2019-2015 PRM Syllabus Crossmap

2019 Professional Risk Manager (PRM ™) Designation
Syllabus Cross-map to the 2015 PRM Syllabus
The Professional Risk Manager (PRM™) Designation syllabus was updated and published in 2019 to reflect the current knowledge and skills required of financial
risk manager. The enclosed cross-maps are intended to assist current potential applicants, current and future candidates in understanding how the 2019 syllabus
relates to the 2015 syllabus.
The Job Analysis Study found that all topics reflected in the 2015 PRM syllabus remain relevant to the role of the risk manager. Only a few new topics will be
assessed in the 2019 program. These include:
• RORAC, RARORAC
• Real Estate Evaluation
• Stochastic Calculus
• Multi-state Markov models, Monte Carlo simulation
• Bayesian theory
• Copula, probit and logit
• Time Series
• Debit value adjustment (DVA) & Margin value adjustment (MVA)
As a result, individuals using the 2015 PRM Handbooks as a guide for study may continue to trust these sources for study. As content related to the new topics
above are generated, these materials will be made available to all current PRM candidates, whether enrolled in the 2015 or 2019 programs.
In addition, the 2019 syllabus has been re-arranged to allow for a consistent document to describe the core knowledge and skills required of a Professional Risk
Manager. Use the cross-map alongside the 2019 PRM Syllabus to better understand the relationship between the 2015 and 2019 required knowledge and skills.
For more information about the transition from the 2015 to 2019 PRM syllabus, visit http://prmia.org/Public/PRM/2019Transition.aspx.
To view the complete 2019 PRM Syllabus, download the 2019 Guidebook by visiting https://prmia.org/PRM.
Feedback and comments on this document may be sent to certification@prmia.org Last Updated March 2019
I. FINANCE THEORY
New topics in this section include RORAC, RARORAC as shown in this learning statement:
I.E.2. Identify and describe risk adjusted performance measures, in particular RAROC, RORAC, RARORAC, RoVaR, and the Treynor, Information, and
Omega ratios, and the Sortino and Kappa indices.
2015 Handbook
2019 PRM 2015 Guidebook 2015 Guidebook Volume.Book.
Topic Label1 Title2 Topic3 2015 Learning Objective (from Self Study Guide)4 Chapter5
A. Arbitrage Finance Theory The CAPM and Describe the Arbitrage Pricing Theory (APT) I.1.4.
Pricing Theory Multifactor Models
Financial The Structure of State the arbitrage equation for commodity pricing decomposition I.3.7.
Markets Commodities of risk factors in commodities
Markets
B. The CAPM Finance Theory The CAPM and Describe the Capital Asset Pricing Model (CAPM) I.1.4.
and Multifactor Models
Multifactor
Models
1
The 2nd level topic area heading for the 2019 PRM Syllabus. To view the complete 2019 PRM Syllabus, download the 2019 Guidebook by visiting https://prmia.org/PRM.
2
The 1st level title heading for the 2015 PRM Syllabus, as shown in the 2015 PRM Guidebook, available for download from
https://prmia.org/Public/PRM/Become_Certified/Public/2015PRM/Becoming_a_Certified_PRM.aspx
3
The 2nd level topic area heading for the 2015 PRM Syllabus.
4
The 2015 Topic Learning Objective as shown in the 2015 Self-Study Guides, available for download from
https://prmia.org/Public/PRM/Preparation_Resources/Public/2015PRM/PRM_Exam_Preparation_Resources.aspx
5
The supporting reference for the 2015 topic or learning objective. The code is listed as the volume (handbook volumes 1, 2, or 3), followed by the book (volumes 1 and 2
contain 3 books, volume 2 contains 1 book), and the chapter in which the topic can be found. Refer to the handbook’s table of contents for specific details.
2019 Professional Risk Manager (PRM ™) Designation Syllabus Cross-map to the 2015 PRM Syllabus Page 2 of 48
2015 Handbook
Describe Beta as a Measure of Relative Risk I.1.4.
List the assumptions of the CAPM I.1.4.
Define risk premium I.1.4.
Derive the Security Market Line I.1.4.
Describe systematic and specific risk I.1.4.
The Term Structure Compare and contrast single-factor and multifactor models I.1.6.
of Interest Rates
C. Capital Finance Theory Basics of Capital Explain and Show the formula for the Value of a Firm I.1.5.
Structures Structure
Describe the Agency costs of Equity I.1.5.
Describe the Agency costs of Debt I.1.5.
Describe the characteristics of Debt and Equity I.1.5.
Characterize the impact of leverage on ROE volatility I.1.5.
Characterize the impact of taxes on the debt/equity decision I.1.5.
Compare the CFO considerations for issuing debt vs. equity I.1.5.
D. Mean- Finance Theory Risk and Risk Explain the concepts of Utility and Utility Maximization I.1.1.
Variance Aversion
Portfolio
Theory
Explain the ways of the determination of utility function I.1.1.
Explain the concept of Risk Aversion I.1.1.
Discuss the Mean-Variance Criterion I.1.1.
2015 Handbook
Portfolio Identify a dominated portfolio I.1.2.
Mathematics
Discuss the efficient frontier I.1.2.
Describe how diversification reduces risk I.1.2.
Capital Allocation Describe efficient portfolios that satisfy the mean-variance I.1.3.
criterion
Describe tolerances and preferences for Risk vs. Return I.1.3.
Show the efficient frontier for two assets I.1.3.
Show the efficient frontier for a multi-asset portfolio I.1.3.
Derive and describe the Capital Allocation Line I.1.3.
Describe the Capital Markets Line I.1.3.
Define the market portfolio I.1.3.
Describe the separation principle I.1.3.
List the predictions of Mean-Variance Portfolio Theory I.1.3.
E. Performance Finance Theory Risk and Risk Define the Sharpe, Treynor and Information Ratios I.1.1.
Measures Aversion
Define Jenson’s Alpha, RAROC, RoVaR and RAPM I.1.1.
Define the Sortino, Omega Index and Kappa Ratios I.1.1.
The CAPM and Define and Calculate the Sharpe Ratio and Jensen’s Alpha I.1.4.
Multifactor Models
Describe the Single Index Model I.1.4.
2015 Handbook
F. The Term Finance Theory The Term Structure Describe yield to maturity as an internal rate of return I.1.6.
Structure of of Interest Rates
Interest Rates
Define spot curve, spot rate and term structure I.1.6.
