Section 4: Valuation and Risk Models (Weightage: 30%) Again, preparation strategy should involve picking the right source for mastering the concepts, backed strongly with practice. These readings truly form the foundation of Part II – only if these financial products are mastered fully will the candidate be able to understand and appreciate the risks (market risk, credit risk, model risk) stemming from their use. It spans around 20 readings that cover topics in mechanics of OTC and exchange markets, introduction to various instruments (features, payoffs, pricing) and their applications (hedging and trading strategies). The most voluminous section of the four, this section is worthy of a bigger allocation of your preparation time. Section 3: Financial Markets and Products (Weightage: 30%) Barring these readings, this section is relatively light on formulas and more focused on providing you with a big picture view of the risk management function. Readings also focus on basics of finance theory (analysis and evaluation of securities in portfolio context, performance evaluation and arbitrage pricing theory) for benefit of candidates who do not have prior exposure to these topics. Spanning a set of around 11 readings, this section also exposes candidates to value creation through risk management and financial disasters that have their roots in the lack of or misguided applications of risk management principles. This section introduces you to Financial Risk Management – risk terminology, risk categories and types. Section 2: Foundations of Risk Management (Weightage: 20%) Preparation strategy should involve reading up these topics from the right source (not summarized notes) and lots of practice. Although relatively underweighted at 20%, it is an extremely important section as it underpins other sections of Part I and Part II curriculum. simulation methods, volatility and correlation). Spanning around 13 readings, topics include probability, random variables, distributions, statistical inference and hypothesis testing, econometrics, time series analysis and numerical methods (e.g. This section introduces various quantitative techniques. Section 1: Quantitative Analysis (Weightage: 20%) Topics covered in this Part are categorized into four sections outlined below (along with their respective weightages). The Part I syllabus lends itself more naturally to numerical based questions, so practice should form a key element of your preparation strategy. The format of the exam is 100 multiple choice questions (no negative marking) to be completed in a time frame of 4 hours. The FRM Exam Part I Syllabus aims to build a strong foundation to help candidates understand and appreciate concepts in Financial Risk Management.
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