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624, Mastermind IV, Royal Palms IT Park, Goregaon (East), Mumbai 400065 Phone: +91-22-28797660 Web: www.iiqf.org
2011 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
Chebyshev's Theorem/Inequality 5. 4. Introduction to Econometrics a. Level of Significance. 1-Tailed and 2-Tailed Tests e. Marginal Distribution 8. F-Test 7. Linear & Non-linear a. Estimating parameters of distributions a. Uniform Distribution b. Weibull Distribution h. Royal Palms IT Park. Multi-variate/Multiple Linear Regression . z-Test and t-Test for difference of Means g. Joint Distribution b. Standard Normal Distribution c. Skewness. Continuous Value/ Discreet Value ii. F Distribution f. Uniform Distribution b. Chi-Square Distribution g. Continuous Probability Distribution a. Probability Mass Function iii. Regression Analysis – Multi-variate. Hypothesis Testing and Statistical Inference a. Confidence intervals. Least Squares Regression ii. Variance. Introduction to Regression Analysis i. Normal/Gaussian Distribution. Discrete Probability Distribution a. Probability Distributions (Multi-Variate) a. Mathematical Expectation g. Log-Normal Distribution d. Mastermind IV. 2-Variable Linear Regression b. Relevance to Risk Management . z-Test and t-Test for Mean f. Poisson Distribution c. Cumulative Distribution Function v. Central Limits theorem. Chi-square test h. Probability Distributions (Single Variable) i. Central Moments. Kurtosis).iiqf. Type-I and Type-II errors d. Populations Parameters and Sample Statistics / Estimators b. Binomial Distribution 2. Moments of Distribution (Mean. Probability Density Function iv.org e. Continuous Time/Discreet Time. Goregaon (East). Student’s t Distribution e. Hypothesis concerning estimators b. Applications and relevance in Risk Management f. Single Variable Linear Regression Quantitative Analysis 1. Biased and Unbiased Estimators 6. p-Values c.(Effect on VaR estimation). Confidence Levels. Mumbai 400065 Phone: +91-22-28797660 Web: www.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Bernoulli Distribution 3. Standardized Moments 3.
Minimum variance hedge ratio . Continuous-time Stochastic Processes a. Discreet/Continuous time systems b. Heteroscedasticity vi. t-Test ii. Equity/Capital/Stock Market b. Measuring portfolio exposures 6. Missing Variables iv. covariance and volatility 14. Futures. Weiner Process / Brownian Motion c.) c. Fixed Income / Debt Market (Government Borrowings. CBLO. Markov Chains b. Markov Process. Futures and Options 5. early exercise 7. Types of Financial Instruments and Financial Markets a. Reverse Repo. Numerical and Analytical Simulation c. American options. Derivatives Market (Forwards. F-Test d. Introduction to Simulation Techniques a. Correlated Random numbers generation . Money Market (Repo. OTC markets. GARCH 15. Royal Palms IT Park.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Forecasting Volatility a. collateral and downgrade triggers 3. Fixed-Income and Interest Rate Derivatives . Processes – Stochastic & Deterministic 10. Volatility term structures Financial Markets and Products 1.Forward. Autocorrelation 9. Mastermind IV. Monte Carlo Simulations 12. Currency / Foreign Exchange (FOREX) Derivatives . Financial/Securities Market Operations – Stock and other Exchanges. Modeling Issues iii. Futures and Options c. Clearing House mechanisms / Clearing Corporation. Goregaon (East). Introduction to Financial Derivatives a. EWMA b. ARCH c. Commodities Derivatives d. Historical Simulation d.iiqf. Intermediaries. etc. Options. Structural Hubs 2. Equity and Equity Index Derivatives . etc. Multi-Collinearity v. Mumbai 400065 Phone: +91-22-28797660 Web: www. effects of dividends. Maximum Likelihood Estimation (MLE) 16.Cholesky Decomposition 13.IRS & FRA b. Trading strategies with derivatives 8. Corporate Borrowings. Hypothesis Testing i. Swaps.) d. Netting.) 4. Statistical properties and forecasting of correlation. Forwards. Brownian motion (ABM/GBM) 11.Swaps. Generalized Weiner Process d.org c. etc.
