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FRM updated
Part I (385)
- How do I compute VaR for an FX position when my account base currency is different?
- Are there standard horizons, percentiles, and lookback windows for VaR reports?
- What does it mean when people say VaR is not subadditive?
- How do I choose the right time series for VaR on futures contracts?
- How do volatility models fit into distribution-based VaR estimation?
- How does VaR mapping work for an FX forward?
- Why can parametric VaR and Monte Carlo VaR disagree under a lognormal assumption?
- Why do cross-gammas make delta-gamma VaR more complicated?
- Why is Expected Shortfall harder to estimate by simulation than VaR in heavy-tailed portfolios?
- Why are overlapping returns tricky when estimating multi-day VaR?
- How should I think about VaR for a portfolio that includes options?
- Why is time-scaling Cornish-Fisher VaR more delicate than scaling normal VaR?
- What is the simplest way to remember VaR and CVaR formulas across distributions?
- What common mistakes show up in a Monte Carlo VaR implementation?
- What are the core steps in a Monte Carlo VaR calculation?
- When estimating tail risk, should I fit the whole return distribution or only the tail?
- How do historical, variance-covariance, and Monte Carlo VaR differ?
- Can I annualize Expected Shortfall with square-root-of-time the same way I annualize volatility?
- Why do desks still use Black-Scholes greeks for risk management when better models exist?
- What is the intuition behind spectral risk measures, and why does Expected Shortfall fit in that family?
- How should I think about modelling instruments when interest rates can be negative?
- How do I quantify unsystematic risk instead of just saying it gets diversified away?
- Why is VaR for two dependent lognormal exposures harder than adding the individual VaRs?
- What does risk-neutral pricing really mean in plain English?
- How do I build an FRM resource stack without buying five overlapping products?
- Why do so many candidates say the real FRM Part I exam feels more qualitative than the mocks?
- When should I derive an FRM formula instead of trying to memorize it exactly?
- How do Macaulay duration, modified duration, effective duration, and DV01 fit together?
- Can one prep provider really be enough for FRM, or do I need every bank and video course?
- What is a realistic FRM study plan if I work full time and keep restarting topics?
- What is macroprudential stress testing and how does it differ from the microprudential tests that individual banks run?
- What does model validation look like for stress testing models, and why is it harder than validating VaR models?
- What is the CCAR framework and how does it differ from DFAST in terms of scope and purpose?
- How do firms apply the 2008 GFC as a historical stress scenario, and what adjustments are needed to make it relevant today?
- When is single-factor sensitivity analysis sufficient versus when do you need a full multi-factor stress test?
- What is a Power Reverse Dual Currency (PRDC) note, and why is it notoriously difficult to hedge?
- How does an accumulator work, and why is it nicknamed 'I kill you later'?
- What is a snowball structured note, and how does the cumulative coupon memory feature amplify both return potential and risk?
- What is a reverse convertible note, and how should I decompose its embedded option risk?
- How do autocallable structured products work, and what drives the coupon level relative to barrier placement?
- What is the timing option in Treasury bond futures delivery, and how does the short exploit it during the delivery month?
- How does the cheapest-to-deliver switch option work in Treasury bond futures, and when does the CTD bond change?
- How does linear interpolation work on a bootstrapped yield curve, and what artifacts does it introduce?
- How does a knock-in barrier option actually activate, and what determines its value before the barrier is breached?
- Why did the industry shift to OIS discounting for collateralized derivatives, and how does it differ from LIBOR discounting?
- How is the swap rate curve constructed, and why does bootstrapping from deposit rates to swap rates matter for valuation?
- How does the delta-gamma approach improve VaR estimation for options portfolios compared to delta-only VaR?
- How does a credit-linked note (CLN) work, and what is the difference between funded and unfunded credit risk transfer?
- What is a decumulator, and how does it mirror the accumulator's risk profile for holders of existing stock positions?
- How does a Target Redemption Note (TARN) work, and why does the cumulative coupon cap create early termination risk?
- How does a range accrual note work, and what type of exotic option is embedded in its coupon structure?
- How is a principal protected note (PPN) constructed, and what limits the participation rate an issuer can offer?
- What is the wild card option in Treasury bond futures, and how does the short use the late-afternoon price window?
- What is the end-of-month option in Treasury bond futures, and why does it exist after the last trading day?
- How does cubic spline interpolation smooth the forward rate curve, and what are the potential drawbacks of spline-based methods?
- How does the averaging feature of Asian options reduce their cost compared to vanilla options, and what types of averages are used?
- How does the conversion factor determine the cheapest-to-deliver bond in Treasury futures, and when does it break down?
- What is the cross-currency basis, and why does it deviate from zero even when covered interest rate parity should hold?
- How does component VaR decompose total portfolio risk into individual position contributions?
- How do you calculate a DV01-based hedge ratio using Treasury futures, and what adjustments are needed for the CTD bond?
- What is the quality option in Treasury bond futures, and how does the deliverable basket create optionality for the short?
- How does the Nelson-Siegel-Svensson model parameterize the entire yield curve with just six parameters, and why do central banks prefer it?
- How does a lookback option guarantee the best possible payoff over the option's life, and why is it so expensive?
- How do storage costs and convenience yield interact to determine whether a commodity futures curve is in contango or backwardation?
- How do swaptions work, and what determines whether you should buy a payer vs. receiver swaption?
- What is the Three Lines of Defense model and how does it structure risk governance at a bank?
- What is a Risk Appetite Framework (RAF) and how does a bank's risk appetite statement work?
- How do you use marginal VaR to evaluate the risk impact of adding a new position to an existing portfolio?
- How does the duration-based hedge ratio differ from the DV01 approach, and when should each be used?
- How do you immunize a bond portfolio using Treasury futures to match a liability duration target?
- Why is the overnight index swap rate considered a better risk-free proxy than LIBOR, and how is an OIS structured?
- How does a chooser option work, and when is the optimal time to decide between a call and a put?
- How are long-term power purchase agreements (PPAs) valued, and what are the key risk factors in pricing them?
- What causes natural gas basis risk, and how do producers hedge geographic price differentials?
- What is the difference between discount yield and money market yield on T-bill futures, and how do you convert between them?
- How do Eurodollar futures work mechanically, and how does a corporate treasurer use them to lock in a borrowing rate?
- How do you value an interest rate swap that is already partway through its life?
- How is logistic regression used for predicting loan defaults, and how do you interpret the coefficients?
- How does the cheapest-to-deliver (CTD) bond work in Treasury futures, and why does it matter for hedging?
- What is kernel density estimation and when is it preferred over histograms?
- How do repo haircuts work and what determines their size?
- How does the EWMA volatility model work and how do I choose the lambda parameter?
- How do Eurodollar futures differ from Treasury futures when hedging interest rate exposure?
- How do fat-tailed distributions differ from the normal distribution, and why does it matter for risk measurement?
- How do delta and gamma interact in options hedging, and why is gamma risk dangerous?
- How exactly do futures margin calls work, and what happens if I can't meet one?
- What constitutes a strong risk culture and how can you actually measure it?
- What is incremental VaR, and how does it differ from marginal VaR when sizing a discrete new trade?
- Why do Eurodollar futures rates need a convexity adjustment when used to build a forward rate curve, and how is it calculated?