Define and describe the yield curve I.1.6.
Demonstrate the process of bootstrapping I.1.6.
Define no-arbitrage pricing I.1.6.
Describe normal, flat and inverted yield curves I.1.6.
Describe the pure expectations theory I.1.6.
Describe the liquidity preference theory I.1.6.
Describe the preferred habitat theory I.1.6.
Describe the market segmentation theory I.1.6.
Compare and contrast the Ho-Lee, Hull-White and Black-Derman- I.1.6.
Toy models
Describe mean reversion I.1.6.
Describe the impact of an embedded call on the value of a bond I.1.6.
using term structure models
Calculate effective duration and convexity within a term structure I.1.6.
model
Define Option Adjusted Spread I.1.6.
Discuss the implications of choosing one term structure model I.1.6.
over the others
Financial The Analysis of Calculate current yield and yield to maturity I.2.2.
Instruments Bonds
2015 Handbook
Define and discuss convexity I.2.2.
Describe the impact of an embedded call or put on convexity I.2.2.
Financial The Money Markets Define “add-on” interest I.3.2.
Markets
Mathematical Calculus Demonstrate the concept of convexity II.0.C
Foundations
Market Risk, Market Risk in the Define interest rate options products III.3.4
Asset Liability Trading Book:
Management, Business-Specific
and FTP Context
G. Regulatory Finance Theory Capital Allocation
Frameworks
Risk Foreword Embed Good Practice in a Changed Regulatory Environment III.1.1
Management
Frameworks and
Operational Risk
Credit Risk and IFRS9
Counterparty
Credit Risk
Market Risk, Market Risk Discuss the post crisis risk regulatory framework III.3.2
Asset Liability Governance and
Management, Management
and FTP
Market Risk Understand the regulatory impetus on model development III.3.3
Measurement
2015 Handbook
ALM, Liquidity and Understand the implementation of BCBS principles III.3.7
the Recent Crisis
Review the Basel Committee on Banking Supervision Principles for
the Management and Supervision of IRR (BCBS Document number
108)
Discuss Basel III recommendations
Discuss regulatory implementation guidance and challenges after
the financial crisis
Interest Rate Risk III.3.9
Liquidity Risk III.3.10
Balance Sheet Capital management and regulatory capital III.3.11
Management
H. Trade Finance Theory Define the risk-free asset I.1.3.
Terminology
Financial The Analysis of Define nominal (notional, face, par, maturity) value, maturity, term I.2.2.
Instruments Bonds to maturity, coupon, coupon-rate, zero-coupon and vanilla bond
Define discount and premium I.2.2.
Describe the relationship between yield and price I.2.2.
Forward and Futures Define cheapest-to-deliver and conversion factor I.2.4.
Contracts
Credit Derivatives Define reference entity, credit event, settlement mechanism and I.2.7.
deliverable obligation
Caps, Floors and Define cap, floor, collar, caplet, floorlet, reference rate, exercise I.2.8.
Swaptions rate, settlement frequency, starting date and maturity
2015 Handbook
Describe a cap or floor as a portfolio of options I.2.8.
Define swaption, receiver option and payer option I.2.8.
Financial The Money Markets Define term, principal, interest rate and secured vs. unsecured I.3.2.
Markets
Define a reference rate I.3.2.
Describe a credit facility I.3.2.
Discuss syndication I.3.2.
Define LIBOR I.3.2.
Define basis point I.3.2.
Define a stamping fee I.3.2.
Foreign Exchange Define decentralized, continuous, open bid and double-auction I.3.4.
Markets
Define currency swap rate, forward premium and forward discount I.3.4.
The Stock Market Define T+1 and T+3 settlement I.3.5.
Derivatives Define open-outcry, contact size, tick size, limit up, limit down, I.3.6.
Exchanges expanded limit, initial margin, maintenance margin, mark-to-
market, daily settlement, delivery month, offsetting transaction,
volume and open interest
The Structure of Define “on the spot” and “settlement of difference" I.3.7.
Commodities
Markets
Define “on the spot” and “settlement of difference" I.3.7.
II. FINANCIAL INSTRUMENTS
2015 Handbook
Topic Label Title Topic 2015 Learning Objective (from Self Study Guide) Chapter
A. Bonds Finance Theory The Term Structure Calculate effective duration and convexity within a term structure I.1.6.
of Interest Rates model
Financial General Define and discuss the various characteristics of bond issues I.2.1.
Instruments Characteristics of
Bonds
List and discuss the Moody’s and S&P ratings for bonds I.2.1.
Define clean price, dirty price, accrued interest and bond yield I.2.1.
Define bond spread (yield spread) and bid/ask spread I.2.1.
Describe the impact of liquidity on spreads I.2.1.
Discuss strips, floating rate notes and inflation indexed bonds I.2.1.
The Analysis of Describe a bond as a series of cash flows I.2.2.
Bonds
Define index-linked bonds, securitized bonds, amortizing bonds, I.2.2.
callable bonds, putable bonds and convertible bonds
Calculate the clean and dirty price of a bond I.2.2.
Discuss the “pull to par” of bond prices I.2.2.
Compare and contrast Macauley Duration and Modified Duration I.2.2.
Define DVBP, dollar duration and key rate duration I.2.2.
Calculate the modified duration of a bond I.2.2.
Describe the shortcomings of Macauley and Modified durations I.2.2.
2015 Handbook
Calculate the DVBP of a bond I.2.2.
Discuss Effective Duration I.2.2.
Discuss the duration of a floating rate note I.2.2.
Describe the impact of an embedded call or put on duration I.2.2.
Define basis point value (BPV) I.2.2.
Discuss the various risks associated with a bond I.2.2.
Mathematical Calculus: Case Study: Calculate the modified duration of a bond II.0.C
Foundations Modified Duration of
a Bond
B. Forward and Finance Theory The Term Structure Calculate implied forward rates I.1.6.
Futures of Interest Rates
Contracts
Financial Forward and Futures Define spot price and forward price I.2.3.
Instruments Contracts
Calculate the value of a forward contract at expiration and prior to I.2.3.
expiration
Describe the impact of intermediate cash flows on the value of a I.2.3.
forward contract
Describe the impact of storage costs on the value of a forward I.2.3.
contract
Describe the impact of convenience yield on the value of a forward I.2.3.
contract
Calculate the forward price of a bond, stock, currency and I.2.3.
commodity
2015 Handbook
Define and Discuss a Forward Rate Agreement (FRA) I.2.3.
