FRM Part I: Exam Survival Guide

Window: Global | Topics: Foundations, Quant, Valuation & Risk Models, Risk Management

Must-do topics

• Foundations: financial disasters, risk categories, regulation overview, ethics
• Quant: probability distributions, statistics, correlation/covariance, regression
• Valuation: time value, bonds/term structure, options/greeks, forwards/futures
• Risk models: VaR methods (historical, parametric, Monte Carlo), expected shortfall
• Backtesting, stress testing, credit risk basics (PD/LGD/EAD), operational risk

Top traps (avoid)

• Confusing variance vs covariance; correlation bounds issues
• VaR assumptions: using normal when fat tails present; horizon/scaling errors
• Options: sign mistakes on delta/gamma/vega; ignoring put–call parity
• Term structure: mixing spot vs forward rates; compounding conventions
• Regression: reading p-values wrongly; multicollinearity blind spots

Time split

• ~100 Q / 240 min → ~2.3 min/Q; two passes (easy→hard)
• Park long calc; come back with clear head

Last-48h checklist

• VaR & ES methods + pros/cons table; backtest traffic-light logic
• Options/greeks relations; bond duration/convexity mini-sheet
• Distributions (normal, t, lognormal), moments, skew/kurtosis intuition
• Calculator drill: TVM, IRR, NPV, root-finding speed

Quick facts / formulas

• Var(aX+bY)=a2σX2+b2σY2+2ab Cov(X,Y)\text{Var}(aX+bY)=a^2\sigma_X^2+b^2\sigma_Y^2+2ab\,\text{Cov}(X,Y)Var(aX+bY)=a2σX2​+b2σY2​+2abCov(X,Y)
• Duration ≈ −ΔP/PΔy-\frac{\Delta P/P}{\Delta y}−ΔyΔP/P​; Convexity adjusts curvature
• Delta call ≈ N(d1); put–call parity: C−P=S0−Ke−rTC-P=S_0 - Ke^{-rT}C−P=S0​−Ke−rT
• VaR scaling (√t) valid only under iid/normal assumptions

Speed tactics

• Identify distribution/assumption first, then choose method
• Sanity-check magnitudes (probabilities 0–1; duration sign vs rate move)
• If torn, pick the answer consistent with risk control and model limits

Day-of mini-plan

• 8-min warm-up: 4 VaR Qs + 2 greeks + 2 duration Qs
• Keep a clean formula sheet in mind; avoid re-deriving under pressure
• Final sweep: units, signs, and direction checks