- How do you construct a cross-hedge using T-note futures for a corporate bond portfolio, and what are the main sources of basis risk?
- What is the difference between term SOFR and overnight SOFR, and when should each be used in financial contracts?
- What is a rainbow option, and how does the correlation between underlying assets affect its pricing?
- What is a reinsurance sidecar, and how does it differ from a catastrophe bond as a risk transfer vehicle?
- How does insurance risk securitization work, and what role do catastrophe bonds play in transferring tail risk to capital markets?
- How do storage costs and convenience yield determine whether a commodity futures curve is in contango or backwardation?
- How do you calculate the fair value of an equity index future and identify when it trades rich or cheap?
- Can someone explain the actual cash flow mechanics of a currency swap step by step?
- How does survival analysis model the timing of credit defaults, and what is the hazard rate?
- How does seasonality in commodity markets affect futures pricing and the shape of the forward curve?
- How does bootstrapping work for statistical inference in risk management?
- What is the TBA market and how does it work for mortgage-backed securities?
- What's the difference between Gaussian and Student-t copulas, and why does tail dependence matter?
- How do you value a fixed-for-fixed currency swap mid-life with a worked example?
- What is the difference between OTC and exchange-traded derivatives, and how does clearing work for each?
- How do you calculate the settlement amount on a Forward Rate Agreement (FRA)?
- How does the Three Lines of Defense model work in risk management?
- How do you decompose portfolio VaR by risk factor using a multi-factor model?
- How was the ISDA fallback spread adjustment calculated when LIBOR ceased, and why was a spread needed at all?
- How does a quanto option eliminate currency risk, and what adjustment is made to the drift rate in pricing?
- What is a spark spread, how is it calculated, and why is it important for power generation risk management?
- How does seasonality in natural gas create predictable patterns in the futures curve, and what risks does this create for hedgers?
- How do you use DV01 to hedge interest rate risk with swaps?
- What is the difference between the premium leg and the protection leg of a CDS, and how do they determine the CDS spread?
- What is kernel density estimation and when should I use it instead of assuming a parametric distribution for risk modeling?
- How do catastrophe bonds work, and what are the different trigger types investors need to understand?
- What is maximum likelihood estimation (MLE) and how is it used in risk modeling?
- How do conversion factors work in Treasury bond futures, and why does the cheapest-to-deliver bond matter so much?
- How does Bayesian estimation work and how is it used in risk management?
- How do weather derivatives work and who uses them?
- How does Extreme Value Theory (POT method) improve VaR estimation in the tails?
- How do storage costs and convenience yield affect commodity forward pricing?
- How do I choose the right hypothesis test for FRM exam questions? I keep picking the wrong test statistic.
- How do GARCH models capture volatility clustering, and when are they better than historical volatility?
- When should I use Monte Carlo simulation instead of parametric VaR, and how does it actually work?
- What is ERM and why do so many banks struggle to implement it effectively?
- How do you calculate expected shortfall from a loss distribution, and why is it preferred over VaR?
- What were the major milestones and challenges in the global transition from LIBOR to alternative reference rates like SOFR?
- How do Bermuda option exercise windows work, and where do they fall in the American-European pricing spectrum?
- What constitutes a 'credit event' under ISDA definitions, and how does the determination process work for CDS contracts?
- What are insurance-linked securities (ILS), and how do catastrophe bonds transfer risk from insurers to capital markets?
- What is a credit-linked note and what risks does the investor face?
- How does the convenience yield affect commodity forward pricing, and what is the full formula?
- What are structural breaks in time series data and how do they affect risk models?
- What is a total return swap and why do institutions use them instead of buying the reference asset directly?
- How do AIC and BIC work for model selection, and when would they disagree?
- Why do Eurodollar futures (and now SOFR futures) need a convexity adjustment when used for swap pricing?
- What are AR and MA models and when do you use each for financial time series?
- What are longevity swaps and how do pension funds use them?
- How is PCA used to decompose yield curve risk into principal components?
- What's the intuition behind barrier option pricing and when are knock-ins cheaper than vanillas?
- What are the three main VaR calculation methods and when should each be used?
- Parametric VaR vs. Historical Simulation VaR — when does each method fail?
- What are the four axioms of a coherent risk measure, and how does VaR violate subadditivity?
- What is the multi-curve framework, and why did the 2008 crisis force a separation between discounting and forward projection curves?
- How do cliquet options accumulate returns through their reset mechanism, and why are they popular in structured products?
- What are the trade reporting requirements for OTC derivatives under Dodd-Frank and EMIR, and what role do swap data repositories play?
- How does central clearing of OTC derivatives work, and what role does a CCP play in reducing counterparty risk?
- How do heating degree days and cooling degree days work in weather derivatives?
- How does Black's model for options on futures differ from the standard Black-Scholes model?
- How do AIC and BIC work for comparing risk models, and when would they give different recommendations?
- What is asset-backed commercial paper (ABCP) and what liquidity risks do ABCP conduits face?
- What is volatility clustering and how do you test for ARCH effects in financial returns?
- How do cross-currency swaps actually work, and why is the notional exchanged unlike regular interest rate swaps?
- What is cointegration and how is it used in pairs trading?
- How are credit-linked notes (CLNs) structured and who benefits from them?
- What is model calibration in risk management and how do you avoid overfitting?
- How do catastrophe bonds and insurance derivatives transfer risk to capital markets?
- How does a repurchase agreement (repo) transaction work step by step, and what are the risks involved?
- How do duration and convexity work together to estimate bond price changes, and when does duration alone fail?
- What are the core components of an Enterprise Risk Management (ERM) framework, and how does it differ from siloed risk management?
- What are spectral risk measures, and how do they generalize expected shortfall through risk aversion weighting?
- Why does the collateral rate specified in a CSA determine the discount curve, and how does this affect derivative valuations?
- How does a digital (binary) option pay a fixed amount, and why does the discontinuous payoff create hedging challenges?
- What is the Anderson-Darling test, and why is it preferred over Kolmogorov-Smirnov for testing normality in risk management applications?
- How do you read a QQ plot to assess whether financial return data follows a normal distribution?
- How does a longevity swap work and why do pension funds use them?
- How do you use the chi-squared test to test a hypothesis about variance?
- How do jump-diffusion models improve on geometric Brownian motion for risk modeling?
- What exactly is a variance swap and how does the payoff work relative to implied volatility?
- How do you bootstrap zero-coupon rates from coupon bond prices step by step?
- What is entropic VaR, and how does it provide a tighter bound on tail risk than traditional VaR?
- How does the funding spread adjustment work for uncollateralized derivatives, and why is FVA controversial?
- What is the Calmar ratio, and how does it compare to the Sharpe ratio for evaluating hedge fund performance?
- How is maximum drawdown calculated, and why do risk managers use it alongside VaR?
- How do embedded call and put options affect bond valuation and risk?
- What is the Jarque-Bera test and how do you use it to check if financial returns are normal?
- How does excess kurtosis (fat tails) affect VaR calculations, and what can you do about it?
- How do principal-protected notes work, and what are the hidden risks most investors miss?
- What are the steps in the risk management process cycle, and how do they connect?
- What are the main types of exotic options, and how do they differ from vanilla options in risk characteristics?
