Book 1: Founparions or Risk MaNnaGEMENT; QUANTITATIVE ANALYSIS ‘WELCOME To THE 2009 Kaptan Scrweser Stupy Notes FRM Exam Stupy Guiwe Founpations oF Risk MANAGEMENT "The Need for Risk Management Investors and Risk Management Creating Value with Risk Management ‘The Capital Asset Pricing Model and Its Application to Performance Measurement Expected Returns and the Arbitrage Pricing Theory Case Studies Risk Management Failures: What Ate They and When Do They Happen? GARP Code of Conduce Quantitative ANALYSIS Quantitative Fundamentals The Time Value of Money ‘The Nacure and Scope of Econometrics Review of Statistics I: Probability and Probability Distributions Characteristics of Probability Distributions Some Importane Probability Distribusions Statistical Inference: Estimation and Hypothesis Testing Discrete Probability Distributions Continuous Probability Distributions Basic Ideas of Linear Regression: The Two-Variable Model ‘The Two-Variable Model: Hypothesis Testing ‘Multiple Regression: Fstimation and Hypothesis Testing Forecasting Volatility, Covariance, and Correlation Estimating Volatiliies and Correlations Monte Carlo Simulation Monte Carlo Methods FRM Orb Question Review FRM Oxp Qurstion Review Answers ForMuLAS APPENDIX Inpex ‘©I09 Kaplan Schweser 7 10 uy 137 165 181 24 219 29 239 254 264 Page LPage2 BOOK |: FOUNDATIONS OF RISK MANAGEMENT; QUANTITATIVE ANALYSIS (©2009 Kaplan, Inc, d.b.a, Kaplan Schweser, All ights reserved. Drinted in the United Stats of America, ISBN: 1-4277-8882-0 PN: 4474-9ERM Required Disclaimer: GARP® does not endorse, promote, review, or warrant the accuracy ofthe products or services offered by Kaplan Schweser of FRM® related information, nor does itendorse any pass rates claimed by the provider. Further, GARD® is not responsible for any fes or costs paid by the user to Kaplan Schweser, ‘nor is GARD® responsible for any fes or costs of any person or entity providing any services to Kaplan Schweser. FRM®, GARP®, and Global Association of Risk Professionals™ are trademarks owned by the Global Assocation of Rsk Profesional, Ine FRM Old Euam Questions are printed with peemisin. Copyright 2008, Global Asvociaton of Rsk Profesional. All sights served “These materials may not be copied without written permision from the author. The unauthorized duplication ofthese note is violation of global copyright laws, Your assistance in pursuing potential violators of this lw is greatly appreciated Disclaimer: The Schweser Notes should be used in conjunction with the original readings as se forth by GARP®. The information contained in these Sty Notes is based onthe orignal readings and isbeievd co be accurate However, their accuracy cannot be guaranteed nor is any waranty conveyed a 0 your ultimate exam ‘©2005 Kaplan SchwesetWELCOME TO THE 2009 KapLan SCHWESER StuDy Nores ‘Thank you for trusting Schweser to help you reach your goals. We are all very pleased to be able to help you prepare for che 2009 FRM Full Exam and FRM Level 1 Exam. In this introduction, I want co explain what is included in the Study Notes, suggest how you can bese use Kaplan Schweser materials to prepare for the exam, and direct you toward other ‘educational resources you will find helpful as you study for the exam. Besides the Study Notes themselves, there are many educational resources available zt Schweser.com. Just log in using the individual username and password that you received when you purchased the Schweser Study Notes, and go to Online Access. Also, for those candidates who are only sitting for Level 1 this November, we have posted a Level 1 Study Outline, which details the relevance material required for the first level of the FRM Exam. Study Notes ~ A 5-book set that includes complete coverage of all risk-related topic areas and all learning objectives (AIM statements), as well as Concept Checkers (multiple-choice questions for every assigned reading). Also, the Study Notes include background material for a number of key FRM-related concepts (chese background readings supplement the core readings). At the end of each book, we have included relevanc exam questions from past FRM exams. These old exam questions are a great tool for understanding the format and difficulry level of actual exam questions. “To help you really master the FRM material and be well prepared for the exam, we offer several additional educational resources, including: Weekly Online Program — Live online program (ten 3-hour sessions) that is offered cach week, beginning in September. The online class brings the personal attention of a classroom into your home or office with 30 hours of real-time instruction led by an industry expert, Dr. Greg Filbeck, CFA, FRM, CAIA. The class offers in-depth coverage of difficule concepts, instant feedback during lecture and Q&A sessions, and discussion of past FRM exam questions. Archived classes are available for viewing at any time throughout the study season. Candidates enrolled in the Weekly Online Program also have access to downloadable slide files for all slides presented during class and Instructor E-mail Access wwhere they can send questions to che instructor at any time, If you have purchased the Schweser Study Notes as part of the Essential, Premium, or PremiumPlus Solution, you will aso receive access to Instructor-led Office Hours. Office Hours allow you co get your FRM-related questions answered in real time and view questions from other candidates (and faculty answers) as well. Office hours is a text-based, live, interactive, online chat with Dr. Greg Filbeck, CFA, FRM, CAIA. Archives of previous Instructor-Led Office Hours sessions are sorted by topic and are posted shortly after each (©2009 Kaplan Schweset Page 3