Calculate the value and price of FRA I.2.3.
Compare and contrast forwards and futures I.2.3.
Compare and contrast forwards and futures I.2.3.
Discuss some uses of stock index futures I.2.4.
Define index point and value of an index point I.2.4.
Describe index arbitrage and program trading I.2.4.
Discuss “tailing the hedge” I.2.4.
Compare and contrast currency forwards and futures contracts I.2.4.
Define covered interest parity I.2.4.
Calculate a forward exchange rate I.2.4.
Discuss the relative basis risks with commodity futures I.2.4.
Define forward rate agreement (FRA) I.2.4.
Discuss FRAs, their nomenclature, uses and settlement I.2.4.
Calculate T-bill and Eurodollar futures prices I.2.4.
Define the tick value of a Eurodollar or T-bill futures contract I.2.4.
Define the tick value of a Eurodollar or T-bill futures contract I.2.4.
Compare and contrast T-Bond and Gilt futures contracts I.2.4.
Define the tick value of a T-Bond and Gilt futures contract I.2.4.
Financial Foreign Exchange Define the trading term “big figure” I.3.4.
Markets Markets
Calculate the forward premium or discount I.3.4.
2015 Handbook
Define covered-interest arbitrage /interest rate parity I.3.4.
Derivatives Define a futures contacts I.3.6.
Exchanges
Discuss the importance of standardization in futures contracts I.3.6.
Discuss the exercise of an option on a futures contract I.3.6.
The Energy Markets List the major energy futures contracts I.3.8.
Mathematical Descriptive Statistics Calculate Historical Volatility from Returns Data II.0.B
Foundations
Calculate the volatility of a portfolio II.0.B
Market Risk, Market Risk in the Understand FX and rates trading III.3.4
and FTP Context
C.Swaps Financial Swaps Define a swap I.2.5.
Instruments
List the key components of a swap agreement I.2.5.
Discuss equity swaps I.2.5.
Discuss commodity swaps I.2.5.
Define buyer of interest rate swaps I.2.5.
Discuss interest rate swaps I.2.5.
Discuss currency swaps I.2.5.
Discuss basis swaps I.2.5.
Discuss volatility swaps I.2.5.
2015 Handbook
Decompose a swap into its respective cash flows I.2.5.
Define par swap, accrual swap, commodity-linked interest rate I.2.5.
swap, crack spread swap, overnight index swap, power LIBOR swap
and extendible swap
Define swap spread and swap rate I.2.5.
Define the payer and receiver in swaps I.2.5.
Discuss risk of swaps I.2.5.
Discuss main uses of swaps I.2.5.
Caps, Floors and Discuss the pricing of swaptions I.2.8.
Swaptions
Discuss the quotation conventions for caps, floors and swaptions I.2.8.
Market Risk, Market Risk in the Define Swaps & Swap products III.3.4
and FTP Context
D. Options Financial Options Discuss the factor influencing option price I.2.6.
Instruments
Describe put-call parity I.2.6.
Discuss the basic principles of the binomial option model I.2.6.
Explain risk-neutral valuation I.2.6.
Calculate an option price using a one-step binomial model I.2.6.
Define the symbols and letters of inputs into the binomial model I.2.6.
Describe the basic principles of the Black-Scholes-Merton model I.2.6.
2015 Handbook
State the Black-Scholes-Merton formula for pricing a call option I.2.6.
Calculate an option price using Black-Scholes-Merton model I.2.6.
Identify and discuss the graphic representations of a put and a call I.2.6.
Define delta, gamma, vega, theta and rho I.2.6.
Define and discuss implied volatility I.2.6.
Define a volatility smile I.2.6.
Define intrinsic value and time value I.2.6.
Define premium, underlying, strike (exercise) price, expiration date I.2.6.
(expiry), in-the-money, at-the-money and out-of-the-money
Draw the expiration payoff diagram of a put and a call I.2.6.
Compare and contrast the risk of long and short option positions I.2.6.
Compare and contrast American, European and Bermudan options I.2.6.
Draw and discuss the expiration payoff diagrams of a covered call, I.2.6.
protective put, call spread, put spread, straddle, strangle, collar,
butterfly and condor
Describe a calendar spread I.2.6.
Discuss uses of straddles, strangles, risk reversals, collars, I.2.6.
butterflies and condors
Mathematical Calculus Demonstrate the concept of delta, gamma and vega II.0.C
Foundations
Numerical Methods: Demonstrate Binomial Lattices for valuing options II.0.G
Numerical Methods
for Valuing Options
Demonstrate Finite Difference Methods for valuing options II.0.G
2015 Handbook
E. Credit Financial Credit Derivatives Contrast technical default and actual default I.2.7.
Derivatives Instruments
Discuss the applications of credit derivatives I.2.7.
Define and discuss funded and unfunded instruments I.2.7.
List the types of credit events contained in a standard ISDA credit I.2.7.
derivatives document
Define and discuss credit default swaps (CDS) and their prospective I.2.7.
cash flows
Define reference asset I.2.7.
Discuss some advantages of physical settlement vs. cash I.2.7.
settlement in credit default swaps
Define and discuss loan-only credit default swaps (LCDS) I.2.7.
Define structured finance security CDS I.2.7.
Define and discuss pay-as-you-go CDS I.2.7.
Define and discuss credit-linked notes (CLN) and their prospective I.2.7.
cash flows
Define and discuss total return swaps (TRS) and their prospective I.2.7.
cash flows
Discuss the risks of total return swaps I.2.7.
Discuss the potential balance-sheet implications of different total I.2.7.
return swap structures
Discuss the use of total return swaps as a funding vehicle I.2.7.
2015 Handbook
Define a credit option call and put collateralized debt obligations I.2.7.
(CDO), collateralized bond obligation (CBO) and collateralized loan
obligation (CLO) and their prospective cash flows
Define tranch, tranching and credit enhancement subordinated I.2.7.
note, mezzanine note and equity note and how cash flows to each
enhancements
Discuss synthetic CDOs and their prospective cash flows I.2.7.
Define reference portfolio I.2.7.
Define first-loss piece I.2.7.