- What are distortion risk measures, and how do they transform probability to capture risk aversion?
- What is Stressed VaR, how is the stress period selected, and how does it enter the market risk capital calculation?
- What is Conditional VaR (CVaR / Expected Shortfall), and why did Basel III replace VaR with ES for market risk capital?
- Why is the Poisson distribution used for operational loss frequency and how do you apply it?
- What drives the shape of the volatility term structure, and how does mean reversion flatten it?
- What are the main pitfalls of correlation estimation in risk management, and how can you address them?
- What's the difference between a credit-linked note (CLN) and a total return swap (TRS), and when would a bank use each?
- How do historical and hypothetical scenario analyses differ, and how should a risk manager design effective stress tests?
- How do risk factor sensitivities like DV01, delta, and vega help a risk manager understand portfolio exposures?
- Why do we model operational loss severity with a lognormal distribution?
- How do you forecast volatility multiple steps ahead using a GARCH(1,1) model?
- How does Cholesky decomposition generate correlated random variables for Monte Carlo simulation?
- Can someone walk through securitization from start to finish — origination, SPV, tranching, and waterfall?
- What are the Basel Accords, and how do Basel I, II, and III differ in their approach to bank capital requirements?
- What is a risk parity portfolio, how does it differ from traditional 60/40 allocation, and what role does leverage play?
- What are the practical limitations of mean-variance optimization, and how do risk managers address them?
- How does the ARIMA model work for time series forecasting in risk management?
- How do you detect heteroskedasticity in a linear regression, and why does it matter for FRM?
- What are the key simulation techniques and variance reduction methods used in risk management?
- How do CDOs work, and what's the difference between cash CDOs and synthetic CDOs?
- How does exponential smoothing work for forecasting and how is it different from a moving average?
- How do you calculate the duration of a portfolio containing multiple bonds?
- What is stationarity, why does it matter for risk models, and how do you test for it?
- How does the repo market work, and why are haircuts so important for managing counterparty risk?
- How does the clearing and settlement process work for exchange-traded vs OTC derivatives?
- How do catastrophe bonds work as insurance-linked securities?
- How does bootstrapping work for constructing confidence intervals in risk analysis?
- What is key rate duration and when should I use it instead of regular modified duration?
- How do ARCH and GARCH models capture volatility clustering, and how do you estimate them?
- How do storage costs and convenience yield affect commodity futures pricing?
- Can someone explain initial margin vs variation margin for futures with a numerical example?
- What is alternative risk transfer and when is it used?
- How do you calculate Credit VaR for a single obligor?
- How does cash flow mapping work for VaR calculations on fixed income positions?
- How is the OTC derivatives market structured and what's the difference between bilateral and cleared trading?
- How is the Lloyd's of London market structured?
- What is duration gap analysis and how do banks use it to manage interest rate risk?
- How do you design and implement a single-factor stress test for a portfolio?
- How does a CCP's default waterfall work and why is it important for financial stability?
- What is retrocession and why do reinsurers buy it?
- Why do mortgage-backed securities exhibit negative convexity and what does that mean for investors?
- What are the three main sources of model risk in VaR, and how can each one cause VaR to be wrong?
- What is trade compression and why has it become so important in OTC derivatives markets?
- What active strategies do commodity hedge funds use to generate alpha?
- How are catastrophe reinsurance layers structured for a hurricane-exposed insurer?
- How does a callable swap work and why would an issuer pay for cancellation rights?
- How do you hedge a portfolio using delta, gamma, and vega together?
- What are the key differences between CAPM and APT, and when would you use one over the other?
- What is the history of the DJ-UBS commodity index and how did it become BCOM?
- How does excess of loss reinsurance differ from quota share?
- How do I determine moneyness for payer versus receiver swaptions?
- What is RAROC and how do banks use it for performance measurement and capital allocation?
- What are the three types of multifactor models and how do they differ?
- How does the Bloomberg Commodity Index (BCOM) differ from the GSCI?
- How does quota share reinsurance work and when is it used?
- What is a blended rate swaption and when would a corporate treasurer use one?
- How do you price a bond using a binomial interest rate tree?
- How is the S&P GSCI commodity index constructed?
- How are property and casualty insurance risks different from life risks?
- How is the unwind or termination value of a swap calculated?
- What causes the volatility smile and skew in options markets?
- How does roll yield work and when is it positive versus negative?
- What actuarial risks dominate a life insurance portfolio?
- How does a swap's mark-to-market evolve over its lifecycle and what drives MTM swings?
- What is the term structure of volatility and how does it affect options risk management?
- How do zero-coupon and year-over-year inflation swaps hedge CPI exposure?
- How does a volatility swap differ from a variance swap and why is it harder to hedge?
- What are contango super-cycles and why do they matter for long-term commodity investors?
- How do insurance companies structure their enterprise risk management framework?
- Why is the value of a swap zero at inception and what does this imply?
- What is the ISDA Determinations Committee and what does it do?
- How does the CDS credit event auction work?
- How do dividend swaps let investors isolate dividend payment expectations?
- What does a correlation swap pay out and how do dispersion traders use it?
- What causes a commodity futures curve to go into backwardation?
- How does a total return equity swap replicate stock ownership without buying shares?
- How is the standardized CDS upfront payment calculated?
- What is a conventional CDS spread and how does it differ from the par spread?
- How do variance swaps let traders bet on realized volatility?
- How does a total return swap transfer credit risk on a reference bond?
- How do storage costs shape the commodity futures curve?
- Why do cross-currency swaps exchange principal while single-currency swaps don't?
- What is a par equivalent CDS spread and why do practitioners use it?
- How is a CDS spread decomposed into its components?
- Why do currency swaps exchange principal at both start and maturity?
- How do commodity swaps provide index exposure without storing physical goods?
- What exactly is convenience yield and why does it matter for commodity risk?
- How is a plain vanilla fixed-for-floating interest rate swap priced at inception?
- What's the difference between a credit curve steepener and flattener trade?
- Default risk vs downgrade risk — how should I think about them separately?
- What is an equity swap and why would a hedge fund be the total return receiver?
- How do fixed-for-floating interest rate swaps work and who benefits from each leg?
- How do I price a commodity forward using the cost of carry model?
- How do swap mechanics actually work from trade date through final settlement?
- How do I quantify the impact of a 50bp spread widening on my bond portfolio?
- What is credit spread risk and how does it differ from default risk?
- What is stratified sampling and when should I use it in option pricing?
- How does the control variate technique work in Monte Carlo?
- What does 'through the cycle' rating mean and why do agencies use it?
- How do you aggregate Greeks across a multi-instrument portfolio?
- How does a PO strip behave and why is it called a leveraged rate play?
- How do antithetic variates reduce Monte Carlo variance?
- How does Merton's jump-diffusion model price options?
- What's the difference between a credit rating outlook and a credit watch?
- What are the key Greek features of lookback options?
- Why do IO strips have inverse price behavior to most bonds?
- How do I simulate path-dependent exotics like Asian and lookback options?
- What are the benefits of multilateral netting at a CCP?
- What role does the clearing house play in futures markets?
- How do Greeks behave for knock-in and knock-out barrier options?
