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2014
FRMExaminationStudy GuideChanges2013 to 2014
FRM® Examination Study Guide Changes for 2014
© 2014 Global Association of Risk Professionals. All rights reserved. 1
FRM PART I CHANGES
FOUNDATIONS OF RISK MANAGEMENT
Additions:
1. “Understanding and Communicating Risk Appetite” (COSO, written by Dr. Larry Rittenberg and Frank Martens,
January 2012).
2. Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 9th Edition (New York: McGraw-Hill, 2010).
• Chapter 10................................Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Deletions:
3. Edwin J. Elton, Martin J. Gruber, Stephen J. Brown and William N. Goetzmann, Modern Portfolio Theory and
Investment Analysis, 8th Edition (Hoboken, NJ: John Wiley & Sons, 2009).
• Chapter 5..................................Delineating Efficient Portfolios
• Chapter 14 ................................Nonstandard Forms of Capital Asset Pricing Models
Knowledge Point Changes:
• “The role of risk management” has been changed to “The role of risk management in corporate governance” to better
reflect the curriculum material.
• “Modern Portfolio Theory” has been removed to reflect the removal of Elton Chapter 5.
• “Standard and non-standard forms of the Capital Asset Pricing Model” has been changed to “The Capital Asset
Pricing Model” to reflect the removal of Elton Chapter 14.
• “Index models” has been changed to “Multi-factor models” to reflect the inclusion of Bodie/Kane/Marcus Chapter 10.
• “Information risk and data quality management” has been added to reflect the (prior) inclusion of Tarantino and
Cernauskas Chapter 3.
• “Case studies” has been removed since the case studies are adequately covered under “Financial disasters and risk
management failures.”
2 © 2014 Global Association of Risk Professionals. All rights reserved.
FRM® Examination Study Guide Changes for 2014
QUANTITATIVE ANALYSIS
Additions:
1. Dessislava Pachamanova and Frank Fabozzi, Simulation and Optimization in Finance
(Hoboken, NJ: John Wiley & Sons, 2010).
• Chapter 4 .................................Simulation Modeling
Deletions:
2. Philippe Jorion, Value-at-Risk: The New Benchmark for Managing Financial Risk, 3rd Edition
(New York: McGraw Hill, 2007).
• Chapter 12 ................................Monte Carlo Methods
Knowledge Point Changes:
• “Monte Carlo Methods” has been changed to “Simulation methods” to reflect the two changes above.
FRM® Examination Study Guide Changes for 2014
© 2014 Global Association of Risk Professionals. All rights reserved. 3
FINANCIAL MARKETS AND PRODUCTS
Additions:
1. The Institute for Financial Markets, Futures and Options (Washington, DC: The Institute for Financial Markets, 2011).
• Chapter 1...................................Introduction: Futures and Options Markets
• Chapter 2..................................Futures Industry Institutions and Professionals
• Chapter 7..................................Hedging with Futures and Options
Deletions:
None.
Knowledge Point Changes:
None.
4 © 2014 Global Association of Risk Professionals. All rights reserved.
FRM® Examination Study Guide Changes for 2014
VALUATION AND RISK MODELS
Additions:
1. Daniel Wagner, Managing Country Risk: A Practitioner’s Guide to Effective Cross-Border Risk Analysis
(Boca Raton, FL: Taylor & Francis Group, 2012).
• Chapter 3..................................Assessing Country Risk
• Chapter 4 .................................Country Risk Assessment in Practice
Deletions:
2. Caouette, Altman, Narayanan, and Nimmo, Managing Credit Risk, 2nd Edition (New York: John Wiley & Sons, 2008).
• Chapter 23 ...............................Country Risk Models
Knowledge Point Changes:
• Two minor knowledge points under Value-at-Risk: “Applied to linear and non-linear derivatives” and “Applied to fixed
income securities with embedded options” have been combined into one minor knowledge point.
• “Fundamental Analysis” as a minor knowledge point under “Country and sovereign risk models and management”
has been removed to reflect the section’s focus on risk management.
