms IT Park, Goregaon (East), Mumbai 400065 Phone: +91-22-28797660 Web: www.iiqf.org
2010 FRM EXAM TRAINING SYLLABUS
Introduction to Financial Mathematics
1. Introduction to Financial Calculus a. Variables – Discrete and Continuous b. Univariate and Multivariate Functions – Dependent variable and Independent variable c. Physical representation of a function d. Linear and Non-Linear functions e. Limits of a function f. The number e and Natural Logarithm g. Differential Calculus – Differentiation, Interpretation - Slope of a tangent, using derivatives to calculate function values and deltas. Linear functions - 1st order derivative. Non-linear functions – 1st and higher order derivatives, interpretations and usage. Rules of derivatives. h. Functions – Differentiation and Taylor Series Expansion i. Introduction to Partial Derivatives j. Introduction to Integral Calculus 2. Introduction to Bond Mathematics a. Finance and the Time Value of Money b. Concept of Zero Coupon (Discount) Bonds and Coupon Bonds. c. Bond Characteristics d. Bond Types – Fixed Rate, Floating Rate, Inverse Floater Rate, etc. e. Interest Rates – Discrete and Continuous Compounding f. Bond Pricing – using ZCYC or YTMC with discrete compounding or continuous compounding g. Difference between bond coupon rate and bond yield h. Calculating Bond Yield (YTM, CY, MMY, ZCY/Spot, Par Yield, etc.) i. Price Yield Relationship
Introduction to Financial Statistics and Econometrics
1. Introduction to Financial Statistics a. Frequency distributions b. Measures of Central Tendency/Location (Mean/Mode/Median) c. Dispersion, Measures of Dispersion (Variance/SD/Quartiles/Percentiles/Ranges) and its relevance to Risk Management d. Correlations 2. Introduction to Probability Theory a. Random variables b. Probability and its uses c. Probability Rules d. Conditional Probabilities
F Distribution f. Kurtosis). Skewness. Continuous Value/ Discreet Value ii. Standardized Moments 3.(Effect on VaR estimation). 2-Variable Linear Regression b. z-Test and t-Test for Mean f. F-Test 7. Regression Analysis – Multi-variate. Goregaon (East). Chi-square test h. Introduction to Regression Analysis i. Probability Density Function iv. Probability Distributions (Multi-Variate) a. z-Test and t-Test for difference of Means g. Relevance to Risk Management . Log-Normal Distribution d. Mathematical Expectation g. Confidence intervals. Introduction to Econometrics a. Probability Distributions (Single Variable) i. Normal/Gaussian Distribution. Uniform Distribution b. Moments of Distribution (Mean. Probability Mass Function iii. Continuous Probability Distribution a. 1-Tailed and 2-Tailed Tests e. Weibull Distribution h. Cumulative Distribution Function v. Central Moments. Hypothesis Testing and Statistical Inference a. Student’s t Distribution e. Populations Parameters and Sample Statistics / Estimators b. Confidence Levels. Central Limits theorem. 4. Uniform Distribution b. Variance.org e. Discrete Probability Distribution a. Hypothesis concerning estimators b. Poisson Distribution c.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Binomial Distribution 2. Royal Palms IT Park. Chebyshev's Theorem/Inequality 5. Biased and Unbiased Estimators 6. Mastermind IV. Applications and relevance in Risk Management f. Single Variable Linear Regression Quantitative Analysis 1. Standard Normal Distribution c. Bernoulli Distribution 3. Least Squares Regression ii.iiqf. Estimating parameters of distributions a. Linear & Non-linear a. Multi-variate/Multiple Linear Regression . Chi-Square Distribution g. Type-I and Type-II errors d. Continuous Time/Discreet Time. Mumbai 400065 Phone: +91-22-28797660 Web: www. Marginal Distribution 8. Joint Distribution b. p-Values c. Level of Significance.
