Condensed Note Of Frm Part 1 - Valuation & Risk Models 2022

A quick understanding and review of all important concepts for FRM part 1 exam.

What you'll learn
Understand what are included in the VRM section of FRM Part 1
Have a condensed summary of key concepts
Act as a chance for candidates to find out any knowledge missing
Reinforce the concepts by using examples
Requirements
No requirement
Description
In this course, we have condensed the content from the Valuation and Risk Models (VRM) book of FRM Part 1 exam. It is our target to let those candidates who have not started studying can pick up all necessary concepts needed for the exam within a short time frame (and a reasonable price), with the subsequent aid of exam bank. Candidates who have a brief understanding are also welcomed to check if there is anything missing from your previous study.Note that we currently do not have intention to provide videos for explaining the concepts since we believe practices are more efficient in reinforcing your knowledge. Having said that, if there are large demands on videos for certain topics, we would like to create. The course includes the following topics for VRM section of FRM Part 1 exam (2022):1. Measures of Financial Risk2. Calculating and Applying VaR3. Measuring and Monitoring Volatility4. External and Internal Credit Ratings5. Country Risk: Determinants, Measures, and Implications6. Measuring Credit Risk7. Operational Risk8. Stress Testing9. Pricing Conventions, Discounting, and Arbitrage10. Interest Rates11. Bond Yields and Return Calculations12. Applying Duration, Convexity, and DV0113. Modeling Non-Parallel Term Structure Shifts and Hedging14. Binomial Trees15. The Black-Scholes-Merton Model16. Option Sensitivity Measures: The “Greeks”

Overview

Section 1: Introduction

Lecture 1 Introduction

Section 2: [VRM-1] Measures of Financial Risk

Lecture 2 The Mean-Variance Framework and Efficient Framework

Lecture 3 Typical Distribution of Returns

Lecture 4 Value at Risk (VaR)

Lecture 5 Expected Shortfall (ES)