FRM® Examination Study Guide Changes for 2014
© 2014 Global Association of Risk Professionals. All rights reserved. 5
FRM PART II CHANGES
MARKET RISK MEASUREMENT AND MANAGEMENT
Additions:
1. Jacob Boudoukh, Matthew Richardson and Robert F. Whitelaw, “The Best of Both Worlds: A Hybrid Approach to
Calculating Value at Risk,” Stern School of Business, NYU.
2. John Hull and Alan White, “Incorporating Volatility Updating into the Historical Simulation Method for Value at Risk,”
Journal of Risk, October 1998.
3. John Hull and Alan White, “LIBOR vs. OIS: The Derivatives Discounting Dilemma,” April 2013. Forthcoming in the
Journal of Investment Management.
Deletions:
None.
Knowledge Point Changes:
• “Discount rate selection” has been added to reflect the inclusion of “LIBOR vs. OIS: The Derivatives Discounting Dilemma.”
• “Fixed income securities” and “Risk neutral pricing” have been replaced by “Term structure models of interest rates”
to streamline the list.
6 © 2014 Global Association of Risk Professionals. All rights reserved.
FRM® Examination Study Guide Changes for 2014
CREDIT RISK MEASUREMENT AND MANAGEMENTThe changes in this section reflect an update to the 2nd Edition of the Jon Gregory book, as well as the chapter on wrong-
way risk being re-added to the curriculum.
Additions:
1. Jonathan Golin and Philippe Delhaise, The Bank Credit Analysis Handbook (Hoboken, NJ: John Wiley & Sons, 2013).
• Chapter 1...................................The Credit Decision
• Chapter 2..................................The Credit Analyst
2. Jon Gregory, Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial
Markets, 2nd Edition. (West Sussex, UK: John Wiley & Sons, 2012). ISBN 978-1118316672.
• Chapter 3..................................Defining Counterparty Credit Risk
• Chapter 4 .................................Netting, Compression, Resets, and Termination Features
• Chapter 5..................................Collateral
• Chapter 8..................................Credit Exposure
• Chapter 10................................Default Probability, Credit Spreads, and Credit Derivatives
• Chapter 12 ................................Credit Value Adjustment
• Chapter 15 ................................Wrong Way Risk
Deletions:
3. Jon Gregory, Counterparty Credit Risk: The New Challenge for Global Financial Markets
(West Sussex, UK: John Wiley & Sons, 2010).
Replaced by the 2nd Edition Gregory chapters above.
• Chapter 2..................................Defining Counterparty Credit Risk
• Chapter 3..................................Mitigating Counterparty Credit Risk
• Chapter 4 .................................Quantifying Counterparty Credit Exposure, I
• Chapter 5..................................Quantifying Counterparty Credit Exposure, II: The Impact of Collateral
• Chapter 7..................................Pricing Counterparty Credit Risk, I
Knowledge Point Changes:
• “Credit analysis” has been added to reflect the Golin and Delhaise reading.
• “Default risk” and its sub-bullets have been combined to make “Default risk: Quantitative methodologies and risk
neutral valuations” in order to streamline the list.
• “Tranching, subordination, and support” has been replaced by “Subprime mortgages and securitization” in order to
streamline the list.
• The sub-bullets under “Credit derivatives” have been condensed to make “Mechanics and structure” and “Valuation
and spreads” in order to streamline the list.
FRM® Examination Study Guide Changes for 2014
© 2014 Global Association of Risk Professionals. All rights reserved. 7
OPERATIONAL AND INTEGRATED RISK MANAGEMENT
Additions:
1. “Principles for Effective Data Aggregation and Risk Reporting,” (Basel Committee on Banking Supervision
Publication, January 2013).
2. “Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools,” (Basel Committee on Banking
Supervision Publication, January 2013).
Deletions:
3. “Basel III: International Framework for Liquidity Risk Measurement,” (Basel Committee on Banking Supervision
Publication, December 2010).
Knowledge Point Changes:
• “Data aggregation and risk reporting” has been added to reflect the proposed new Basel data aggregation reading.
8 © 2014 Global Association of Risk Professionals. All rights reserved.
FRM® Examination Study Guide Changes for 2014
RISK MANAGEMENT AND INVESTMENT MANAGEMENT
Additions:
1. Kevin R. Mirabile, Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits,
and Fund Performance (Wiley Finance). ISBN 978-1118281222.