Corporate Borrowings. Introduction to Simulation Techniques a. OTC markets. Autocorrelation 9. Processes – Stochastic & Deterministic 10. Netting. etc. Mumbai 400065 Phone: +91-22-28797660 Web: www. EWMA b.org c. effects of dividends. Markov Chains b. Forwards. Modeling Issues iii. Royal Palms IT Park. Monte Carlo Simulations 12. CBLO. Equity and Equity Index Derivatives .iiqf.) d. F-Test d. Fixed Income / Debt Market (Government Borrowings. Currency / Foreign Exchange (FOREX) Derivatives . Equity/Capital/Stock Market b. Types of Financial Instruments and Financial Markets a.) c. Reverse Repo. Minimum variance hedge ratio . Brownian motion (ABM/GBM) 11. Measuring portfolio exposures 6. Intermediaries. early exercise 7. Continuous-time Stochastic Processes a. collateral and downgrade triggers 3.Swaps. Volatility term structures Financial Markets and Products 1. Money Market (Repo. Weiner Process / Brownian Motion c. Forecasting Volatility a. Discreet/Continuous time systems b.) 4. Statistical properties and forecasting of correlation. Clearing House mechanisms / Clearing Corporation. Goregaon (East). covariance and volatility 14.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. GARCH 15. Multi-Collinearity v. Fixed-Income and Interest Rate Derivatives . Mastermind IV. Generalized Weiner Process d. Options. Heteroscedasticity vi.Cholesky Decomposition 13. t-Test ii. Missing Variables iv. Futures and Options c. Financial/Securities Market Operations – Stock and other Exchanges. etc. Swaps. Numerical and Analytical Simulation c. Maximum Likelihood Estimation (MLE) 16. etc.Forward. Commodities Derivatives d. Futures. Derivatives Market (Forwards. Introduction to Financial Derivatives a. Markov Process. Structural Hubs 2.IRS & FRA b. Futures and Options 5. Trading strategies with derivatives 8. American options. Hypothesis Testing i. ARCH c. Correlated Random numbers generation . Historical Simulation d.
VaR of Linear and Non-Linear derivatives 9. . Durations. Convexity. Applications of VaR for market. Forward Rate Curve) 5. Discount factors. cost of carry. Corporate bonds 14. VaR for fixed income securities with embedded options 10. 3. Mumbai 400065 Phone: +91-22-28797660 Web: www. credit and operational risk 8. Credit transition matrices 12. Royal Palms IT Park. arbitrage. Mastermind IV. Foreign exchange risk 13. Term Structure of Interest Rates / Yield Curve (YTMC. Numerical Methods (Binomial Tree. Limitations of VaR and Alternatives – Tail VaR / CVaR. Debt equity swaps. Spot Rates and Forward Rates 3. Options Pricing i. Efficient Frontier 6. Delta-Normal. Sharpe ratio and information ratio 8. Scenario Analysis. Tracking Error 9. Factor models and Arbitrage Pricing Theory 10. Case studies 12. ZCYC/Spot. Analytical Models (Black-Scholes-Merton) b. Credit rating agencies. Basis risk 12. Sovereign risk and country risk evaluation 13.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Duration Based Hedging 2. Current. Historical Simulation. yield curves 6. Commodity derivatives. Measurement methods – Full Valuation. conversion factors 10. Par Yield Curve. lease rate. Bond Pricing. etc). Ethics Valuation and Risk Modeling 1. Stress Testing. Value-at-Risk (VaR) a. Monte-Carlo Simulation. Cheapest to deliver bond. credit ratings 11. Creating value with Risk Management Market efficiency. convenience yield 11.org 9. loan sales. Fixed Income Mathematics – Yields (YTM. equilibrium and the Capital Asset Pricing Model (CAPM) Single-Index Model Systematic/Market/Non-Diversifiable Risk and Non-Systematic/Residual/Diversifiable Risk 5. Goregaon (East). Monte-Carlo Simulation) ii.iiqf. Estimating Greeks 14. Derivatives a. Performance Measurement and Performance Attribution 7. 7. Estimating Forward Rates 4. Brady bonds Foundations of Risk Management 1. 2. 4. Risk management failures 11. DV01. Definition b.