- How does a TAC tranche differ from a PAC, and what protection do you actually get?
- What are the tradeoffs between implicit and explicit finite difference schemes?
- What are the SABR model parameters and how are they interpreted?
- How do I track a futures margin account balance across multiple days?
- How do variation margin calls work during volatile markets?
- What are the main conflicts of interest at credit rating agencies?
- What is psi and when should I worry about dividend sensitivity?
- What is a PAC tranche and how does the 'collar' protect its schedule?
- What is the Crank-Nicolson scheme and why is it preferred for option pricing?
- What's the difference between initial margin and maintenance margin?
- How does daily mark-to-market work for futures?
- How do I calculate and interpret the Altman Z-score?
- Why does rho matter more for long-dated options and how do I compute it?
- How do CMO sequential-pay tranches redistribute prepayment risk?
- How do finite difference methods solve the Black-Scholes PDE?
- What does an inverted vol term structure signal?
- What alternative data sources are used in credit scoring and what are the regulatory concerns?
- How does machine learning credit scoring compare with traditional logistic regression?
- What's the difference between a strap and a strip option combination?
- What is a straddle and when would you use it?
- What's the difference between cash-settled and physically-settled futures?
- How do delivery months and expiry work for futures?
- How do rating agencies measure rating migration over time?
- What is vega and which options have the biggest vega exposure?
- Explain extension risk — why does my MBS get worse when rates rise?
- How do I price a barrier option using Monte Carlo simulation?
- How does the implied vol surface move over time?
- How is logistic regression used for default prediction and how do I interpret coefficients?
- What is the end-to-end scorecard development process for credit risk?
- How do you identify and exploit option bound violations?
- What are the upper bounds on call and put prices?
- How do contract size and notional value relate in futures?
- What are the key specifications I need to know for a futures contract?
- What is Fitch's approach to corporate ratings and how is it different from Moody's/S&P?
- What is contraction risk and why does it hurt MBS investors when rates drop?
- Why do interest rate models use trinomial trees instead of binomial?
- What's the best way to estimate realized volatility from high-frequency data?
- What information appears on a credit bureau report and how do lenders use it?
- What is a commercial credit risk model (KRM) score and when should I use it?
- What are the lower bounds on European call and put prices?
- How do I construct a synthetic call from a put?
- How does S&P's corporate rating methodology differ from Moody's?
- What does gamma actually tell a hedger, and how is it used in practice?
- How does the PSA prepayment model work and why is 100 PSA the benchmark?
- How do I price an American put option using a binomial tree?
- How is the VIX actually calculated from option prices?
- How does KMV-Moody's EDF differ from the plain Merton model?
- How do I calculate Merton model distance to default step by step?
- How do I construct a synthetic put from a call?
- How do dividends create a case for early exercise of American calls?
- How do I calculate delta for a European call step by step?
- How is a pass-through security structured and what does the investor actually own?
- How is the variance risk premium different from the volatility risk premium?
- What is the Altman Z-score formula and how do I interpret it for manufacturers?
- How do FICO credit scoring models work for consumer lending?
- When is it optimal to exercise an American put early?
- How does put-call parity work for European options and why can't it be violated?
- How do rating agencies actually assign a rating to a corporate bond issuance?
- What are the option Greeks and why does FRM emphasize each one?
- What exactly is a mortgage-backed security and how does the cash flow structure work?
- What is the volatility risk premium and why does it exist?
- When should I use delta-gamma VaR instead of delta-normal?
- How is delta-normal VaR calculated for a multi-asset portfolio?
- How do mixture distributions improve VaR estimates?
- When should I use lognormal VaR instead of normal VaR?
- What is a shark-fin note and why is it called that?
- How does Student-t VaR handle fat tails compared to normal VaR?
- What does it mean to calibrate an interest rate model to no-arbitrage conditions?
- What are structured deposits and how do they differ from regular CDs?
- Can you walk me through the normal VaR formula with a concrete example?
- When should I use a lognormal interest rate model instead of Gaussian?
- How does a barrier note with knock-in protection create cliff risk for investors?
- What are the most common problems when scaling VaR across time?
- Is the Ho-Lee model still relevant or just a historical stepping stone?
- What are the key components of a risk appetite statement and how does it differ from risk tolerance and risk capacity?
- How do buffer notes differ from principal protected notes in downside protection?
- How do I decide between 95%, 99%, and 99.9% confidence for VaR?
- What's the advantage of the Hull-White one-factor model over Vasicek?
- How do you design effective Key Risk Indicators (KRIs) and what distinguishes a good KRI from a bad one?
- What is a callable yield note and how does the issuer's call right affect pricing?
- Why can we scale VaR using the square root of time, and when does it fail?
- Why does the CIR model prevent negative rates and how does it differ from Vasicek?
- How do firms use internal and external loss data for operational risk management?
- How does a range accrual note pay coupon based on an index staying within a range?
- What is the difference between absolute VaR and relative VaR?
- How does mean reversion work in the Vasicek model and what are its limitations?
- What's the difference between scenario analysis and RCSA in operational risk management?
- How does an autocallable note work and when does it redeem early?
- Can you explain affine term structure models in plain language?
- How does a reverse convertible note enhance yield and what is the investor actually selling?
- How is the term premium estimated and why does it matter for risk management?
- What is an equity-linked note (ELN) and how does its payoff differ from a PPN?
- What are smoothing splines and when should I use them over bootstrapping?
- How do principal protected notes (PPNs) achieve capital preservation while offering equity upside?
- How do I bootstrap a zero-coupon yield curve from coupon bond prices for FRM Part I?
Part II (414)
- How does an Expected Shortfall constraint work in portfolio optimization?
- What is the intuition behind expectiles as a risk measure?
- Is overlapping data a problem in VaR backtesting?
- How does a copula help calculate portfolio VaR?
- What should a VaR framework actually do if a pricing library already exists?
- Should a portfolio construction process use VaR, CVaR, or variance as its risk measure?
- Why is VaR or CVaR on high-frequency returns tricky?
- What does the Kupiec proportion-of-failures test check in VaR backtesting?
- What makes CDS spread scenarios harder than ordinary equity return scenarios?
- Should VaR for a portfolio of funds use look-through holdings or fund-level returns?
- Can Extreme Value Theory be used for a portfolio that contains options?
- What are the main approaches to stress testing a portfolio?
- Why is CVaR usually easier than VaR to use in portfolio optimization?
- What are good examples of non-financial risk and contingency planning in a trading or risk function?
- Is risk parity just inverse-vol weighting, or is there more to it?
- How do I size a liquidity buffer for a strategy that is short gamma and short vega?
- How can climate change risk be translated into something measurable for a portfolio?
- How do macro funds think about risk when positions span rates, FX, equities, and credit at the same time?
- How do you apply risk management to an ML trading system without completely overriding it?
- How should I think about cross-sectional versus time-series factor models?
- What are the main risks when building a quantitative strategy from historical or simulated data?
- How do I tell if an FRM prep provider is actually current enough to trust?
- What kind of short-term career boost is realistic after passing FRM?
- Is the FRM actually worth it for career growth, or is it mostly a knowledge credential?
- What is the right order to use books, notes, question banks, and mocks for FRM Part II?
- What is the intuition behind cost of liquidation when a position is marked at mid but sold at bid?
