Financial Risk Manager (FRM)
Sample Study Notes
Sample Movies Tutorials
Sample tutorials run < 10 minutes. Members have several viewing options. PowerPoint slides are downloadable as flash cards
2008 Episode 12 (OpRisk C) - sample—Aug 24
This is Part 1/1 of Operational Risk C, which primarily reviews Basel II. The Basel review includes overview of capital definition; treatment of credit risk, market risk and operational risk; the three pillars; Studies on Credit Concentration; and the internal ratings-based (IRB) function. Also, Chapter 10 of de Servigny (Regulation) and Corrigan II (CRMPG II). Both parts 1 & 2 link to the same 112-page PowerPoint deck.
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2008 Episode 11 (OpRisk B), sample—Aug 09
This is Operational Risk Episode B (in two parts. Part 1 is 1 hour and Part 2 is 45 min). OpRisk B review enterprise risk management (ERM), Stulz Chapter 2 & 3 on the relationship between firm value and risk management, financial conglomerates, capital allocation/RAROC (Crouhy), Case Studies, and Liquidity Riks (Culp). Please note: the same 95-page PowerPoint deck is downloadable in either part 1 or parts.
(1 hr 45 min.)
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2008 Episode 10 (OpRisk A), Part 1 (sample)—Jul 27
This is only a sample of Operational Risk Episode A (in two parts. Part 1 is 70 minutes and Part 2 is 50 minutes). OpRisk A is a review of the five assigned readings in the operational risk sub-discipline called "Operational Risk Management:" Linda Allen on Extending VaR to OpRisk; the key reading by Deutsche Bank on LDA at Work; Boecker on Operational VaR; Bolton on Aligning Basel II & SOX 404; Saunders on Technology; and Kevin Dowd on Model Risk. Please note: the same 129-page PowerPoint deck is downloadable in either part 1 or part 2.
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2008 Episode 9 (Credit C), Part 1 - sample—Jul 12
This is Credit Risk C (managing credit risk). This episode has two parts (part 1 = 1 hour, part 2 = 50 min.). This episode reviews: Stulz Chapter 18 on Credit Risks; Meissner Chapter 3 on Synthetic Structures (CLN, cash and synthetic CDO); de Servigny Chapter 6 (Credit Risk Portfolio Models) and Chapter 7 (Credit Risk Management) and John Hull on Credit Derivatives. There is a single 105-page PowerPoint deck.
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2008 Episode 8 (Credit B), Part 1 (sample)—Jun 29
This is only a ten minute sample.The first part of this episode reviews counterparty credit risk (readings by Canabarro and Picoult) including Monte Carlo simulation. The second part reviews securitization, which will also serve to introduce the next episode on credit derivatives. The two reviewed securitization readings are Culp on the motives and mechanics of securitized structures and the subprime case study.
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2008 Episode 7 (Credit A), Part 1 (sample)—Jun 15
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2008 Episode 6 (Market C), Part 1 (sample)—Jun 01
Part 1 (one hour) reviews value at risk (VaR) methods, VaR mapping, stress testing and FX risk. Part 2 (45 min) reviews Stulz on cash flow at risk (CFaR) and VaR impact of projects on a firm. This sample is the first 10 to 15 minutes.
(60 min.)
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2008 Episode 5 (Market B), Part 1 (sample)—May 18
This is the first few minutes of episode #5 (Fixed Income). The full episode is 2 hours over 2 parts (60 min + 60 min).
(120 min.)
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2008 Episode 4 (Market A), Part 1 (sample)—May 04
(2 hr. 30 min.)
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2008 Episode 3 (Quant C), Part 1 (sample)—Apr 20
This is Episode 3, Part 1 (45 min of 1.5 hours). A review of Gujarati's Chapter 5 on Statistical Inference. Includes: terminology (PRF vs. SRF), construction of confidence interval, Type I & II errors, hypothesis test (using student's t, chi-square and F distribution), and the p value.
(45 min.)
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2008 FRM Episode 2 (Sample) - Quant B—Apr 07
This is the first 15 minutes (a sample) of the first episode of the 2008 "regular season" for the FRM exam. This reviews Gujarati's first four chapters of econometrics. This includes probability concepts, an introduction to distributions and four important distributions: normal, student's t, chi-square, and F distribution.
(15 min.)