Lecture 6 Coherent Risk Measures

Lecture 7 VaR is Not Coherent

Section 3: [VRM-2] Calculating and Applying VaR

Lecture 8 Linear and Non-Linear Portfolios

Lecture 9 Historical Simulation Approach for VaR and ES

Lecture 10 Delta-Normal Approach for VaR and ES

Lecture 11 Limitation of Delta-Normal Approach

Lecture 12 Monte Carlo Method for VaR and ES

Lecture 13 Scenario Analysis

Lecture 14 Worst-Case Scenario (WCS) Analysis

Section 4: [VRM-3] Measuring and Monitoring Volatility

Lecture 15 Characteristics of Asset Return Distribution

Lecture 16 Conditional VS Unconditional

Lecture 17 Estimating Conditional Volatility

Lecture 18 EWMA Model

Lecture 19 GARCH(1,1) Model

Lecture 20 Implied Volatility

Lecture 21 Correlation Estimates

Section 5: [VRM-4] External and Internal Credit Ratings

Lecture 22 External Ratings

Lecture 23 Factors Affecting External Ratings

Lecture 24 Hazard Rate

Lecture 25 Recovery Rate

Lecture 26 Rating Process: Through-the-Cycle VS Point-in-Time

Lecture 27 Alternative to Ratings

Lecture 28 Internal Ratings

Lecture 29 Rating Transition Matrix

Lecture 30 Relationship between Credit Rating Changes and Market Price Changes

Lecture 31 Failures and Challenges to Credit Ratings

Section 6: [VRM-5] Country Risk: Determinants, Measures, and Implications

Lecture 32 Factors of Country Risk

Lecture 33 Measures of Country Risk

Lecture 34 Foreign VS Local Currency Debt Default

Lecture 35 Consequences of Sovereign Default

Lecture 36 Sovereign Credit Ratings

Lecture 37 Sovereign Credit Spreads

Section 7: [VRM-6] Measuring Credit Risk

Lecture 38 Economic VS Regulatory Capital

Lecture 39 Dependence among Loan Defaults

Lecture 40 Expected and Unexpected Loss

Lecture 41 Credit Losses under Binomial Distribution

Lecture 42 Gaussian Copula Model

Lecture 43 Vasicek Model for Default Rate

Lecture 44 CreditMetrics Model

Lecture 45 Euler's Theorem and Risk Contribution

Lecture 46 Credit Risk Exposure for Derivatives

Lecture 47 Challenges to Quantifying Credit Risk

Section 8: [VRM-7] Operational Risk

Lecture 48 Categories of Operational Risk

Lecture 49 BIA, SA and AMA under Basel

Lecture 50 SMA under Basel

Lecture 51 Loss Frequency, Severity & Monte Carlo

Lecture 52 Data Issues of Loss Estimation

Lecture 53 Scenario Analysis

Lecture 54 Risk and Control Self-Assessment, KRI and Education

Lecture 55 Allocation of Operational Risk Capital

Lecture 56 Power Law

Lecture 57 Moral Hazard and Adverse Selection

Section 9: [VRM-8] Stress Testing

Lecture 58 Rationale of Using Stress Testing

Lecture 59 Key Considerations of Stress Testing

Lecture 60 Traditional VaR/ES, Stressed VaR/ES and Stress Testing

Lecture 61 BoD, Senior Management & Internal Audit

Lecture 62 Policies/Procedures & Validation

Lecture 63 Basel Stress Testing Principles

Section 10: [VRM-9] Pricing Conventions, Discounting, and Arbitrage

Lecture 64 Discount Factor and Clean/Dirty Price

Lecture 65 Law of One Price and Arbitrage

Lecture 66 STRIPS (P-STRIPS & C-STRIPS)

Lecture 67 Replicating Portfolio

Lecture 68 Day-Count Convention

Section 11: [VRM-10] Interest Rates

Lecture 69 Compounding Frequency

Lecture 70 Spot Rate and Discount Factor

Lecture 71 Forward Rate

Lecture 72 Par Rate

Lecture 73 Relationship between Spot, Forward & Par Rates

Lecture 74 Impact of Maturity on Bond Price

Lecture 75 Flattening/Steepening of Rate Curve

Lecture 76 Swap and LIBOR

Lecture 77 Overnight Indexed Swap (OIS)

Section 12: [VRM-11] Bond Yields and Return Calculations

Lecture 78 Gross & Net Realized Return

Lecture 79 Spread of a Bond

Lecture 80 Yield-to-Maturity (YTM) of a Bond

Lecture 81 Price of Annuity & Perpetuity

Lecture 82 Spot Rate, YTM, Coupon Rate & Bond Price

Lecture 83 Carry Roll-Down

Lecture 84 Decomposition of Bond Return

Section 13: [VRM-12] Applying Duration, Convexity, and DV01

Lecture 85 One-Factor Interest Rate Model

Lecture 86 DV01

Lecture 87 Hedging using DV01

Lecture 88 Effective Duration

Lecture 89 DV01 vs Effective Duration

Lecture 90 Convexity

Lecture 91 Duration & Convexity of Portfolio

Lecture 92 Hedging using Duration & Convexity

Lecture 93 Bullet VS Barbell Portfolio

Section 14: [VRM-13] Modelling Non-Parallel Term Structure Shifts and Hedging

Lecture 94 Principal Components Analysis (PCA)

Lecture 95 Key Rate Exposures & KR01

Lecture 96 KR01, Key Rate Duration & Hedging

Lecture 97 Forward-Bucket 01

Lecture 98 Key Rate and Portfolio Volatility

Section 15: [VRM-14] Binomial Trees

Lecture 99 Binomial Tree and Option Price (Part 1)

Lecture 100 Binomial Tree and Option Price (Part 2)

Lecture 101 Delta of Option

Lecture 102 Options on Dividend-Paying Stocks, Currencies & Futures

Section 16: [VRM-15] The Black-Scholes-Merton Model

Lecture 103 Lognormal Property of Stock Prices

Lecture 104 Black-Scholes-Merton (BSM) Model

Lecture 105 Assumptions of BSM Model

Lecture 106 Implied Volatility used in BSM Model

Lecture 107 BSM Model on Various Options

Lecture 108 Early Exercise of American Options

Lecture 109 Warrant & Dilution Cost

Section 17: [VRM-16] Option Sensitivity Measures: The "Greeks"

Lecture 110 Naked VS Covered Option Positions

Lecture 111 Stop-Loss Hedging Strategy

Lecture 112 Delta of Options, Futures & Forwards

Lecture 113 Delta of Portfolio

Lecture 114 Theta, Gamma, Vega & Rho

Lecture 115 Delta-Neutral & Gamma-Neutral

Lecture 116 Relationship between Delta, Theta, Gamma & Vega

Lecture 117 Portfolio Insurance

Section 18: [Optional] Learning Objectives of FRM Part 1

Lecture 118 [Optional] Foundations of Risk Management (20%) (Slide)

Lecture 119 [Optional] Quantitative Analysis (20%) (Slide)

Lecture 120 [Optional] Financial Markets and Products (30%) (slide)

Lecture 121 [Optional] Valuations and Risk Models (30%) (Slide)

Section 19: Bonus Section

Lecture 122 Bonus Lecture

Candidates who want to understand or review the section Valuation and Risk Models (VRM) of FRM Part 1