FRM Syllabus - Part 1 and Part 2

Before we get into the FRM syllabus, we have to understand who an FRM is. FRM or Financial Risk Manager is a qualified professional who helps a corporation create and implement risk management approaches. FRMs are responsible for assessing, detecting, and managing all financial risks inside a company. The Global Association of Risk Professionals (GARP) provides certification in Financial Risk Manager (FRM). 

FRMs frequently encounter scenarios that are unique to the place in which their organization operates, resulting in various risk situations and the opportunity to capitalize on them to increase returns, produce profits, and build value.

What is the Syllabus of FRM?

The FRM course syllabus covers two levels: FRM Part I and FRM Part II. Here's a brief overview of the structure of each part. 

FRM Level 1 Syllabus:

Below are the FRM subjects that are included in the FRM part 1 syllabus:

Quantitative Analysis
 

• Knowledge of Inferential and Descriptive Statistics.
• Probability and distribution types are used in statistical testing and applications, such as the lognormal and Chi-square distributions.
• Knowledge of using time series analysis and regression in risk management and ex-ante risk forecasting.
• This part has a weightage of 20%.
   

Foundation of Risk Management
 

• Portfolio construction: FRM aspirants study how to create an effective portfolio. Ideas like the capital asset pricing model and Harry Markowitz's efficient frontier are discussed and studied. A brief overview of the risk-return trade-off is provided in this subject using a variety of financial ratios, including the Treynor ratio and the Sharpe ratio.

• GARP code of conduct (Ethics): A crucial component of financial risk management is ethics. The GARP code of conduct aids candidates in learning the proper and improper behavior in the financial industry.
• Financial disasters and case study:This chapter outlines some historical financial mishaps and aids in students' comprehension of each situation to prevent financial catastrophes. Additionally highlighted are the misleading approaches of financial risk management like Ponzi schemes.

• Arbitrage pricing theory: Any financial instrument on the planet must be priced, and this is a crucial principle. When fully comprehended, this will be used to influence bond and derivative pricing in other FRM level 1 portions.
   

Financial Market and Products
 

• This section of the FRM syllabus is one of the longest and most intricate sections. It stands at a whooping weight of 30%. This section aids in understanding the fundamentals of financial market products such as futures, forwards, stock options, swaps, and fixed income, as its name implies.
• While discussing derivative products on equity and other instruments, this section does not spend much time on equities. 
• To do well in this area, candidates must thoroughly comprehend the financial instruments' pricing, payoffs, and characteristics.

Valuation and Risk Models

• This section focuses on the value at risk and severe risk measures such as projected shortfall and unexpected loss. Candidates will get a thorough grasp of stress testing and scenario analysis, which are very critical components in calibrating regulatory risk and enterprise-level risk.
• This section also covers the notion of bond and option value. The weightage to this section is 30%.
• This section can further be segregated into the following:

Valuation: Discusses some of the most fascinating valuation concepts, such as the binomial model and the BSM model. This section provides an overview of Greeks in options and bond valuation.
Risk management: Makes you familiar with concepts such as VAR, Estimated Shortfall, and Stress Testing. This topic is extensively explored in FRM level 2.

FRM Level 2 Syllabus:

The FRM Part 2 syllabus includes the below subjects:

Market Risk Measurement and Management:

Market Risk is the most active and engaging component of the FRM part II curriculum. The candidate must comprehend VAR and ES calculations using both parametric and non-parametric approaches. Back-testing of these methodologies is extensively described. As a risk manager, you should grasp the impact, attributes, and behavior of correlation in various market scenarios.

The key points covered in Market Risk and Management are:

• VaR and other risk measures (parametric and nonparametric techniques of estimate, VaR mapping, backtesting VaR, ES, and other coherent risk measures, Extreme Value Theory (EVT).
• Modeling dependency with correlations and copulas.
• Interest-rate term structure models.
• Smiles and term structures both exhibit volatility.
• Fundamental Review of the Trading Book (FRTB).

Credit Risk Measurement and Management

One of the important parts of FRM Part 1 syllabus, Credit risk, is the most important topic to tackle from an occupational point of view. This section has highlighted all of the Probability of Default modeling options (structural, reduced, factor, and credit scoring models). Counterparty risk, the most common employment in the risk industry, has been widely addressed. Securitization and securitized products have also been considered from a credit risk perspective.

The key points covered in this FRM exam syllabus are:

• Credit analysis
• Default risk: quantitative methodologies
• Expected and unexpected loss
• Credit VAR
• Counterparty risk
• Credit derivatives
• Structured finance and securitization

Read More:

• What is Financial Modeling?
• How to Become an Investment Banker after CA?
• ACCA Salary - Detailed Breakdown
• FRM Salary in India
• CFA vs FRM

 

Conclusion:

The FRM course, separated into Parts 1 and 2, includes a wide range of risk management subjects, including quantitative analysis, market risk management, and credit risk assessment. Each component goes deeply into theoretical foundations and practical applications, helping students to successfully address real-world situations. While the FRM tests are noted for their quantitative rigor and require extensive study, the certification leads to significant employment prospects in risk management. Individuals with a love for finance and risk analysis can effectively seek the FRM certification and improve their professional credentials, whether they study on their own or get formal mentoring.

 

Frequently Asked Questions (FAQs)

What is the syllabus of the FRM exam?

FRM Syllabus: Sections & Topics Covered:

Levels	FRM Syllabus	Weightage
FRM Part 1	Quantitative Analysis	20%
Valuation & Risk Models	30%
Financial Markets & Products	30%
FRM Part 2	Credit Risk Management	25 %

Is FRM Level 1 difficult?

The FRM test is very quantitative, and the curriculum requires a significant amount of time to learn. FRM Part I is more commonly failed than passed, and only half of those who take the FRM Part II test pass.

Is 3 months enough for FRM Part 2?

Yes, you can study for both the FRM Level 1 and Level 2 tests in 3-4 months, but it will be a rigorous procedure requiring a very disciplined approach.

Can I crack FRM without coaching?

Certainly, one may only pass FRM exams if they receive coaching. This is for people with an extensive finance understanding and a risk and statistics background. If you are a fresher, it is advised that you get instruction because you need more or a grasp of the principles.

Is FRM tougher than an MBA?

While an MBA is a two-year program that includes internships and tests, completing the FRM-accredited course is more difficult since it involves devotion and hard effort from the participant.