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2008 FRM Episode 1 (Sample) - Quant A—Mar 22
This is the first 20 minutes (a sample) of the first episode of the 2008 "regular season" for the FRM exam. This reviews Allen's Quantifying Volatility in VaR Models and Wilmott's Introduction to VaR. There is a table of contents but you must select the small icon to the right of the sound icon on the control bar (at bottom).
(20 min)
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About 2008 FRM—Mar 16
An 11 minute introduction to (i) the 2008 FRM, (ii) the 2008 Calendar, and (iii) the Bionic Turtle's FRM test preparation service
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FRM Early Bird Episode #8—Mar 02
A 30-minute introduction to the ideas that anchor option pricing models. First, put-call parity: two equivalent portfolio constructions allow us to link the price of a call (c) to the price of a put (p). Second, under the binomial model, the no-arbitrage portfolio (i.e., short 1.0 option and long Delta shares) allows us to price the option. Third. risk-neutral pricing: the exercise of pricing the option under a riskless assumption and producing a result that applies in the real world. Fourth, an introduction to the Black-Scholes Merton.
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FRM Early Bird Episode #7—Feb 23
This is an introduction to bond pricing and two single-factor sensitivities: duration and DV01. We distinguish between Macaulay duration (years to cash flows) and modified duration (% change in price for 1% change in yield) and consider why convexity is important.
(30 min.)
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FRM Early Bird Episode #6—Feb 17
An introduction to volatility estimates under moving average (MA), exponentially weighted moving average (EWMA), and GARCH(1,1).
(30 min.)
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FRM Early Bird Episode #5—Feb 10
A refresher (or introduction) on first-order derivatives that play an important role in risk measurement. We look at a few of the derivative rules like power rule. We also briefly consider the Taylor Series Expansion. Finally, we consider the commonality of the first derivative across asset classes: duration for bonds, delta for options, and marginal VaR for portfolio VaR.
(20 min.)
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FRM 2008 Early Bird - Episode #4—Feb 03
This episode introduces a simple function in each of three asset classes: CAPM for equities, price of zero-coupon bond, and price/value of a forward (using cost of carry). Emphasis on the idea that CAPM is just a special case of multifactor model
(30 min.)
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FRM 2008 Early Bird - Episode #3—Jan 26
An introduction to (refresher on) linear regression. The emphasis here is on SSR + SSE = SST. The coefficient of determination = SSR/SST = [correlation coefficient]^2. Further, I emphasize the standard error of the estimate (SEE). This is analogous to the standard deviation; it captures the dispersion of actual observations from the "predicted Y" line.
(20 min.)
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FRM 2008 Early Bird - Episode #2—Jan 20
For week 2 of the FRM 2008 early bird, I recorded a 30-minute tutorial that introduces three basic distributions: binomial distribution (discrete), poisson distribution (discrete), and the normal distribution (continuous). How important are distributions? “Any risk measure at its most basic level involves an attempt to capture or summarize the shape of an underlying density function…†- Kevin Dowd, Market Risk
(30 min.)
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2008 FRM Early-bird No. 1—Jan 08
This is the first early bird tutorial for the 2008 FRM. The topics are: notation (Greek symbols), logarithms, random variables, random variable distributions (pdf & cumulative) and a brief introduction to matrices (55 min.)
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Basel II cheatsheet (sample)—Nov 04
This is a video review of the Basel II cheatsheet. This does not replace the full length tutorial; rather this a quick review of the three pillars, the three risk buckets (credit, market, operational) and we briefly consider the IRB function.
(30 min.)
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13. Cram Session, Part 2 (sample)—Nov 03
Part 2 of the cram session reviews: forwards, hedges, Black-Scholes, credit loss losses, credit risk transfer, operational risk, factor models, MPT and risk-adjusted returns
(1 hr. 20 min.)
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13. Cram Session, Part 1 (sample)—Nov 02
Part 1 of the Cram Session reviews eight key areas: Calculator, VaR approaches (including covariance), Porfolio VaR (e.g., marginal VaR), Normal & the limits and solutions to the problems of normality (e.g., EVT), Significance Testing, Volatility, First derivatives (e.g., delta, duration), and simulations.
(1 hr 25 min.)
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12. Investment risk, Part 2 (sample)—Oct 19
This is Part 2 of Investment Risk (and the final tutorial in the 2007 FRM regular series). The is a review of learning outcomes 42.1 through 45.16 (hedge fund topics). This includes individual hedge fund strategies (LO 42.x), benchmarking, style drift, fund of hedge funds (FoHF) and, importantly, the Stulz discussion of hedge funds (e.g., comparison of hedge funds to mutual funds).