- Why does FRM Part II feel qualitative even though the syllabus is so technical?
- Why do strong candidates say FRM Part II rewards critical reasoning more than raw memorization?
- How much Python or R do I actually need if I want to move from FRM study into a risk job?
- How should I rebuild my prep after failing FRM Part II more than once?
- How does the operational resilience framework address third-party and concentration risk, and what are Impact Tolerance requirements?
- How does a Risk Control Self-Assessment (RCSA) process work, and how should banks translate qualitative assessments into actionable risk metrics?
- What are the key requirements for operational risk loss data governance under the SMA, and how should banks handle boundary events?
- How does the Internal Loss Multiplier (ILM) adjust capital based on loss history, and why is the logarithmic function used to dampen extreme values?
- How is the Loss Component calculated in the SMA framework, and what qualifies as an operational risk loss for inclusion?
- How does the Standardised Measurement Approach (SMA) calculate operational risk capital, and what replaced the previous AMA framework?
- How do you calculate incremental CVA when adding a new trade to an existing portfolio, and why does it differ from standalone CVA?
- What is specific wrong-way risk in counterparty credit exposure, and can you give a concrete example of how it amplifies losses?
- How is the stressed expected shortfall (ES) calculated under FRTB, and why did Basel replace VaR with ES?
- How is replacement cost calculated under SA-CCR, and how does margining affect the computation?
- How do banks ensure operational continuity during resolution — what happens to IT systems, payment access, and shared services?
- How does depositor preference work in bank resolution, and why does it matter for bail-in creditors?
- What is a bridge institution and when do resolution authorities use it instead of bail-in?
- How does bail-in actually work mechanically — what is the sequence of write-downs and conversions?
- What are recovery indicators in a resolution plan, and how do they differ from normal risk limits?
- How do acute and chronic physical climate risks differ in their financial impact pathways?
- How should banks set Key Risk Indicator (KRI) thresholds, and what makes a KRI actionable versus merely informational?
- How do banks use scenario analysis to estimate operational risk severity, and what role do expert judgment workshops play?
- What is the ILM coefficient, and how does national discretion on the ILM affect cross-border capital comparability?
- What are the three components of the Business Indicator (BI), and how do absolute value adjustments prevent manipulation?
- Why is DVA (Debit Valuation Adjustment) controversial, and what are the main arguments for and against including own credit risk in derivatives valuation?
- How does bilateral CVA incorporate both parties' default risk, and what role does netting play in the calculation?
- What is right-way risk, and how does beneficial correlation between exposure and counterparty credit quality reduce CVA?
- What makes a risk factor non-modellable under FRTB, and how are NMRFs capitalized separately?
- How does ISDA SIMM calculate initial margin, and what are the risk sensitivity buckets?
- What is the margin period of risk, and how does it affect collateral haircuts and exposure calculations?
- How do you decompose a swap spread into its credit, liquidity, and supply-demand components?
- How does climate transition risk create stranded assets, and how should financial institutions model this exposure?
- What is MVA (Margin Valuation Adjustment), and how do dealers optimize margin costs across their portfolios?
- What is FVA (Funding Valuation Adjustment), and why is there a heated academic debate about whether it should exist?
- How does the frequency of margin calls affect counterparty credit exposure, and why does the margin period of risk matter so much?
- What is the P&L attribution test under FRTB, and what happens when a desk fails it?
- What is KVA (Capital Valuation Adjustment), and how does it change the economics of derivative pricing?
- How does CVA differ between bilateral and centrally cleared derivatives, and why do regulators treat them differently for capital purposes?
- How does a zero-coupon inflation swap work, and what does the swap rate tell us about inflation expectations?
- How do credit migration matrices work, and how do you use transition probabilities in portfolio risk?
- How do you calculate parametric VaR for a multi-asset portfolio using the correlation matrix?
- How does the Merton model calculate distance to default and what are its limitations?
- How does the Merton model work for measuring credit risk, and what does the structural diagram look like?
- What is funding liquidity management and how do banks monitor their funding positions?
- How do banks collect operational risk loss data and why is it so challenging?
- What are the different capital buffers under Basel III and how do they interact?
- How do climate VaR models adapt traditional VaR frameworks to capture long-horizon climate scenarios?
- How do the various XVA components (CVA, DVA, FVA, MVA, KVA) interact, and what conflicts arise when they are optimized independently?
- What is KVA (Capital Valuation Adjustment), and how does the cost of holding regulatory capital affect derivatives pricing?
- How does close-out netting reduce counterparty exposure, and why is legal enforceability across jurisdictions so critical?
- How does FRTB's desk-level opt-in work for choosing between IMA and the Standardized Approach?
- How does the IRRBB standardized framework measure interest rate risk in the banking book, and what are the key metrics?
- What is the Basel III output floor, and how does it constrain banks using internal models for capital calculation?
- Why is the VIX futures term structure usually in contango, and how does this create a structural drag for long VIX strategies?
- What is economic capital, how does it differ from regulatory capital, and why do banks calculate both?
- How is credit unexpected loss calculated, and what is its relationship to economic capital?
- How do netting agreements reduce counterparty exposure and how is netting set exposure calculated?
- How do you construct the loss distribution for a credit portfolio, and what is the difference between expected and unexpected loss?
- What makes a risk measure 'coherent,' and why does Expected Shortfall satisfy the criteria while VaR does not?
- How does the Vasicek single-factor model work for credit portfolio loss estimation, and what is the granularity adjustment?
- What is component VaR and how does it decompose portfolio risk?
- What are the main credit risk mitigation techniques and how do they reduce exposure?
- What are the main credit scoring model approaches and how does logistic regression compare to machine learning methods?
- What are the main pitfalls of historical simulation VaR and how do ghost effects distort results?
- How does the KMV model improve on Merton, and what is the Expected Default Frequency?
- Under FRTB, how does a bank decide between the Standardized Approach and Internal Models Approach for market risk capital?
- What is wrong-way risk in counterparty credit, and why does it make standard CVA models underestimate losses?
- How do you calculate Expected Loss from PD, LGD, and EAD, and why does each component matter separately?
- What is the modern university endowment asset allocation?
- How do banks conduct liquidity stress tests and what scenarios do they typically model?
- How does scenario analysis work for operational risk, and how do banks combine it with historical data?
- Why does Basel III include a leverage ratio when we already have risk-weighted capital ratios?
- What is the TNFD framework, and how does nature-related financial risk extend beyond climate risk?
- How does the CCP loss allocation waterfall work when a clearing member defaults, and what happens if losses exceed the default fund?
- What is TVA (Total Valuation Adjustment), and how does a dealer aggregate all XVA components into a single pricing framework?
- What are the key terms in a Credit Support Annex (CSA), and how do they shape the collateral exchange process between derivatives counterparties?
- How is the Default Risk Charge calculated under FRTB, and how does it differ from the old incremental risk charge?
- What are impact tolerances in operational resilience, and how do banks set them for critical business services?
- How do banks conduct climate scenario analysis for physical risk, and what methodologies translate climate events into financial losses?
- How does default correlation affect the value of different CDO tranches, and why do equity and senior tranches respond in opposite directions?
- What is risk contribution, and how do you decompose a portfolio's total risk into individual obligor contributions?
