This area focuses on a candidate’s knowledge of foundational concepts of risk management and how risk management can add value to an organization and includes:

• Basic risk types, measurement, and management tools
• Creating value with risk management
• Risk governance and corporate governance
• Credit risk transfer mechanisms
• The Capital Asset Pricing Model (CAPM)
• Risk-adjusted performance measurement
• Multifactor models
• Data aggregation and risk reporting
• Financial disasters and risk management failures
• Ethics and the GARP Code of Conduct
• Enterprise risk management (ERM)

This area tests a candidate’s knowledge of basic probability and statistics; regression and time series analysis; and various quantitative techniques useful in risk management such as:

• Discrete and continuous probability distributions
• Estimating the parameters of distributions
• Population and sample statistics
• Bayesian analysis
• Statistical inference and hypothesis testing
• Measures of correlation
• Line regression with single and multiple regressors
• Time series analysis and forecasting
• Simulation methods

This area tests the candidate’s knowledge of financial products and the markets in which they trade including:

• Structures and functions of financial institutions
• Structure and mechanics of over-the-counter (OTC) and exchange markets
• Structure, mechanics, and valuation of forwards, futures, swaps, and options
• Hedging with derivatives
• Interest rates and measures of interest rate sensitivity
• Foreign exchange risk
• Corporate bonds
• Mortgage-backed securities

This area will test a candidate’s knowledge of valuation techniques and risk models such as:

• Value-at-Risk (VaR)
• Expected shortfall (ES)
• Estimating volatility and correlation
• Economic and regulatory capital
• Stress testing and scenario analysis
• Option valuation
• Fixed income valuation
• Hedging
• Country and sovereign risk models and management
• External and internal credit ratings
• Expected and unexpected losses
• Operational risk