• Chapter 11 .................................Performing Due Diligence on Specific Managers and Funds
Deletions:
2. Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 9th Edition (New York: McGraw Hill, 2010).
• Chapter 13 ................................Empirical Evidence on Security Returns
3. David P. Stowell, An Introduction to Investment Banks, Hedge Funds, and Private Equity (Academic Press, 2010).
• Chapter 11 .................................Overview of Hedge Funds
• Chapter 12 ................................Hedge Fund Investment Strategies
• Chapter 16 ................................Overview of Private Equity
4. Stephen Brown, William Goetzmann, Bing Liang, Christopher Schwarz, “Trust and Delegation,” May 28, 2010.
5. Greg N. Gregoriou and François-Serge Lhabitant, “Madoff: A Riot of Red Flags,” December, 2008.
Knowledge Point Changes:
• “Tests of the Capital Asset Pricing Model” has been removed due to the removal of Bodie, Kane and Marcus Chapter 13.
• “Private Equity” has been removed due to the removal of Stowell Chapter 16.
• “Portfolio and component VaR” has been replaced by “Portfolio risk measures.”
FRM® Examination Study Guide Changes for 2014
© 2014 Global Association of Risk Professionals. All rights reserved. 9
CURRENT ISSUES IN FINANCIAL MARKETS
Additions:
1. U.S. House of Representatives Subcommittee Report on MF Global (through p. 75), November 2012.*
2. “JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses—Executive Summary,” U.S. Senate
Subcommittee on Investigations, April 2013.*
3. "Towards Better Reference Rate Practices: A Central Bank Perspective," Working Group Established by the BIS
Economic Consultative Committee, March 2013.*
4. “OTC Derivatives: A Comparative Analysis of Regulation in the United States, European Union, and Singapore.”
(Rajarshi Aroskar, IFM Review of Futures Markets, Volume 21, March 2013).*
5. “A New Look at the Role of Sovereign Credit Default Swaps,” IMF Global Financial Stability Report, Chapter 2,
April 2013.*
6. “Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice,”
Board of Governors of the Federal Reserve System, August 2013.
Deletions:
7. All except for Caruana and Avdjiev, “Sovereign Creditworthiness and Financial Stability: An International Perspective.”
Knowledge Point Changes:
• The previous Current Issues knowledge points have been replaced by six new knowledge points to reflect the new
readings as follows:
• Risk management case studies
• Reference interest rates
• Comparative regulations for OTC derivatives
• Sovereign credit default swaps: roles and regulations
• Capital planning at large banks
• The European credit crisis and transmission of sovereign risks
2014 FRM Committee Members
Dr. René Stulz (Chairman)...................................................Ohio State University
Richard Apostolik ...................................................................Global Association of Risk Professionals
Richard Brandt.........................................................................Citibank
Dr. Christopher Donohue.....................................................Global Association of Risk Professionals
Hervé Geny................................................................................London Stock Exchange
Keith Isaac, FRM......................................................................TD Bank
Kai Leifert, FRM .......................................................................Northern Trust Global Investments
Steve Lerit, CFA.......................................................................UBS Wealth Management
William May...............................................................................Global Association of Risk Professionals
Michelle McCarthy ..................................................................Nuveen Investments
Adolfo Montoro, FRM............................................................Deutsche Bank
Ezra Uzi Moualem, FRM .......................................................The Financial Institute of Israel & ZRisk
Dr. Victor Ng .............................................................................Goldman Sachs & Co
Dr. Elliot Noma.........................................................................Garrett Asset Management
Liu Ruixia....................................................................................Industrial and Commercial Bank of China
Robert Scanlon ........................................................................Scanlon Associates
Dr. Til Schuermann .................................................................Oliver Wyman
Serge Sverdlov.........................................................................Redmond Analytics
Alan Weindorf ..........................................................................Visa
Creating a culture of risk awareness®
Global Association ofRisk Professionals
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www.garp.org
© 2014 Global Association of Risk Professionals. All rights reserved. 11-22-13
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated topreparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members andAffiliates from banks, investment management firms, government agencies, academic institutions, and corporations from more than195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) Exams;certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensiveprofessional education and training for professionals of all levels. www.garp.org.