Written by Mukul Pareek Update Dec 23, 2015: Questions have been updated for Exam 3. Additional questions will continue to be added over the coming months. All the best! - Update on the PRM curriculum change for 2015 I compared the Handbooks for 2011 to the new one issued for 2015, and it seems that the only Exams with any material difference between 2011 and 2015 are exams 3 (and 4). The Handbooks for Exams 1 and 2 are identical in content, except for minor differences that reflect a cleanup and rearrangement of some of the topics. (Including, interestingly, a shift from UK English to US English, eg, amortization, and no longer amortization:).

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Exams 1 and 2: All the material covered in the PRMIA Handbook for Exams 1 and 2 is covered by the RiskPrep exam resources. Candidates planning to appear for Exams 1 and 2 based on either the 2011 or the 2015 syllabus can use RiskPrep. Exam 3: I am updating Exam 3, and expect to be completed by November/December of 2015. This may present a hardship to those who have registered after August and are planning to write the new exam before December. But those who registered earlier, and are planning to write Exam 3 before 19-December-2015 based on the 2011 Handbook, may continue to use the existing Exam 3 material on RiskPrep. Any questions, clarifications - feel free to get in touch with me at This email address is being protected from spambots.

You need JavaScript enabled to view it. Written by Mukul Pareek More changes coming in 2015! I reproduce below an email received from Andy at PRMIA. Many of you would have received it as well if you are PRMIA members. Quite a few changes, and all good I think! - From: Andy Condurache, PRMIA mailto: This email address is being protected from spambots.

You need JavaScript enabled to view it. Sent: Wednesday, December 17, 2014 11:55 AM Subject: PRMIA Announces Updates to its Industry-leading PRM Exam Designation Program We are pleased to announce that over the next few months PRMIA will update the Professional Risk Manager (PRM™) program. The PRMIA Education Committee has adopted a plan to revise the PRM syllabus and include the latest developments on a yearly basis ensuring that PRM candidates continue to receive the most comprehensive, relevant, and highest quality certification available.

This year’s significant updates include:. New study materials, PRM Candidate Guidebook, Exam Guides, and online study program. New exam with updated questions including coverage of timely and critical topics such as Operational Risk, Credit and Counterparty Credit Risk, Liquidity Risk Management, Asset Liability Management and Funds Transfer Pricing. New program requirements, including continuing education and membership Updated Study and Training Materials In March 2015 PRMIA will release The Professional Risk Managers’ Handbook Series, Second Edition. Volumes I and II are undergoing an update in order to include the latest developments in the risk management space, while Volume III is being replaced with a brand new 3-part publication. A new interactive online study program is currently in development and will be available within a few months after the new Handbook has been rolled out.

More details will be available closer to the launch of the new syllabus. In addition, PRMIA will make available a new PRM Candidate Guidebook and Exam Guides for candidates studying for the exam. Updated Exam Beginning with the 2nd exam testing window of 2015, running from May 25 – June 13, candidates will have the option of taking a new exam that is based on the updated curriculum presented in The Professional Risk Managers’ Handbook Series, Second Edition. Further details regarding exam registration will be provided closer to the time of the launch. CURRENT candidates will have the opportunity to complete the PRM Program based on the current syllabus until December 19, 2015. NEW Candidates that enroll in the program after the launch of the new curriculum will be required to test based on the new curriculum starting May 2015.

New Program Requirements All NEW candidates who enroll in the PRM Program after the launch of the new curriculum will have two new requirements to ensure their ongoing commitment to keeping their knowledge base current. The PRM Continuing Risk Learning (CRL) program requires PRM holders to complete 20 CRL ongoing education credits each calendar year, starting with the year immediately after they have obtained their PRM designation. PRMIA will offer opportunities throughout the year to obtain these credits, such as webinars, training courses, event presentations, and articles. PRM holders must maintain a each year, starting with the year they obtain their PRM designation. This membership will provide them with access to the CRL opportunities, in addition to numerous other benefits. If a member fails to submit CRL credits or fails to maintain a Sustaining membership, their PRM Designation will lapse.

If the designation lapses for more than three years in a row, the candidate will need to re-write the PRM exam in order to re-achieve the PRM title. The CRL Program will be open to all current PRM Holders, and all current candidates are encouraged to join the program. All current PRM Holders and current candidates will be “grandfathered in” and will be exempt from these two new requirements. On these updates.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. With any questions. Written by Mukul Pareek Price Increase at RiskPrep.com effective March 1, 2014 When we started RiskPrep.com in 2009, it was intended to be a low cost and accessible resource for PRMIA candidates. Since then, we have managed to keep our prices low, yet increasing costs for maintaining the site software which requires regular updates, and other increases such as price increases by PRMIA for training providers have begun to constrain us significantly.