Describe unfunded, partially funded, fully funded and fully I.2.7.
unfunded synthetic CDOs
Define super-senior swap I.2.7.
Discuss some uses, advantages and limitations of synthetic CDOs I.2.7.
applications of credit derivatives unintended risks with credit
derivatives
F. Hedging Finance Theory Portfolio Calculate the minimum variance hedge ratio I.1.2.
Strategies Mathematics
Financial The Analysis of Calculate the hedge ratio for a bond using BPV I.2.2.
Instruments Bonds
2015 Handbook
Forward and Futures Calculate a minimum variance hedge ratio for a portfolio of stocks, I.2.4.
Contracts using futures, given beta
Describe some risks in index hedging I.2.4.
Calculate a hedge ratio using foreign exchange futures I.2.4.
Construct a hedge using Eurodollar or T-bill futures I.2.4.
Construct a hedge using T-bond futures contrast stack and strip I.2.4.
hedges
Options Define and discuss delta-hedging I.2.6.
Caps, Floors and Discuss various uses of caps, floors and collars in hedging I.2.8.
Swaptions
Discuss some uses of swaptions in hedging and when they might I.2.8.
be preferred to caps and floors
Financial The Energy Markets Discuss using futures markets to hedge energy risk I.3.8.
Markets
Construct an energy hedge using futures contracts I.3.8.
Mathematical Matrix Algebra Demonstrate Hedging of a Vanilla Option Position II.0.D
Foundations
Credit Risk and Counterparty Risk: Understand hedging CVA III.2.11
Counterparty Managing
Credit Risk Counterparty Risk
and CVA
III. FINANCIAL MARKETS
New topics in this section include Real Estate Evaluation as shown in this learning statement:
III.H.1. Describe different sectors within real estate (e.g., commercial, industrial, residential) and outline risks associated with lending or investing in
real estate.
2015 Handbook
A. Participants Financial The Structure of Compare and contrast financial exchanges and OTC markets I.3.1.
in and the Markets Financial Markets
Structure of
Financial
Markets
Define inter-dealer market and interdealer broker I.3.1.
Compare and contrast the size of various markets (bonds, foreign I.3.1.
exchange, equities, etc)
Define an ISDA Master Agreement I.3.1.
Describe how screen-trading systems work I.3.1.
Describe a market “specialist” I.3.1.
Describe an “open-outcry” trading system I.3.1.
Describe an ECN I.3.1.
Describe the steps in post-trade processing I.3.1.
Describe straight-through processing I.3.1.
Compare and contrast retail, wholesale and prime brokers I.3.1.
2015 Handbook
Discuss issues with “new market” developments and structured I.3.1.
products
Bond Markets Compare and contrast a retail and an investment bank I.3.3.
Describe the various market participants by group I.3.3.
Compare and contrast a proprietary trader and a market-maker I.3.3.
(dealer) and an inter-dealer broker
Define underwriter, lead manager and book-runner I.3.3.
Foreign Exchange Compare and contrast direct dealing, foreign exchange brokers and I.3.4.
Markets electronic systems
Discuss central bank intervention I.3.4.
Define front, middle and back office I.3.4.
The Stock Market Discuss shareholder rights I.3.5.
Discuss the types of stock market participants I.3.5.
Describe the role of exchanges I.3.5.
Describe the role of the OTC market I.3.5.
Derivatives Discuss the various participants in futures markets: hedgers, I.3.6.
Exchanges speculators, futures investors initial margin and change in margin
due to market movements calendar spread and basis
The Energy Markets Define basis contracts in OTC energy markets I.3.8.
Discuss the role of the North American OTC energy market I.3.8.
Credit Risk and Counterparty Risk: Understand the OTC derivative market III.2.7
Counterparty Basics of
Credit Risk Counterparty Risk
2015 Handbook
Market Risk, Market Risk in the Discuss trading activities and hedging strategies III.3.4
and FTP Context
Compare retail client and wholesale client (delta one desk clients) III.3.4
B. Bond Financial Bond Markets Define market-making and origination I.3.3.
Markets Markets
Define bid-price and offer-price I.3.3.
Compare and contrast sovereign, agency, corporate and municipal I.3.3.
bonds
Describe on-the-run, off-the-run and benchmark securities I.3.3.
Compare and contrast general obligation and revenue bonds I.3.3.
Define a sinking fund I.3.3.
Define property clauses and call provision I.3.3.
Define types of foreign bonds (Yankee, Bulldog, Samurai, Alpine I.3.3.
and Matador)
Compare gross and net interest payments I.3.3.
Compare and contrast the primary and secondary markets I.3.3.
Compare and contrast a public offer and a private offer I.3.3.
Describe the process of underwriting a new issue I.3.3.
Define a fixed-price re-offer mechanism I.3.3.
Define a bought-deal I.3.3.
Describe the characteristics of the Eurobond market I.3.3.
2015 Handbook
Define the different day-count conventions I.3.3.
Define default and recovery rates I.3.3.
Describe how a bond’s rating affects the yield spread I.3.3.
Describe the role of Rating Agencies I.3.3.
C. Money Financial The Money Markets Describe the characteristics of fixed income instruments I.3.2.
Market Markets
Securities
Describe the types of deposits (demand, notice and fixed-term) I.3.2.
Calculate the interest payment on a term repo I.3.2.
Describe the Eurocurrency market, particularly the Eurodollar I.3.2.
market
Describe different types of money market securities I.3.2.
Calculate the bond-equivalent yield of a T-bill I.3.2.
Define a commercial paper and a promissory note I.3.2.
Define a commercial paper and a promissory note I.3.2.
Define banker’s acceptance and certificate of deposit I.3.2.
Market Risk, Market Risk in the Understand the Fixed Income considerations III.3.4
and FTP Context
Discuss Fixed Income trading activities and hedging strategies III.3.4
Understand the Fixed Income markets III.3.4
2015 Handbook
Liquidity Risk Discuss significant funding rates: Euro Interbank Offered Rate III.3.10
(Euribor), the London Interbank Offered Rate (LIBOR), Overnight
Index Swap (OIS), and the Euro Over Night Index Average (EONIA)
D. Stock Financial The Stock Market Describe the common characteristics of a stock I.3.5.
Market Markets
Define IPO, primary issue, and secondary offering I.3.5.
Define dividend and ex-dividend trading I.3.5.