- How does the RAROC framework work for lending decisions, and what determines the hurdle rate?
- What is Margin Valuation Adjustment (MVA) and why has it become important?
- How does the Gaussian copula model default time correlation, and why was it controversial?
- What is reverse stress testing and how does it differ from conventional stress testing?
- How does a synthetic CDO work, and why does credit correlation dramatically affect tranche pricing?
- What is incremental VaR and how is it used for position sizing decisions?
- How do netting agreements reduce credit exposure and what is close-out netting?
- How do credit transition matrices work and how are they used in portfolio credit risk?
- How do you calculate Expected Shortfall and why is it replacing VaR in Basel regulations?
- What's the difference between CreditMetrics and CreditRisk+ for modeling credit portfolio risk?
- How are operational risk loss events classified under Basel, and what are the seven event types?
- Can someone explain CVA (Credit Valuation Adjustment) intuitively and show how it's calculated?
- How do endowment funds manage tail risk?
- What is intraday liquidity risk and why did regulators start requiring banks to monitor it?
- What are Key Risk Indicators (KRIs) and how do banks set thresholds for them?
- What's the difference between the LCR and NSFR under Basel III?
- How do biodiversity credit markets work, and what financial integrity challenges do they face?
- How does a CCP determine the size of each clearing member's default fund contribution, and what methodologies are used?
- How do the threshold and minimum transfer amount in a CSA create residual unsecured exposure, and how is this quantified?
- What is the Residual Risk Add-On under FRTB, and which exotic instruments are in scope?
- How should banks govern machine learning models used in risk management, and what unique challenges do ML models pose for model validation?
- What is the Hurst exponent, and how does it distinguish between mean-reverting, random, and trending time series?
- What are the key data and modeling requirements for estimating PD, LGD, and EAD under the Advanced IRB approach?
- What is the difference between the Foundation IRB and Advanced IRB approaches under Basel, and who estimates which parameters?
- What is Funding Valuation Adjustment (FVA) and how does it relate to CVA/DVA?
- What are the risk retention rules for securitizations, and why do they require 'skin in the game'?
- How does the Standardized Measurement Approach (SMA) calculate operational risk capital under Basel III?
- What are CDX and iTraxx credit indices, and how are they used for portfolio hedging and trading?
- How does non-parametric (historical simulation) VaR work, and what are its strengths and weaknesses?
- What's the difference between logistic regression credit scoring and the Altman Z-score, and when would you use each?
- What is marginal VaR and how does it relate to optimal portfolio construction?
- How does collateral management work in OTC derivatives and what are best practices?
- Can someone walk through how the CreditMetrics model works step by step?
- How does risk budgeting work using marginal VaR and component VaR?
- What is wrong-way risk and can you give concrete examples of how it amplifies credit losses?
- How do netting and collateral reduce counterparty credit risk exposure in OTC derivatives?
- What is model risk, and how do banks validate their risk models to avoid catastrophic failures?
- How does VaR backtesting work under Basel, and what is the traffic light system?
- How does a sovereign wealth fund approach risk management?
- What should a Contingency Funding Plan (CFP) include and when does it get activated?
- How do banks quantify cyber risk within the operational risk framework?
- How does the US Stress Capital Buffer (SCB) work and how is it different from the standard capital conservation buffer?
- How does the ICMA social bond framework work, and what differentiates social bonds from green bonds?
- What is the difference between the independent amount in a CSA and regulatory initial margin, and why do they serve different purposes?
- How do all the FRTB capital components aggregate into the total market risk capital requirement?
- How are credit conversion factors (CCFs) estimated for off-balance-sheet exposures, and why do they matter for EAD?
- Why does the Basel IRB formula include a maturity adjustment, and how does longer loan maturity increase capital requirements?
- How should a bank calibrate downturn LGD, and why does Basel require it instead of average-cycle LGD?
- What does an XVA desk do and why do banks need a centralized XVA function?
- How does a central counterparty (CCP) allocate losses when a clearing member defaults, and what are assessment powers?
- How do banks incorporate climate risk into their stress testing frameworks, and what are the key scenario types?
- What are counterparty exposure profiles, and how do Expected Exposure and Potential Future Exposure differ?
- What is filtered historical simulation and how does it fix the problems of standard HS?
- What's the difference between through-the-cycle (TTC) and point-in-time (PIT) PD, and why does it matter for capital?
- How does factor-based risk decomposition work for market risk management?
- What is CVA and how does DVA work as a bilateral credit adjustment?
- Why does default correlation matter so much for credit portfolio losses?
- How does the FRTB internal models approach work and what is desk-level approval?
- How do CCPs reduce systemic risk and what happens when a clearing member defaults?
- How does a bank conduct liquidity stress testing, and what are the key scenarios?
- What is the Loss Distribution Approach for operational risk, and how do Key Risk Indicators fit in?
- How can a pension plan hedge longevity risk?
- How do sustainability-linked loans work, and what makes their margin ratchet mechanism different from green bonds?
- How does variation margin work mechanically, and how does it differ from initial margin in terms of purpose and daily operations?
- What are the NGFS climate scenarios, and how do banks use them for transition risk assessment?
- What is the Incremental Risk Charge (IRC), and how does it capture default and migration risk in the trading book?
- How does the Internal Models Approach (IMA) for market risk capital work under the FRTB framework?
- What is 'significant risk transfer' in securitization and why does it matter for capital relief?
- Why is backtesting expected shortfall (ES) so much harder than backtesting VaR?
- What are the financial stability implications of Central Bank Digital Currencies (CBDCs), and what risks should banks prepare for?
- How does ISDA SIMM calculate initial margin for non-cleared derivatives, and what are the key risk buckets?
- How does Extreme Value Theory (EVT) improve tail risk estimation, and what is the Peaks-over-Threshold approach?
- What determines loss given default (LGD), and how do workout LGD and market LGD differ?
- How is factor-based VaR used in stress testing and scenario analysis?
- What is wrong-way risk and how do you measure it?
- How are recovery rates modeled in practice and what factors affect LGD estimation?
- How is Basel III regulatory capital structured, and what is the loss-absorption waterfall?
- Why is Expected Shortfall considered superior to VaR, and what makes a risk measure 'coherent'?
- What is Liquidity-Adjusted VaR (LVaR), and how do funding liquidity risk and market liquidity risk interact?
- How do banks design an operational risk appetite statement?
- How do you measure and manage pension surplus volatility?
- What are the supervisory LGD values under Foundation IRB?
- What are the different levels of external review for green bonds, and how do they affect investor confidence?
- What is the difference between portfolio margining and product margining, and how does portfolio margining improve capital efficiency?
- What is DORA, and how does it change ICT risk management requirements for financial institutions?
- How are liquidity horizons assigned to risk factors under FRTB, and why do they matter for capital calculations?
- What is the Comprehensive Risk Measure (CRM), and why was it created specifically for correlation trading portfolios?
- How does the Red/Amber/Green model validation framework work?
- How do you compute parametric VaR when returns are non-normal? Is there a Cornish-Fisher adjustment?
- How does the Cornish-Fisher expansion adjust VaR for non-normality, and when should you use it?
- How do banks estimate exposure at default (EAD), especially for off-balance-sheet commitments?