Minimum capital requirements b.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624.org PART II Market Risk Measurement and Management 1. Mastermind IV. 3. Duration and Convexity of fixed income securities 4. Subprime mortgages and subprime securitization 2. Backtesting VaR 6. Volatility Surface 2. 7. 5. Mumbai 400065 Phone: +91-22-28797660 Web: www. Risks in mortgages and mortgage-backed securities d. rating triggers and collateral) Operational and Integrated Risk Management 1. Royal Palms IT Park.iiqf. Credit risk management models 14. Copulas and tail dependence 10. tranching and subordination 5. securitization. Mortgages and mortgage-backed securities (MBS) a. Mapping financial instruments to risk factors 7. Volatility Smiles/Frowns. Credit Spreads 9. credit. Definition of risk capital Allocation of risk capital across the firm Firm-wide risk measurement and management Correlations across market. Prepayment models c. Volatility Skews. Structured finance. Credit Scoring 8. Credit derivatives. Expected shortfall and coherent risk measures 8. Goregaon (East). Extreme Value Theory 9. Collateralized Debt Obligations (CDO) – pricing and risk management 6. and operational risk Evaluating the performance of risk management systems Regulation and the Basel II Accord a. Credit Default Swaps (CDS) and Credit-Linked Notes (CLN) 4. Term structure models 5. 4. Loss Given Default (LGD) and Recovery Rate. Underwriting mortgages b. Valuation of mortgage-backed securities Credit Risk Measurement and Management 1. Credit concentration risk . Counterparty risk and OTC derivatives 3. Contingent claim approach and the KMV Model 11. Probability of Default (PD). Volatility Term Structures. 2. Expected and Unexpected loss 10. Exotic Options 3. Risk mitigation techniques (including netting agreement. Portfolio credit risk 13. 6. Default and default-time correlations 12.
Portfolio construction Risk decomposition and performance attribution Risk budgeting Setting risk limits Hedge fund risk management Risk-Return metrics specific to hedge funds (Drawdown & Sortino ratio) Risks of specific strategies (fixed-income arbitrage. Mumbai 400065 Phone: +91-22-28797660 Web: www. Loss distributions b. valuation. Liquidity risk – Asset Liquidity & Cash-flow Liquidity 9. leverage. 6.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. 3. 3. nor does it endorse any pass rates claimed by the provider. Pension fund risk management Current Issues In Financial Markets 1. Liquidity Risk measures like MCO. 5. Stress testing 7. 4. Inc. macro. Royal Palms IT Park. sub-prime CDOs Liquidity crises Use and limitations of VaR Hedge funds and systemic risk Disclaimer: GARP does not endorse. Goregaon (East). Causes and consequences of the current crisis Sub-prime mortgage design Mortgages and securitization. Asset illiquidity. 5. 2. 4. Aggregating loss distributions Risk Management and Investment Management 1.iiqf. Further.org c. emerging markets) 8. LD. Measuring exposures to risk factors (dynamic strategies. equity long/short-market neutral. Implementation and Model Risk 8. promote. convert arbitrage. FRM®. The use of leverage and derivatives and the risks they create 10. merger arbitrage. 7. review or warrant the accuracy of the products or services offered by IIQF of FRM related information. Economic capital and risk aggregation 11. 2. GARP® and Global Association of Risk Professionals™. Mastermind IV. derivatives. style drift) 11. distressed debt. Aggregated distributions a. GARP is not responsible for any fees or costs paid by the user to IIQF nor is GARP responsible for any fees or costs of any person or entity providing any services to IIQF. are trademarks owned by the Global Association of Risk Professionals. Liquidity risk d. Stress Testing. 6. and risk measurement 9. . WBG & MTF 10.
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