Compare and contrast ordinary and preference shares I.3.5.
Define market capitalization I.3.5.
Discuss stock indices I.3.5.
Define the dividend discount and Gordon growth models of stock I.3.5.
valuation
Define listing and float I.3.5.
Compare and contrast matched market and market maker I.3.5.
Define private placement and seasoned new issue I.3.5.
Describe the process of an IPO I.3.5.
Describe the process of a private placement I.3.5.
Define the bid/offer spread margin trading I.3.5.
Discuss short-selling and borrowing stocks I.3.5.
Compare and contrast single-stock and index options I.3.5.
E. Foreign Financial Foreign Exchange Define an exchange rate I.3.4.
Exchange Markets Markets
Markets
2015 Handbook
Describe the interbank market I.3.4.
Define direct and indirect-term quotations I.3.4.
Define the trading terms “mine” and “yours” I.3.4.
Define a cross-rate and a cross-trade I.3.4.
Calculate a cross-rate given two exchange rates I.3.4.
Describe some economic factors that might affect exchange rates I.3.4.
Discuss spot and forward markets I.3.4.
Describe a typical foreign exchange operation I.3.4.
F. Energy Financial The Energy Markets Discuss the size of markets for energy I.3.8.
Markets Markets
Discuss the various energy futures markets I.3.8.
Describe various options on energy I.3.8.
Discuss physical delivery in energy markets I.3.8.
Discuss the role of the Singapore Market I.3.8.
Discuss the role of the European Market I.3.8.
Discuss the role of NordPool I.3.8.
Discuss the role that Platts plays in the energy market I.3.8.
Discuss the Coal market I.3.8.
Discuss the weather derivatives market I.3.8.
Discuss the emergence of green trading I.3.8.
Define Heating Degree Day (HDD) and Cooling Degree Day (CDD) I.3.8.
Discuss the issues of future energy trading I.3.8.
2015 Handbook
G. Financial The Structure of List four general types of commodities I.3.7.
Commodities Markets Commodities
Markets Markets
Contrast base, strategic, minor and precious metals I.3.7.
Contrast grains, oilseeds and fibers I.3.7.
Define in store, ex store, Free on Board (FOB), Free alongside Ship I.3.7.
(FOS), Cost Insurance & Freight (CIF) and Exchange for Physicals
(EFP)
Discuss the uniqueness of the gold market I.3.7.
Define contango, backwardation, carrying cost (cost of carry) and I.3.7.
lease rate
Discuss the impact of shortages on commodity prices and the I.3.7.
history of short squeezes
Discuss the impact of shortages on commodity prices and the I.3.7.
history of short squeezes
Define short squeeze and demand for immediacy I.3.7.
Discuss the importance of non-normality of commodity price I.3.7.
distributions
H. Real Estate Financial The Structure of I.3.1.
Evaluation Markets Financial Markets
I. Futures Financial Derivatives Discuss some of the reasons that futures markets exist I.3.6.
Markets Markets Exchanges
Discuss types of orders in futures markets I.3.6.
Discuss the role of the clearing house I.3.6.
2015 Handbook
Compare and contrast physical delivery and cash-settlement I.3.6.
Discuss the process of physical settlement I.3.6.
Define and discuss the various types of orders I.3.6.
Define flex option I.3.6.
IV. MATHEMATICAL FOUNDATIONS OF RISK MANAGEMENT
New topics in this section include Stochastic calculus, Monte Carlo simulation, multi-state Markov model, Bayesian theory, Copula, probit and logit
models, and time series as shown in the following learning statements:
IV.B.1. Apply calculus methods (e.g., exponential and integration, approximation, differentiation, stochastic, etc.) to risk management.
IV.D.1. Discuss, calculate, and interpret various optimization and numerical methods (e.g., LaGrange, Newton-Raphson, Monte Carlo simulation,
Multi-state Markov model, etc.)
IV.F.1. Understand probability theory including Bayesian theory.

IV.F.2. Calculate, apply, and interpret probability distributions (e.g., normal, lognormal, Poisson, Copula, probit, and logit models).
IV.G.1. Understand and interpret time series, simple, and multiple linear regression.
2015 Handbook
A. Algebraic Mathematical Foundations Describe Rules of algebraic operations II.0.A
Methods Foundations
List the Order of algebraic operations II.0.A
Demonstrate the Elimination method II.0.A
Demonstrate the Substitution method II.0.A
Solve Quadratic equations in one unknown II.0.A
Characterize Sequences II.0.A
Characterize Series II.0.A
2015 Handbook
Solve Linear equalities and inequalities in one unknown II.0.A
B. Calculus Mathematical Foundations Characterize Exponents II.0.A
Methods Foundations
Related to Risk
Management
Characterize Logarithms II.0.A
Characterize Exponential function and Natural Logarithms II.0.A
Characterize Exponential function and Natural Logarithms II.0.A
Calculus Explain the concept of differentiation II.0.C
Demonstrate the application of the rules of differentiation to II.0.C
polynomial, exponential and logarithmic functions
Discuss Taylor Approximations II.0.C
Demonstrate Partial Differentiation II.0.C
Demonstrate Total Differentiation II.0.C
Discuss the Fundamental Theorem of Analysis II.0.C
Calculus: Higher- II.0.C
Order Derivatives
Calculus: Financial II.0.C
Applications of
Second Derivatives
Calculus: II.0.C
Differentiating a
Function of More
than One Variable
2015 Handbook
Calculus: Integral List the Indefinite Integral(s) of function(s) II.0.C
Calculus or
Integration
Apply the Rules of Integration II.0.C
Calculus: Discuss Optimization of Univariate and Multivariate functions II.0.C
Optimization
C. Basic Finance Theory Portfolio Calculate the return, mean return, variance and standard deviation I.1.2.
Statistics Mathematics of a single asset
Related to Risk
Management
Calculate the return, mean return, variance and standard deviation I.1.2.
of a portfolio
Calculate the correlation between two assets I.1.2.
