Last updated on October 23rd, 2024 at 03:41 pm
Financial risk management qualification from GARP, one of the fastest growing professional qualification. In this article, I will take you through the detailed FRM Syllabus and walkthrough for optimum preparation.
FRM Syllabus Overview
Below I have shown the broader classification of subjects across 4 areas. More or less in my experience, and understanding of the syllabus the FRM level 1 is majorly foundational. As you can see from the FRM Course syllabus below, that higher weightage is towards topics like financial markets.
FRM PART 1 SYLLABUS
The FRM subjects in part 1 include;
- Foundations of risk management
- Quantitative analysis
- Financial Markets and Products
- Valuation and Risk models.
FRM PART 2 SYLLABUS
Similarly, FRM course subjects for part 2 include;
- Market risk measurement and management
- Credit risk measurement and management
- Operational and integrated risk management
- Liquidity and treasury risk management
- Risk management and investment management
- And Current issues in financial markets.
In contrast to the FRM subjects in the part 1, the more risk management relevant content is makes its way in part 2. Especially topics like Market risk measurement, credit risk measurement, risk measurement and management etc.
Detailed FRM Syllabus & FRM Course subjects
Now that you know the overview of what the FRM subjects include, let me now take you through some detailed walkthrough. And also share my personal experience of such topics in the industry.
FRM level 1 Syllabus- 5 Tips on Preparation
Here are my top five preparation tips for each subject of the FRM Part 1 based on the 2024 FRM Study Guide and I am sharing this based on how I prepared.
Foundations of Risk Management
1. Understand Key Concepts: I focus on grasping the foundational concepts like different types of risk, risk measurement, and the tools used for risk management. It’s important to comprehend how these concepts add value to an organization.
2. Study Governance Models: I delve into risk governance and corporate governance, paying close attention to the roles and responsibilities of the board of directors and risk committees.
3. Credit Risk Transfer Mechanisms: I dive deep into the mechanisms of credit risk transfer, such as credit derivatives and securitization, because understanding these concepts is crucial for the exam.
4. Ethics and Conduct: I familiarize myself with the GARP Code of Conduct and the ethical considerations in risk management since ethics questions are a significant part of the exam.
5. Review Case Studies: I study historical financial disasters and risk management failures to understand the practical applications and implications of risk management principles.
Quantitative Analysis
1. Probability and Statistics: I master discrete and continuous probability distributions and learn how to estimate parameters of these distributions.
2. Regression Analysis: I gain a thorough understanding of linear regression, including both simple and multiple regressors, and how to apply these techniques to risk management scenarios.
3. Time Series Analysis: I learn the fundamentals of time series analysis and forecasting, making sure I’m proficient in modeling both stationary and non-stationary time series.
4. Simulation Methods: I study Monte Carlo simulation and bootstrapping techniques, focusing on their applications in risk management.
5. Machine Learning Basics: I get a basic understanding of machine learning methods and their applications in risk management, including the differences between various machine learning models.
Financial Markets and Products
1. Market Structure: I understand the structure and mechanics of both over-the-counter (OTC) and exchange markets.
2. Derivatives: I study the valuation and mechanics of forwards, futures, swaps, and options, and learn how to apply these concepts to hedging strategies.
3. Interest Rates: I learn about interest rates and measures of interest rate sensitivity, including concepts like duration and convexity.
4. Foreign Exchange: I understand foreign exchange risk and how to manage it, including multicurrency hedging strategies.
5. Securities: I study the structure and characteristics of corporate bonds and mortgage-backed securities (MBS).
Valuation and Risk Models
1. Value-at-Risk (VaR): I gain a thorough understanding of VaR, including different estimation methods and its application in risk management.
2. Volatility and Correlation: I learn methods for estimating volatility and correlation and understand their implications in risk models.
3. Economic and Regulatory Capital: I study the concepts of economic capital and regulatory capital, including stress testing and scenario analysis.
4. Option Valuation: I understand option valuation models, including binomial trees and the Black-Scholes-Merton model.
5. Fixed-Income Valuation: I learn about the valuation of fixed-income instruments, such as bonds, and the application of concepts like duration and convexity in hedging.
These tips have been invaluable in helping me focus on the key areas for each subject and prepare effectively for the FRM Part 1 exam.
FRM Level 2 Syllabus- 5 Tips on Preparation
So, again let me dive into sub basics of FRM level 2 subjects, which will give you an insight on the expectation.
Market Risk Measurement & Management
Out here VAR(value at risk is a major concept). And in my own experience working with hedge funds, have realised the importance of VAR. If you want to understand the basic meaning, then basically VAR is answering the following questions;
- How much can you loose at a given unforeseen event.
- What is the probability of it
- What would be the probably losses that might be caused with probabilities.
Credit Risk Measurement & Management
So, in my opinion this is just an extension of Market risk topic, however it particularly discussed the credit side. The major topics like credit VAR, Default risk is covered in this content. You should try to understand this content more from derivatives and securitisation.
Operation Risk
Apart from the very generic non finance related topics like cyber security risk. One of my favourite discussions is related to risk adjusted performance measure. For example; Risk adjusted Return on capital, which takes into consideration the profits considering the operating costs and losses.
Liquidity and Treasury Risk Measurement & Management
This topic focussed on the aspects of liquidity and contingencies that a business should build. The content digs into advance topics like asset liability management.
Risk Management & Investment Management
So these reading are more tilted towards portfolio management theories. Like efficient theory hypothesis, risk budgeting etc.
Current Issues in Financial Markets
What I like about this subject & topic is that it lets you dig deeper into the previous big failures in financial markets. Including the 2023 bank failures, Effect of AI, Block chain etc.
Frequently Asked Questions
What is the syllabus of FRM?
Below is the detailed syllabus of FRM PART 1 &2.
Is FRM Harder than CFA?
At a very broad generic level, FRM is not harder than CFA, which is pretty clear by looking at the pass rates of FRM. FRM pass rates are at higher of 60% in part 2 and upwards of 40% in Part 1.
Is FRM Level 1 easy?
It can be easy if you have already done CFA level 1, because there are a lot of common topics. However, for a total beginner, it can be slightly difficult to create the perspective. Since you are directly getting into a more specialised content before covering the foundational content like CFA.
Is 6 Months enough for FRM Part 1?
Any frm program study plan recommends at least 200 hrs of content preparation. Hence considering that you have 180 days and even if you just manage to maintain 2 hrs per day, then 6 months is more than enough.
What is the Pass rate of FRM Level 1?
FRM level 1 pass rate stands at around 45% .