(1 hr 23 min)
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12. Investment risk, Part 1 (sample)—Oct 05
Part 1 of the investment risk (the 5th Module in the FRM Study Guide). This includes portfolio VaR concepts and VaR in investment management (Jorion's Chapters 7 & 17), Markowitz MPT and capital structure (Stulz), and multifactor models. This is a review of learning outcomes 9.1 - 9.11, 17.1 - 17.13 and 39.1 thru 41.15.
(1 hr 30 min.)
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11. Basel II (sample)—Sep 21
A review of learning outcomes linked to Basel Accords. The first group is introductory (LO 67.1 - 67.7). The second group (LO 68.1 to 68.20) reviews Basel II in more detail. This includes three pillars, IRB approaches, the additional studies, mitigation and securitization.
(1 hr 15 min.)
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10. Operational Risk, Part 2 (sample)—Sep 13
Part 2 reviews: Case studies, including Amaranth (LO 60-61), Enterprise risk management (ERM, LO 62), The CRMGP II report and the PWG report on private capital pools (LO 63-64), Risk-adjusted return on capital (RAROC, LO 65), and Strategic capital allocation (LO 66)
(1 hr 15 min.)
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10. Operational Risk, Part 1 (sample)—Sep 07
This is a ten minute sample of a 1 hour 15 minute review of operational risk (part 1). This review covers operational risk definitions (LO 56.x) and approaches (LO 57.x). Further, we review modeling (i.e., TAN distribution, LO 58.x) and model risk (LO 59.x)
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9. Advanced Credit Risk, Part 2 (sample)—Aug 25
First ten minutes of the tutorial that reviews credit derivatives, synthetics, and applications. This includes credit default swaps (CDS), credit linked notes (CLN), cash and synthetic CDOs and other synthetic derivatives.
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9. Advanced Credit Risk, Part 1 (sample)—Aug 24
This is the first ten minutes of a 1.5 hour tutorial on Advanced Credit Risk (1 of 2 parts). This tutorial reviews Learning Outcomes 51.1 to 52.8. This includes the Merton model, the KMV approach to EDF, scoring models for credit risk and the credit risk portfolio models (CreditMetrics, Portfolio Manager, PRT, CPV, and CreditRisk+). Also, this includes a very important section for the FRM: expected loss (EL), unexpected loss (UL), economic capital (EC) and expected shortfall (ES).
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8. Credit Risk - Part 1 (sample)—Aug 10
This is a review of learning outcomes 46.x to 50.x: Individual loan risk, sovereign risk, loan securitization, counterparty risk, and external rating agencies (default risk). This sample is only the first ten minutes. Customers can download the 100+ page PowerPoint deck.
(1 hr. 30 min.)
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Derivatives - Part 2 (sample)—Jul 30
This is a comprehensive review of stock options. For the FRM, that's learning outcomes LO 32.x to LO 38.x. We review the mechanics and properties of stock options, option pricing models (binomial and Black-Scholes), volatility smile, option trading strategies (e.g., covered call), the Greeks (e.g., Delta, Vega) and exotics (e.g., shouts, exchange options).
(2 hours)
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Derivatives - Part 1 (sample)—Jul 27
This 99-minute tutorial reviews forwards, futures and swaps. Key to futures is the cost-of-carry model (we share a single framework the covers all variations on the cost-of-carry model). We review hedging strategies, influences on the shape of commodity future curves, and we value both an interest rate swap and a currency swap.
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Monte Carlo under GBM—Jul 19
14-minute overview of a model that illustrates a simple Monte Carlo simulation: 40 trials of geometric Brownian motion (GBM)
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Fixed Income (LO 21-26) - Part 2 (sample)—Jul 13
Part 2 of the Fixed Income tutorial. We review the so-called advanced topics: (1) Interest rate sensitivity as captured by the key rate shift technique; (2) Bond pricing with the binomial pricing tree (risk-neutral pricing); and (3) a review of mortgage-backed securities (MBS) including characteristics of the mortgage pass-through security.
(1 hour)
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Fixed Income (LO 21-26) - Part 1 (sample)—Jul 13
Part 1 of our tutorial on Fixed Income. We review Learning Outcomes (LOs) 21.1 through 23.13. This includes yield to maturity (YTM), two examples of calculating accrued interest, and compounding frequencies. For bond valuation, we review the discount function, spot rates, and the calculation of forward rates. Finally, we review the critical measures of interest rate risk: DV01, duration (effective, Macaulay, and modified), convexity; we apply duration and convexity together; we look at impacts on duration, including portfolio shape (barbell versus bullet).