Describe the impact of serial correlation on the standard deviation I.1.2.
of returns
Mathematical Descriptive Statistics: Define, Discuss and Calculate the Measures of Location or Central II.0.B
Foundations Measures of Location Tendency
or Central Tendency
Descriptive Statistics: Define, Discuss and Calculate the Measures of Dispersion II.0.B
Measures of
Dispersion
Descriptive Statistics Define, Discuss and Calculate Negative Semi-variance and Negative II.0.B
Semi-deviation
Discuss Covariance and Covariance Matrix II.0.B
Discuss Correlation Coefficient and Correlation Matrix II.0.B
2015 Handbook
Define, Discuss and Calculate Skewness II.0.B
Define, Discuss and Calculate Kurtosis II.0.B
Describe Bivariate Data II.0.B
Market Risk, Market Risk Discuss the extreme value theory III.3.3
Asset Liability Measurement
Management,
and FTP
D. Numerical Mathematical Demonstrate Constrained Optimization using Lagrange Multipliers II.0.C
Methods Foundations
Regression Analysis II.0.F
in Finance
Numerical Methods: Demonstrate the Bisection method for solving Non-differential II.0.G
Solving (Non- Equations
differential)
Equations
Demonstrate the Newton-Raphson method for solving Non- II.0.G
differential Equations
Numerical Methods: Demonstrate Unconstrained Numerical Optimization II.0.G
Numerical
Optimization
Demonstrate Constrained Numerical Optimization II.0.G
Numerical Methods: II.0.G
Monte Carlo
Simulation
2015 Handbook
E. Matrix Mathematical Matrix Algebra Demonstrate basic operations of Matrix Algebra II.0.D
Algebra Foundations
Discuss the Variance of Portfolio Returns as a Quadratic Form II.0.D
Define Positive Definiteness II.0.D
Demonstrate Principal Components II.0.D
Solve two Linear Simultaneous Equations using Matrix Algebra II.0.D
Application of Matrix Algebra in Finance II.0.D
Checking the Variance-Covariance Matrix II.0.D
Describe Quadratic Forms II.0.D
Demonstrate Cholesky Decomposition II.0.D
Demonstrate Eigenvalues and Eigenvectors II.0.D
F. Probability Finance Theory Portfolio Calculate the probability that one portfolio will outperform I.1.2.
Theory in Mathematics another portfolio
Finance
Calculate the probability of attaining a return goal I.1.2.
Mathematical Descriptive Statistics Explain the concept of The Moments of a Distribution II.0.B
Foundations
Probability Theory in Explain the concept of probability II.0.E
Finance
Describe the different approaches to defining and measuring II.0.E
probability
Demonstrate the rules of probability II.0.E
Define the discrete and continuous random variable II.0.E
Describe the probability distributions of a random variable II.0.E
2015 Handbook
Describe Probability density functions and histograms II.0.E
Describe the Algebra of Random variables II.0.E
Define the Expected Value and Variance of a discrete random II.0.E
variable
Describe the Algebra of Continuous Random Variables II.0.E
Demonstrate Joint Probability Distributions II.0.E
Specific Probability Distributions II.0.E
Discuss covariance and correlation II.0.E
Discuss linear combinations of random variables II.0.E
Discuss the Binomial Distribution II.0.E
Demonstrate the Poisson Distribution II.0.E
Describe the Uniform Continuous Distribution II.0.E
Discuss the Normal Distribution II.0.E
Discuss the Lognormal Probability Distribution and its use in II.0.E
derivative pricing
Discuss the Student’s t Distribution II.0.E
Discuss the Bivariate Normal Joint Distribution II.0.E
Market Risk, Market Risk Calculate joint distribution of risk factors III.3.3
Management,
and FTP
2015 Handbook
G. Regression Mathematical Regression Analysis Define Regression Analysis and the different types of regression II.0.F
Analysis in Foundations in Finance
Finance
Demonstrate Simple Linear Regression II.0.F
Demonstrate Multiple Linear Regression II.0.F
Discuss the evaluation of the Regression Model II.0.F
Describe Confidence Intervals II.0.F
Describe Hypothesis Testing II.0.F
Demonstrate Significance Tests for the Regression Parameters II.0.F
Demonstrate Significance Test for R2 II.0.F
Describe Type I and Type II Errors II.0.F
Demonstrate the concept of Prediction II.0.F
Describe the OLS Assumptions and main breakdowns of them II.0.F
Stationary Data for Time Series Regressions II.0.F
Describe Random Walks and Mean Reversion II.0.F
Describe Maximum Likelihood Estimation II.0.F
H. Finance Theory Interest Rates and Differentiate between continuous and discrete compounding
Compounding Time Value
Methods
Mathematical Foundations Demonstrate continuous compounding II.0.A
Foundations
Differentiate between discrete compounding and continuous II.0.A
compounding
V. RISK MANAGEMENT FRAMEWORKS AND OPERATIONAL RISK
2015 Handbook
A. Risk Risk Foreword Understand the context in which we operate III.1.1
Governance Management
Frameworks and
Operational Risk
Understand good risk management practices versus best practices III.1.1
Risk Governance Understand concepts of governing and governance III.1.2
Understand key people in the governance structure and their roles III.1.2
and responsibilities
Understand the risk governance process III.1.2
Understand the new developments and the horizons of risk III.1.2
governance
B. Risk Risk The Risk Define and explain the differences between risk capacity and risk III.1.3
Management Management Management appetite
Framework Frameworks and Framework
Operational Risk
Understand a Risk Appetite Statement III.1.3
Understand and define risk policy and the roles of risk policies in III.1.3
an organization
2015 Handbook
Define risk culture and the role of leadership and the risk III.1.3
management function in risk culture
Operational Risk: Define risk appetite III.1.5
Risk Information
C. Risk Risk Operational Risk: Understand the risk assessment lifecycle III.1.4
Assessment Management Risk Assessment
Frameworks and
Operational Risk
Define the functional versus the process approach III.1.4
Understand top down risk identification III.1.4
Compare top-down and bottom-up approaches III.1.4
Define the role of process review III.1.4
Explain the role of control assessment III.1.4
Identify issues and design action plans III.1.4
Describe issue management and resolution III.1.4
Discuss residual risk III.1.4
Understand the management validation process III.1.4
Understand the importance of risk assessment of new and III.1.4
expanded products and services
Understand the importance of risk assessment of third party III.1.4
service providers
2015 Handbook
D. Risk Risk Operational Risk: Understand risk profile III.1.5
Information Management Risk Information
Frameworks and
Operational Risk
Define unexpected loss III.1.5
Understand the loss investigation process III.1.5
Explain the collecting loss data III.1.5
Understand quantifying losses III.1.5
Define loss data fields III.1.5
Understand boundary issues III.1.5
Define external loss data III.1.5
Derive Key Risk Indicators III.1.5
Understand the selection of appropriate KRIs III.1.5
Understand the selection of appropriate KRIs III.1.5
Implement a KRI Framework III.1.5
Discuss the toolsets and reporting process III.1.5
E. Risk Risk The Risk Understand Risk Pricing III.1.3
Modeling Management Management
Frameworks and Framework
Operational Risk
Operational Risk: Form basic to advanced approaches III.1.6
Risk Modeling
Understand Operational risk data III.1.6
2015 Handbook
Define units of measure III.1.6
Demonstrate frequency modeling III.1.6
Derive the statistical foundations of severity fitting III.1.6
Understand ILD Severity Model III.1.6
Understand fitting algorithms III.1.6
Discuss scenario based models III.1.6
Combine the ILD and scenario models III.1.6
Combine the ILD model with scenario assessment III.1.6
Understand ELD model III.1.6
Combine ILD with ELD models III.1.6
Combine ILD with ELD models III.1.6
Discuss dependency modeling and risk aggregation III.1.6
Understand capital allocation III.1.6
Operational Risk: Understand insurance mitigation basics III.1.7
Insurance Mitigation
Discuss risk taxonomy and mapping III.1.7
Understand the qualification criteria of insurance mitigation III.1.7
Calculate capital relief III.1.7
VI. CREDIT AND COUNTERPARTY CREDIT RISK
New topics in this section include Debit value adjustment (DVA) & Margin value adjustment (MVA) as shown in this learning statement:
VI.H.1. Calculate and interpret various value adjustments (e.g., credit (CVA), funding (FVA), debit (DVA), margin (MVA), etc.)
