Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition
Last Update May 1, 2024
Total Questions : 132
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| Exam Name | Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition |
| Exam Code | 8007 |
| Official Information | https://prmia.org/Public/PRM/PRM_Handbook_Digital%20Resources.aspx |
| See Expected Questions | PRMIA 8007 Expected Questions in Actual Exam |
| Take Self-Assessment | Use PRMIA 8007 Practice Test to Assess your preparation - Save Time and Reduce Chances of Failure |
| Section | Weight | Objectives |
|---|---|---|
| V. RISK MANAGEMENT FRAMEWORKS AND OPERATIONAL RISK | 23% | A. Risk Governance 1. Understand key organizational roles and responsibility for risk decision-making and challenges. 2. Describe the role of the risk function and leadership in ensuring the success of the risk framework through the support of risk culture. 3. Evaluate the effectiveness of governance structures, including the role of external stakeholders (regulators, auditors, shareholders, rating agencies, etc.). B. Risk Management Framework 1. Identify the key components of a risk framework including policies, appetite, culture, limits, and thresholds. 2. Describe how a risk management framework supports an enterprise-wide participation in risk management. 3. Differentiate between expected loss appetite versus tolerance and capacity for stress losses. 4. Apply strategies for managing risk exposure. C. Risk Assessment 1. Identify the key steps in a risk assessment lifecycle. 2. Categorize operational risk into its sub-components, including causes and effects. 3. Understand different methodologies for measuring and quantifying operational risks. D. Risk Information 1. Evaluate relevant measures to identify and analyze loss experience. 2. Understand the key steps in a loss investigation. 3. Be able to identify, select, and implement appropriate key risk indicators and articulate a risk profile. E. Risk Modeling 1. Evaluate the use of internal and external data in operational risk modeling. 2. Understand the relationship between frequency and severity in loss modeling. 3. Use modeling techniques to price risk and assess the value of risk transfer (e.g., insurance). |
| VI. CREDIT RISK AND COUNTERPARTY CREDIT RISK | 20% | A. Classic Credit Life Cycle 1. Describe the entire credit life cycle from origination to repayment. B. Classic Credit Products 1. Describe credit markets and credit instruments. 2. Analyze and describe the credit risk taxonomy. C. Classic Credit Risk Methodology 1. Analyze, compare, and contrast credit risk evaluation methodologies. D. Counterparty Risk 1. Explain counterparty risk. 2. Measure counterparty exposure and interpret risk appetite. E. Credit Derivatives and Securitization 1. Outline how credit derivatives and securitization are used as a funding risk management tool. F. Credit Portfolio Management 1. Recognize credit portfolio management goals and philosophy. 2. Define commonly used credit portfolio management metrics and describe how these metrics are used in practice. G. Credit Risk Modeling 1. Understand and interpret credit risk models, including Credit Metrics™ and Moody’s KMV™. H. Valuation Adjustments (XVA) 1. Calculate and interpret various value adjustments (e.g., credit (CVA), funding (FVA), debit (DVA), margin (MVA), etc.) 2. Describe right- and wrong-way risk, and the role of the Central Clearing Counterparties (CCPs). I. Leverage Ratio 1. Calculate and interpret leverage ratio. J. Risk Mitigation 1. Describe the tools and methodologies used to mitigate credit risk. |
| VII. MARKET RISK, ASSET LIABILITY MANAGEMENT AND FUNDS TRANSFER PRICING | 17% | A. Asset Liability Management 1. Understand the framework and governance processes for managing liquidity and funding risk. 2. Determine the efficiency of capital and funding sources, and the use of the balance sheet. B. Liquidity Risk 1. Understand and interpret the matching of asset and liability maturities. 2. Define and calculate liquidity indicators and ratios. 3. Identify the key components of liquidity assessment and contingency funding plans. C. Interest Rate Risk 1. Compare interest rate risk management for a trading book versus banking book structures. 2. Calculate specific measures of interest rate risk at different points in the yield curve. D. Market Risk Management and Stress Testing 1. Identify the components of market risk policy, limit setting frameworks, and how management action triggers are designed to work. 2. Define stress testing techniques for trading exposures (e.g., FX, interest rate, equity commodity) with different levels of market liquidity. E. Market Risk Monitoring 1. Compare and contrast different risk monitoring techniques (e.g., gross/net exposure, concentration measure, value at risk (VaR), stress VaR, expected shortfall, etc.) 2. Calculate a simple VaR measure. |
| VIII. CASE STUDY PRACTICUM | 20% | A. Risk Taxonomy 1. Interpret specific scenarios to identify areas of risks according to the following risk taxonomy. a) Financial risks (1) Market Risk (Equity price risk, Interest rate risk, Foreign exchange risk, Commodity price risk) (2) Credit Risk (Transaction risk and portfolio concentration) b) Liquidity Risk c) Operational Risk (1) People risk (2) Process risk (3) Systems and technology risk (4) External events d) Legal and regulatory risk e) Business, Strategic, and Reputational risk B. Historical Case Studies 1. Compare and contrast the scenario environment against case studies and the lessons learned from those documented cases. 2. Examine the symptoms and causes from specific case studies and apply these to the scenario. |
| IX. PRMIA STANDARDS AND GOVERNANCE | 4% | A. Group of Thirty Best Practices 1. Describe the Group of Thirty Best Practice recommendations and how they may be applied in risk management. B. PRMIA Governance Principles and Bylaws 1. Define the PRMIA Governance Principles and describe the application of the principles. 2. Describe the PRMIA Bylaws. C. PRMIA Code of Conduct and Ethics 1. Define and describe the PRMIA Professional Standards, Code of Conduct, and Guidance on Ethical Behavior, and understand how these shall be applied in professional practice. |
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TESTED 02 May 2024