(1 hr. 35 min)
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Market Risk (LO 18.1 - 20.6) (sample)—Jun 29
This is a 10 minute sample from Friday's movie on Market Risk. This tutorial covers market risk, which is primarily concerned with four topics (value at risk was treated previously): market risk, foreign exchange risk, cash flow exposure (including the relationship between foreign exchange factors and cash flow) and liquidity. The full tutorial is one hour and 30 minutes but, as usual, will have a table of contents that allows you to skip.
(1 hr. 30 min.)
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Intro to Value at Risk (VaR) - Part 2 (sample)—Jun 15
Part 2 of the introduction to Value at Risk (Var). This is a sample from this week's tutorial. We are reviewing Jorion's chapters, including: VaR methods, VaR mapping and Stress testing. But first we start with a recap of the three basic approaches to VaR (not including hybrids): Monte Carlo sim, historical simulation (nonparametric) and parametric (GARCH and EWMA).
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Intro to Value at Risk (VaR) - Part 1 (sample)—Jun 15
This is the first ten minutes of our 1 hour 20 minute tutorial on value at risk (VaR). The sequence of the tutorials follows the FRM 2007 Study Guide (Quant, Market, Credit, Operational, and Investment Risk). The learning outcomes are mapped to the readings. In this Part 1, we review (1) an introduction to VaR, (2) Putting VaR to work, and (3) Cash flow at Risk (CFAR).
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Quantitative Primer for 2007 FRM Candidates—Jun 08
This is a one hour basic introduction to a few quantitative concepts. This is foundation for the Quantitative Module of the 2007 FRM; it contains no learning outcomes. We quickly refresh you on (i) Greek notation, (ii) discount rate & compounding/discounting, (iii) matrix math, and (iv) first-order derivatives. There is a detailed table of contents so you can skip to a desired topic.
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Probability Part 2, 2007 FRM (sample)—May 31
Probability Part 2 reviews sampling, central limit theorem (CLT), confidence intervals, Type I & Type II errors and test statistics. Also, we review linear regression concepts including SEE vs SSE and significance tests of beta and coefficient of determination. Please note the table of contents can be used to skip to a section (first 10 minutes only)
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Probability Part 1, 2007 FRM (sample)—May 31
Probability Part 1 reviews random variables (incl. theorems for independent variables), probability distributions (uniform, normal, binomial, Poisson, lognormal), distribution metrics (geometric and arithmetic mean), and sampling distributions. Please note it is divided into fifteen sections so you can skip to relevant topics. (first 10 minutes of a one hour and 20 minute tutorial)
(10 min.)
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Volatility update, 2007—May 25
We promised an update to the volatility tutorial, because the original was published before the learning outcomes were released (yes, we keep our schedule, rain or shine). This update tutorial walks through the learning outcomes. Can you anywhere else learn so much volatility in so little time?
(38 min.)
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Extreme value theory (EVT) & Monte Carlo sim (MCS). FRM 2007—May 18
The second tutorial in the 2007 FRM series (and the last free sample). In about one hour, we review extreme value theory and Monte Carlo simulation.
(53 min.)
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Volatility, FRM 2007—May 03
For 2007 FRM candidates, this is our first movie tutorial this year. We will publish every other Friday (plus a few bonus movies) throughout the year. This tutorial covers the first two readings on volatility (however, we published this before the AIMs, so the next movie will contain an update based on GARP's AIMs).
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Five study tips in 60 seconds—May 02
Chuck is stressed for the FRM exam. But Audrey is relaxed and ready. In 60 seconds, she gives you her five tips to exam success.
(1 min.)
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Quant Cram (2006)—Feb 12
As a bonus last year (for the 2006 FRM exam), we recorded five "cram session" tutorials in the month before the exam. These did not cover an entire module; rather, we quickly highlighted the most important ideas to help our customers refresh their memories.
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Delta-normal VAR—Feb 12
This is a sample tutorial on delta-normal value at risk (VaR). Please note: each year, we re-record the movie tutorials to match the new Study Guide (and AIMs, or learning objectives). You get fresh material focused on helping you pass the test.
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Linear regression—Feb 12
A sample movie from last year's movie tutorial on linear regression. Please note this is not a talking head; we are working the examples with illustrations, equations and graphics.
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Sample (Tiny) Quiz & FRM Product Calendar
Look below for our publishing schedule.
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