2015 Handbook
A. Classic Credit Risk and Credit Risk: Classic Characterize the origination phase III.2.2
Credit Life Counterparty Credit Life Cycle
Cycle Credit Risk
Discuss the analysis and approval process III.2.2
Discuss the credit monitoring phase III.2.2
Understand credit repayment III.2.2
Demonstrate workout phase III.2.2
B. Classic Credit Risk and Credit Risk: Classic Understand the credit risk taxonomy III.2.1
Credit Counterparty Credit Products
Products Credit Risk
Understand important credit instruments III.2.1
Understand credit markets III.2.1
Understand structuring considerations III.2.1
C. Classic Credit Risk and Credit Risk: Classic Understand the fundamentals of credit analysis III.2.3
Credit Risk Counterparty Credit Risk
Methodology Credit Risk Methodology
Understand the fundamentals of credit analysis III.2.3
2015 Handbook
Analyze retail credit III.2.3
Compare classic vs. modern credit analysis methodologies III.2.3
D. Credit Risk and Counterparty Risk: Understand the historical perspective of counterparty risk III.2.7
Counterparty Counterparty Basics of
Risk Credit Risk Counterparty Risk
Discuss exposure measurement III.2.7
Understand risk appetite III.2.7
E. Credit Credit Risk and Credit Risk: Credit III.2.4
Derivatives Counterparty Derivatives and
and Credit Risk Securitization
Securitization
F. Credit Credit Risk and Credit Risk: Credit Understand CPM goals and philosophy III.2.6
Portfolio Counterparty Portfolio
Management Credit Risk Management
Understand CPM instruments III.2.6
Understand CPM analytics III.2.6
Understand CPM in practice III.2.6
G. Credit Risk Credit Risk and Credit Risk: Modern Define credit risk parameters III.2.5
Modeling Counterparty Credit Risk Modeling
Credit Risk
Understand the implementation of credit models III.2.5
Discuss modeling credit risk mitigation III.2.5
Discuss risk allocation and performance management III.2.5
2015 Handbook
H. Valuation Credit Risk and Counterparty Risk: Define CVA III.2.9
Adjustments Counterparty Credit Value
(XVA) Credit Risk Adjustment (CVA)
Calculate CVA III.2.9
Define DVA III.2.9
Understand Wrong-Way risk III.2.9
Understand organizational challenges III.2.9
Counterparty Risk: Define FVA III.2.10
CVA Related Aspects
– Towards XVA
Calculate capital requirements III.2.10
Counterparty Risk: Central Clearing Counterparties (CCP) III.2.11
Managing
Counterparty Risk
and CVA
Manage distressed names and defaults III.2.11
I. Leverage Credit Risk and Counterparty Risk: Understand leverage ratio III.2.10
Ratio Counterparty CVA Related Aspects
Credit Risk – Towards XVA
J. Risk Credit Risk and Counterparty Risk: Discuss the documentation process and its importance III.2.8
Mitigation Counterparty Risk Mitigation
Credit Risk
Understand netting III.2.8
Understand collateral III.2.8
2015 Handbook
Understand clearing III.2.8
Understand guarantees, intermediation, and credit insurance III.2.8
VII. MARKET RISK, ASSET LIABILITY MANAGEMENT, AND FUNDS TRANSFER PRICING
2015 Handbook
Topic Label Title Topic 2015 Learning Objective (from Self Study Guide Chapter
A. Asset Market Risk, Market Risk: Understand the basics of Asset Liability Management III.3.1
Liability Asset Liability Foreword
Management Management,
and FTP
Market Risk: Understand the basics of Funds Transfer Pricing III.3.1
Foreword
ALM, Liquidity and Define Asset Liability Management (ALM) III.3.7
the Recent Crisis
Understand Gaps III.3.8
Compare banking book practices versus trading book practices III.3.8
Define the different roles within ALM III.3.7
Compare measurement versus management of interest rates III.3.7
Discuss different balance sheet management techniques III.3.7
Understand the basics of balance sheet management III.3.7
Define the role of the ALCO III.3.7
Balance Sheet Discuss balance sheet policies and reporting III.3.11
Management
Bank Funds Transfer Understand the contextual considerations of FTP III.3.12
Pricing
Understand the basics of FTP III.3.12
2015 Handbook
Understand the governance and management of FTP III.3.12
Discuss different FTP methods and understand the historical III.3.12
developments
Discuss challenges of FTP III.3.12
B. Liquidity Financial The Structure of Discuss the importance of market liquidity I.3.1.
Risk Markets Financial Markets
The Structure of Describe a repo and a reverse repo and their roles as sources of I.3.1.