- What are the main stress testing frameworks used in bank risk management?
- How does the Basel backtesting traffic light system work for validating VaR models?
- How does insurance reduce operational risk capital under Basel rules?
- What happens in a pension buy-out transaction?
- What is the supervisory slotting approach for specialized lending?
- Why do ESG ratings from different agencies diverge so much, and what does this mean for risk management?
- How does cross-product netting reduce counterparty exposure, and what are the legal and operational prerequisites for it to work?
- How is the G-SIB score calculated, and how does it determine the additional capital buffer a bank must hold?
- How does the FAIR model quantify cyber risk in financial terms, and what makes it different from qualitative risk assessments?
- How does the countercyclical capital buffer work, and how do national regulators decide when to activate or release it?
- What is procyclicality in banking regulation, and how do risk-sensitive capital requirements amplify economic cycles?
- What is the conditional coverage test in VaR backtesting and how does it improve on Kupiec's test?
- What is P&L attribution (P&L explain) and how does it relate to the risk-theoretical P&L in FRTB?
- How do banks aggregate risk across trading desks, and what are the challenges with recognizing diversification benefits?
- How is economic capital for credit risk calculated, and how does it differ from regulatory capital?
- How does reverse stress testing work in practice and what makes it different from regular stress tests?
- What is the Fundamental Review of the Trading Book (FRTB), and how does it change market risk capital?
- How does scenario-based capital assessment work under AMA?
- How does a pension glide path work mechanically?
- What is the maturity adjustment in the IRB formula and why does longer maturity need more capital?
- What is double materiality, and how does it differ from the single materiality approach used in traditional financial reporting?
- What is CoVaR, and how does it measure the systemic risk contribution of individual financial institutions?
- What is TLAC, how does bail-in work mechanically, and why was it designed for G-SIBs?
- How is the exposure measure calculated for the Basel leverage ratio, and why does it include off-balance-sheet items?
- How are risk-weighted assets calculated under the Internal Ratings-Based approach?
- How does desk-level capital allocation work under the FRTB, and why does it matter?
- What is P&L attribution, and how does the risk-theoretical P&L compare to actual P&L?
- Why is default correlation so important in credit portfolio management, and how is it measured?
- What is risk factor mapping and how is it used to measure portfolio market risk?
- How do external loss data consortia like ORX work?
- How should a pension plan set asset allocation given its liabilities?
- What LGD floors does Basel III final impose and how do they vary?
- What is ring-fencing in banking, and how does structural separation improve resolvability?
- What is a resolution stay, and how does the ISDA Resolution Stay Protocol prevent disorderly unwinds during bank resolution?
- How does the FRTB Standardized Approach for market risk work?
- How does the FRTB define the boundary between the trading book and banking book, and why was it redesigned?
- How do regulators and banks validate market risk models through backtesting?
- How does securitization create moral hazard, and what risk retention rules try to fix it?
- How do you use Greeks for risk management of an options portfolio?
- How do financial institutions measure and manage cyber risk, and why is it so hard to quantify?
- What are the standards for collecting internal operational loss data?
- What drives funding risk in a defined benefit pension plan?
- What is the regulatory PD floor and how does it affect bank capital?
- How does deposit insurance create moral hazard, and what mechanisms are used to mitigate excessive risk-taking by insured banks?
- What are the single-point-of-entry and multiple-point-of-entry strategies for cross-border bank resolution?
- What is the Default Risk Charge under FRTB and how is it calculated?
- How does SA-CCR compute exposure at default for derivative portfolios?
- How should risk managers think about event risk — the kind that standard models completely miss?
- What are covered bonds, and how do they differ from regular asset-backed securities?
- What are regime-switching models and how are they applied to market risk?
- Can you explain each of Basel's seven operational risk event types with examples?
- How does a defined benefit pension fund approach enterprise risk management?
- How does Basel set the correlation parameter R in the IRB formula?
- What is the Residual Risk Add-On (RRAO) under FRTB and which instruments trigger it?
- What is the output floor under Basel III finalization, and how does the phase-in schedule work?
- What is correlation risk, and how does wrong-way risk amplify losses during market stress?
- How do you assess sovereign credit risk, and what makes it different from corporate credit risk?
- How do banks classify operational loss events for reporting?
- What is the ASRF model and why is it the backbone of Basel IRB capital?
- What is operational resilience and how does it differ from traditional operational risk management?
- What is the ICAAP under Pillar 2, and how does it differ from Pillar 1 minimum capital?
- What are the main strategies for hedging tail risk, and what are their costs and tradeoffs?
- What is country risk beyond sovereign default, and how do banks measure transfer and convertibility risk?
- How does business process mapping support operational risk management?
- Why does regulatory capital target unexpected loss and not expected loss?
- What is the third-party risk management lifecycle and why is it critical for banks?
- What are recovery and resolution plans ('living wills'), and how do they differ from each other?
- What are Key Risk Indicators (KRIs) and how are they designed?
- What is the IRB formula for Expected Loss and how does it differ from Unexpected Loss?
- What is the TCFD framework and how do financial institutions apply it to climate risk disclosures?
- What are CoVaR, SRISK, and MES, and how do they measure systemic risk differently?
- How do banks conduct operational risk scenario analysis?
- How do banks estimate A-IRB parameters PD, LGD, EAD under Basel?
- What is the difference between transition risk and physical risk in climate finance?
- What does resolution planning require and how do recovery and resolution plans differ?
- How does bail-in work and what is the creditor hierarchy during resolution?
- How do I calculate the benefit of close-out netting for a counterparty?
- How does variation margin frequency affect residual exposure?
- How does MREL differ from TLAC and apply to European banks?
- What is TLAC and why must G-SIBs hold it in addition to regulatory capital?
- SIMM vs grid approach for IM — which should we use?
- How is initial margin calculated for uncleared bilateral trades?
- How does the SREP aggregate risk and assign a supervisory score?
- What does ILAAP cover and how does it differ from ICAAP?
- How do threshold and MTA combine to affect collateralized exposure?
- How does collateral change the exposure profile of a trade?
- What is ICAAP and how do banks run internal capital adequacy assessments?
- How does Pillar 3 market discipline work and what disclosures are required?
- PFE vs EPE — what's the difference and when do I use each?
- What percentile defines potential future exposure and how is it used for limits?
- What is Pillar 2 supervisory review and how does it complement Pillar 1 minimums?
- What does Pillar 1 of the Basel framework require for minimum regulatory capital?
- How do regime-dependent correlation models work?
- How do I interpret and compute an expected exposure profile?
- How do I describe the distribution of counterparty credit exposure over time?
- What is the difference between upside and downside beta?
- What is convexity risk in bank assets and how is it measured?
- How do banks backtest CVA models?
- What should a Contingency Funding Plan contain?
- What happens when a CMBS loan defaults at maturity — extension or modification?
- What is lower partial moment and how is it used in risk measurement?
- How do we aggregate model risk across the enterprise?
- What is BA-CVA and when do banks use it?
- What is the CMBS B-piece and why is it a specialized market?
- What is tail correlation and why differ from normal correlation?
- How should models be tiered for validation priority?
- How does mortgage prepayment risk affect a bank's ALM?