loan sales. Measurement methods – Full Valuation. Creating value with Risk Management Market efficiency. Estimating Greeks 14. Corporate bonds 14. Definition b. VaR for fixed income securities with embedded options 10. 4. Numerical Methods (Binomial Tree. Derivatives a. equilibrium and the Capital Asset Pricing Model (CAPM) Single-Index Model Systematic/Market/Non-Diversifiable Risk and Non-Systematic/Residual/Diversifiable Risk 5. Tracking Error 9. Stress Testing. credit and operational risk 8. arbitrage. Credit transition matrices 12. Analytical Models (Black-Scholes-Merton) b. Discount factors. 7. Term Structure of Interest Rates / Yield Curve (YTMC. Commodity derivatives. Ethics Valuation and Risk Modeling 1. Brady bonds Foundations of Risk Management 1. credit ratings 11.iiqf. Goregaon (East). Scenario Analysis. Current. Case studies 12. Value-at-Risk (VaR) a. Monte-Carlo Simulation) ii. 2. VaR of Linear and Non-Linear derivatives 9. lease rate. Monte-Carlo Simulation. ZCYC/Spot.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. . etc). Spot Rates and Forward Rates 3. Credit rating agencies. conversion factors 10. Convexity. Limitations of VaR and Alternatives – Tail VaR / CVaR. Historical Simulation. Royal Palms IT Park. 3. convenience yield 11. Mumbai 400065 Phone: +91-22-28797660 Web: www. Mastermind IV. Par Yield Curve. DV01.org 9. Efficient Frontier 6. Factor models and Arbitrage Pricing Theory 10. Basis risk 12. Sovereign risk and country risk evaluation 13. Fixed Income Mathematics – Yields (YTM. Applications of VaR for market. Bond Pricing. Cheapest to deliver bond. Duration Based Hedging 2. yield curves 6. Delta-Normal. Estimating Forward Rates 4. Risk management failures 11. Foreign exchange risk 13. Options Pricing i. Debt equity swaps. Durations. cost of carry. Sharpe ratio and information ratio 8. Performance Measurement and Performance Attribution 7. Forward Rate Curve) 5.
Extreme Value Theory 9.iiqf. tranching and subordination 5. Volatility Smiles/Frowns. Structured finance. Mortgages and mortgage-backed securities (MBS) a. Portfolio credit risk 13.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Credit Spreads 9. Subprime mortgages and subprime securitization 2. Mastermind IV. 3. Expected and Unexpected loss 10. Minimum capital requirements b. Definition of risk capital Allocation of risk capital across the firm Firm-wide risk measurement and management Correlations across market. Credit concentration risk . Royal Palms IT Park. Counterparty risk and OTC derivatives 3. Valuation of mortgage-backed securities Credit Risk Measurement and Management 1. Credit derivatives. rating triggers and collateral) Operational and Integrated Risk Management 1. 5. Copulas and tail dependence 10. Exotic Options 3. Volatility Skews. 7. Term structure models 5. securitization. Volatility Term Structures. Default and default-time correlations 12. Backtesting VaR 6. Mumbai 400065 Phone: +91-22-28797660 Web: www. credit. Risk mitigation techniques (including netting agreement.org PART II Market Risk Measurement and Management 1. 2. Underwriting mortgages b. 6. Expected shortfall and coherent risk measures 8. Collateralized Debt Obligations (CDO) – pricing and risk management 6. Probability of Default (PD). Credit risk management models 14. Volatility Surface 2. Duration and Convexity of fixed income securities 4. Credit Default Swaps (CDS) and Credit-Linked Notes (CLN) 4. Mapping financial instruments to risk factors 7. Risks in mortgages and mortgage-backed securities d. Prepayment models c. Credit Scoring 8. Loss Given Default (LGD) and Recovery Rate. Contingent claim approach and the KMV Model 11. Goregaon (East). 4. and operational risk Evaluating the performance of risk management systems Regulation and the Basel II Accord a.
convert arbitrage. 6. Economic capital and risk aggregation 11. Aggregated distributions a. 6. LD. Loss distributions b. sub-prime CDOs Liquidity crises Use and limitations of VaR Hedge funds and systemic risk . 2. Royal Palms IT Park. Aggregating loss distributions Risk Management and Investment Management 1. 4. Liquidity Risk measures like MCO. merger arbitrage. WBG & MTF 10.INDIAN INSTITUTE OF QUANTITATIVE FINANCE 624. Liquidity risk – Asset Liquidity & Cash-flow Liquidity 9. macro.iiqf. Mastermind IV. 3. distressed debt. Asset illiquidity. valuation. leverage. Pension fund risk management Current Issues In Financial Markets 1. 5. 7. 5. 2. emerging markets) 8. Stress Testing. Stress testing 7. derivatives. Measuring exposures to risk factors (dynamic strategies. 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. Causes and consequences of the current crisis Sub-prime mortgage design Mortgages and securitization. 4. style drift) 11. Liquidity risk d. 3. and risk measurement 9. Implementation and Model Risk 8. Mumbai 400065 Phone: +91-22-28797660 Web: www. Goregaon (East).org c. The use of leverage and derivatives and the risks they create 10. equity long/short-market neutral.
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