Financial Markets liquidity
Credit Risk and Counterparty Risk: Calculate liquidity ratios III.2.10
Counterparty CVA Related Aspects
Credit Risk – Towards XVA
Market Risk, Market Risk Understand the impact of the recent crisis III.3.2
Asset Liability Governance and
Management, Management
and FTP
ALM, Liquidity and Define Liquidity risk III.3.7
the Recent Crisis
Understand the implications of the recent crisis on ALM and III.3.7
liquidity
Understand the fundamentals of liquidity risk III.3.7
Discuss liquidity versus solvency III.3.7
Compare the measurement versus management of ratios, liquidity III.3.7
gaps and liquidity risk
Discuss recent liquidity markets developments III.3.7
2015 Handbook
Liquidity Risk Define market liquidity III.3.10
Define funding liquidity III.3.10
Understand liquidity versus solvency III.3.10
Review sources of liquidity and funding III.3.10
Discuss central bank funding III.3.10
Define liquidity ratios III.3.10
Define liquidity gaps III.3.10
Understand the Liquidity-at-Risk (LaR) measurement III.3.10
Define liquidity buffers III.3.10
Define contingency funding plans (CFP) for banks III.3.10
Define the Liquidity Coverage Ratio (LCR) and Net Stable Funding III.3.10
Ratio (NSFR)
Define the Liquidity Coverage Ratio (LCR) and Net Stable Funding III.3.10
Ratio (NSFR)
Define contractual maturity mismatch, concentration of funding, III.3.10
and unencumbered assets
Balance Sheet Discuss the fundamentals of crisis management III.3.11
Management
C. Interest Market Risk, ALM, Liquidity and Understand the components of interest rate risk III.3.7
Rate Risk Asset Liability the Recent Crisis
Management,
and FTP
Interest Rate Risk Define Interest Rate Risk (IRR) III.3.9
Define Net Interest Income (NII) III.3.9
2015 Handbook
Define Net Worth (NW) III.3.9
Define Non-Interest income III.3.9
Compare fixed interest rates and adjustable interest rates III.3.9
Understand the different types of yield curves (normal, steep, III.3.9
inverted, and humped)
Discuss option risk and basis risk III.3.9
Understand the tools used to measure IRR: cash flow analysis, gap III.3.9
analysis, income simulation, duration and convexity analysis,
earnings-at-risk (EaR), and Economic Value of Equity (EVE)
Understand IRR management tools: balance sheet techniques, III.3.9
hedging, and the use of derivative instruments
D. Market Risk Market Risk, Market Risk: Understand the typology of market risk exposures III.3.1
Management Asset Liability Foreword
and Stress Management,
Testing and FTP
Market Risk Understand the current market risk environment III.3.2
Governance and
Management
Understand the roles of the different committees III.3.2
Define roles and responsibilities in practice III.3.2
Discuss limit setting and limit policies III.3.2
Understand the different risk management systems III.3.2
Define risk management data III.3.2
Monitor market risk III.3.2
2015 Handbook
Understand the role of the audit function III.3.2
Discuss model risk governance III.3.2
Discuss model risk mitigating strategies III.3.2
Market Risk Understand the basic concepts and definitions III.3.3
Measurement
Market Risk in the Understand the historical considerations III.3.4
Trading Book:
Business-Specific
Context
Market Risk: Define market participants III.3.5
Commodities Market
Risk Management
Discuss the key products and instruments III.3.5
Discuss the risk implication of physical nature of commodities III.3.5
Understand price risk management III.3.5
Discuss stress testing for commodity markets III.3.5
Market Risk Stress Understand stress testing beyond the VaR threshold III.3.6
Testing — Beyond
the VaR Threshold
Define the dangerous unknowns III.3.6
Discuss the static versus dynamic models III.3.6
Understand stress testing beyond comparative statistic analysis III.3.6
Discuss systemic risk lessons from beyond finance III.3.6
Understand stress testing beyond VaR III.3.6
2015 Handbook
Discuss the practical and organizational considerations III.3.6
Discuss the challenges of stress testing III.3.6
E. Market Risk Finance Theory Portfolio Calculate Value at Risk in a portfolio I.1.2.
Monitoring Mathematics
Credit Risk and Credit Risk: Modern Explain credit VaR models III.2.5
Counterparty Credit Risk Modeling
Credit Risk
Market Risk, Market Risk Understand the Basics of Value at Risk (VaR) III.3.3
Management,
and FTP
Define VaR III.3.3
Discuss the different VaR methods III.3.3
Calculate simulations of interest rates III.3.3
Discuss weaknesses and limitations of the Value-at-Risk model III.3.3
Define the univariate advanced VaR models III.3.3
Calculate expected shortfall III.3.3
Define multivariate advanced VaR models III.3.3
VIII. CASE STUDY PRACTICUM
2015 Handbook
A. Risk NEW TOPIC FOR 2019 PRM Syllabus
Taxonomy
B. Historical Case Studies The 2015 Case Studies will still apply. New Case Studies will be developed for use in the 2019 PRM Program.
Case Studies
PRMIA Case Studies and additional materials are publicly available
https://prmia.org/Public/PRM/Case_Studies_and_Standards.aspx
IX. PRMIA STANDARDS AND GOVERNANCE
2015 Handbook
A. Group of Standards of Group of Thirty Best PRMIA Standards and Best Practices are publicly available
Thirty Best Best Practice, Practices https://prmia.org/Public/PRM/Case_Studies_and_Standards.aspx
Practices Conduct and
Ethics, and
PRMIA
Governance
2015 Handbook
B. PRMIA Standards of PRMIA Governance
Governance Best Practice, Principles
Principles and Conduct and
Bylaws Ethics, and
PRMIA
Governance
PRMIA Bylaws PRMIA Articles of the Bylaws
C. PRMIA Code Standards of PRMIA Standards of PRMIA Professional Standards
of Conduct and Best Practice, Best Practice,
Ethics Conduct and Conduct and Ethics
Ethics, and
PRMIA
Governance
PRMIA Guidance on Best Practices
PRMIA Guidance on Professional Conduct
PRMIA Guidance on Ethical Behavior

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2019 Professional Risk Manager (PRM ™) Designation

Syllabus Cross-map to the 2015 PRM Syllabus

IV.F.1. Understand probability theory including Bayesian theory.

IX. PRMIA STANDARDS AND GOVERNANCE

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