- What is SA-CVA (Standardized Approach CVA) under Basel III?
- What is intraday liquidity risk and how do banks monitor it?
- What is a CMBS IO tranche and why does it trade like a corporate bond?
- How do I stress test a correlation matrix?
- What is process verification in model validation?
- How is the Net Stable Funding Ratio computed and why is the horizon one year?
- What's the difference between a conduit CMBS and a single-borrower CMBS?
- Why does diversification fail during crisis periods?
- What does a conceptual soundness review actually cover?
- How does yield curve risk differ from parallel rate risk in ALM?
- What's an example of right-way risk for a corporate?
- How do I calculate the Liquidity Coverage Ratio in detail?
- How does a CMBS differ from residential MBS at the structural level?
- What is a flight-to-quality correlation regime and how does it affect portfolios?
- What quantitative techniques are used in model validation?
- Can you give a clear example of wrong-way risk for a bank trading desk?
- What is maturity transformation and why is it risky yet necessary?
- How do equipment lease ABS work and what is residual value risk?
- Why do cross-asset correlations break down during crises?
- What is basis risk in ALM and when does it bite?
- What is bilateral CVA (BCVA) and how does DVA fit in?
- What makes student loan ABS different from other ABS types?
- What are the limitations of beta hedging for equity portfolios?
- Why is benchmarking against alternative models part of validation?
- What is the square root law of market impact and how is it used?
- What are the components of market impact cost?
- How do I calculate unilateral CVA for a derivative?
- What are the main components of market liquidity risk?
- How does a credit card master trust work and what is the revolving period?
- What is correlation risk in dispersion trading?
- What should ongoing model monitoring look like between validations?
- What are the main methodologies for aggregating risks across different risk types and business units?
- How do I calculate the duration gap for a bank balance sheet?
- How do I quantify the opportunity cost of unexecuted trades?
- What is the arrival price benchmark and when is it used?
- How does counterparty credit risk specifically differ from issuer default risk?
- What is a liquidity horizon and how does FRTB assign them?
- How do auto loan ABS work and what credit enhancement is typical?
- How should a model inventory be structured under SR 11-7?
- What's the Monte Carlo workflow for simulating credit portfolio losses?
- How does Perold's implementation shortfall framework measure execution cost?
- When is TWAP a better benchmark than VWAP?
- What is counterparty credit risk (CCR) and why is it different from regular credit risk?
- How does the bid-ask spread approach to liquidity-adjusted VaR work?
- What are the main ABS types outside of mortgages and how do they differ structurally?
- What does SR 11-7 require for model validation governance?
- How is the Stress Capital Buffer (SCB) calculated and what are its implications?
- What is DFAST and how does it differ from CCAR?
- How do you run operational risk scenario analysis workshops that produce credible loss estimates?
- What is the effective spread and how is it different from the quoted spread?
- What is the order processing cost component of the spread?
- What is repricing gap analysis and what are its limitations?
- What is VWAP and why is it used as an execution benchmark?
- What's the difference between implicit and explicit transaction costs?
- How is concentration risk measured with the Herfindahl index?
- How does the Fed's CCAR supervisory stress test actually work?
- What is the governance structure for stress testing?
- How does inventory risk affect market-maker quotes?
- How does adverse selection widen the bid-ask spread?
- How much do transaction costs actually drag on portfolio performance?
- How does the bid-ask spread absorb transaction costs?
- How do I identify binding constraints in a stress test?
- How should I define the loss threshold for a reverse stress test?
- How do I run an effective Risk and Control Self-Assessment (RCSA) that doesn't become a check-the-box exercise?
- What are the three components of the bid-ask spread?
- How is the Amihud illiquidity ratio calculated and used?
- How is net interest income (NII) sensitivity modeled?
- How does reverse stress testing differ from traditional stress testing?
- What is reverse stress testing and how do I actually run one?
- How do I design hypothetical stress scenarios with a narrative and calibrated shocks?
- What is Kyle's lambda and how does it measure market impact?
- What is price slippage and how do we model it?
- Which historical stress scenarios should a trading book use and how are they calibrated?
- What are the key components of a market risk stress testing framework?
- What is the three lines of defense model and how has it evolved?
- How is market impact incorporated into LVaR for large positions?
- How do I calculate Liquidity-Adjusted VaR using the bid-ask spread method?
- How is economic value of equity (EVE) calculated?
- How do I design a credit stress test for FRM Part II?
- How do you assess risk culture in an organization — isn't it too intangible?
- What is IRRBB and how do regulators measure it?
- What's the practical difference between regulatory and economic capital?
- How do I construct a meaningful risk heat map instead of a subjective color chart?
- What is asset-liability management and why do banks need a dedicated ALM function?
- How does netting reduce Exposure at Default for derivatives portfolios?
- How do I design key risk indicators (KRIs) and build an effective risk dashboard?
- How does seniority affect LGD assumptions in credit models?
- How do you quantify risk tolerance versus risk appetite — and are they the same thing?
- How does Moody's KMV calculate Expected Default Frequency (EDF)?
- How do I design a risk appetite statement that is actually useful, not just a boilerplate document?
- How does CreditMetrics calculate portfolio credit VaR?
- What are the core components of an Enterprise Risk Management (ERM) framework?
- How do I calculate single-name credit VaR for an FRM Part II question?
- How does the Basel standardized approach for credit risk assign risk weights and what are the main exposure categories?
- What is the IRB approach for credit risk and how do PD, LGD, and EAD interact to determine capital requirements?
- How does the FRTB define the boundary between the trading book and banking book, and why does it matter for capital?
- How is the Basel leverage ratio calculated and why was it introduced alongside risk-based capital requirements?
- Why did Basel move from the AMA to the SMA for operational risk capital, and how does the SMA work?
- Can banks use insurance to reduce operational risk capital requirements, and what are the limitations?
- What are the key elements of a business continuity plan and how does it relate to operational resilience?
- How should banks manage third-party risk, and what are the regulatory expectations for outsourcing critical functions?
- How is the Liquidity Coverage Ratio (LCR) calculated and what qualifies as High-Quality Liquid Assets?
- How does the Net Stable Funding Ratio (NSFR) work and how does it complement the LCR?
- What is intraday liquidity risk and how do the BCBS monitoring tools address it?
- What should a contingency funding plan include and how are escalation triggers designed?
- What are the unique challenges in measuring hedge fund risk and how do standard risk metrics fail?
- How do you measure risk in private equity funds, and why are standard portfolio metrics inadequate?
- What are the key risks in structured credit products like CDOs and how does tranching affect the risk profile?
- How does risk budgeting work in portfolio construction and what are its practical applications?
Part I / Part II bridge (8)
- Why does stress testing not replace VaR for an option-heavy portfolio?
- How do I fix a Monte Carlo VaR workflow that mixes log returns and simple returns?
- Why can expected shortfall move a lot even when VaR barely changes?
- When should I prefer historical simulation VaR over delta-normal VaR?
- Why do hedge calculations often use dollar duration or DV01 instead of just modified duration?
- How should I think about the relationship between Macaulay duration and modified duration instead of memorizing two separate definitions?
- When should I stop using modified duration and switch to effective duration?
- Why is DV01 so much smaller than dollar duration if both are supposed to measure rate risk?