In the end, the site must pay for itself, and to ensure sustainability the price for the courses will be increased effective March 1, 2014 as follows:. Individual exams: $30 for a month's access (used to be $20/month). All exams: $75 for a month's access (used to be $50/month) I hope RiskPrep.com's members will be understanding of the price increase after 5 years. If you have any questions or ideas, please write to me at This email address is being protected from spambots. You need JavaScript enabled to view it. Written by Mukul Pareek So PRMIA announced a new default calculator for its exams.

If you missed the message from Sue Peterson, here it appears below. The rest of this blog entry explains how to install and use the calculator: 'Pearson VUE has recently changed the type of calculator used on the PRM exams. An online scientific calculator, Texas Instrument TI308XS, is now being used during the test delivery system. The user guide for the calculator can be found by clicking on the link: Please do not hesitate to contact us at This email address is being protected from spambots.

You need JavaScript enabled to view it. With any questions.' Written by Mukul Pareek Introduction to R for Risk Managers. We go through loading data into R from Excel, calculate correlation and covariance matrices, eigenvalues and eigenvectors, and perform linear regression and principal component analysis on the data. We also look at a quick example of how to select random numbers from different distributions and perform a Monte Carlo simulation that models the loss distribution for an operational risk event. All in the next 21 minutes. You might like to change quality to the highest possible resolution and watch the video full screen in order to be able to see the detail.

Yesterday I finally made the leap and signed up on Facebook. I have had a profile on LinkedIn for years, but could never really muster the courage to sign up on Facebook which I (rightly or wrongly) always felt was for younger people doing frivolous things. With all the concerns about Facebook and privacy that we have heard in the popular media, I merely provided my name, the name of my high school and undergrad college (both in India). I purposefully did not mention any of my employers, or my connection with Columbia. Facebook then surprised, or rather shocked me by presenting to me a never ending list of suggested friends, many of whom I actually did know.

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Many of them had nothing in common with the limited information I had revealed to Facebook. Clearly, their algorithm to suggest friends is very powerful. Of course, it is clear that they are using some data mining technique to identify potential friends, but the question really is that in order to do any kind of data mining you need to have some data to begin with. So I went around looking on my favorite research tool (Google) on how they might have done it.

I came across a number of explanations, some rather silly, and some stating the obvious. The most interesting was a piece of academic work done by xx and yy, where they tried to recreate something similar to the Facebook algorithm by using some commonly used data mining techniques, and looking at the classification accuracy produced by their algorithm by comparing the friends suggested by their algorithm to the friends they actually had. In particular, one of the techniques they used was logistic regression.

Logistic regression is similar to regular regression in that it requires independent 'factors' to provide an estimate of the dependent variable, but using the logit function so that the estimate (or prediction) is always between 0 and 1. This is very useful for classification problems in data analysis where one needs a binary answer as to whether an observation belongs to a particular class or not (in this case, suggest as friend, or not). This I think is intuitive and understandable.

But if the number of 'friends' in common is the most predictive of the friend suggestions, then the mystery still remains that for someone just signing up, how do they come up with the first set of suggestions, which as I noted, was quite a good shot given the limited information I provided. One of the explanations I read on the net was that they keep a record of who people have searched for, even if such a person does not exist in their database. Then eventually if some day that person joins Facebook, they have something to show in their suggested friends list. But I seriously doubt if any of the people whose names came up would have cared to search for me on Facebook given I am in regular touch with them anyway. We may never be able to solve this mystery, but one thing is for sure: data analytics is already big and will influence our lives in the future more than we may like. Yesterday I finally made the leap and signed up on Facebook.

I have had a profile on LinkedIn for years, but could never really muster the courage to sign up on Facebook which I (rightly or wrongly) always felt was for younger people. With all the concerns about Facebook and privacy that we have heard in the popular media, I merely provided my name, the name of my high school and undergrad college (both in India).

I purposefully did not mention any of my employers, or my connection with Columbia. Facebook then surprised, or rather shocked me by presenting to me a never ending list of suggested friends, many of whom I actually did know. Many of them had nothing in common with the limited information I had revealed to Facebook. Clearly, their algorithm to suggest friends is very powerful. Written by Mukul Pareek I came across a recent paper on the Volcker rule by Darrell Duffie, who is a professor at the business school at Stanford University.

It is a brilliant piece of writing, with no equations and a writing style that is easy to understand. A key nugget I found in this article was the author's explanation of market making. In the first part of this paper, Dr. Darrel Duffie explains how market making actually works in practice, and how large banks and broker-dealers make markets in securities. If you have ever been intrigued by how market making works, and what factors market makers have to think about as they offer bid-offer quotes on a security at all times, this is a great read.

Professor Duffie of course then goes to provide his opinion on the Volcker rule, and how it might be better to use capital cushions to protect against the risks from proprietary trading by regulated institutions rather than something as complex as the Volcker rule and its implementation is turning out to be. Here is the link to the article.

Written by Mukul Pareek Regardless of the economy and the 10% unemployment, it appears there is no shortage of jobs in risk management at the moment. If nothing else, one outcome of the financial crisis has been that risk managers have gained a great deal of importance within firms. They are all adding staff, implementing new processes and systems, and preparing for staying in compliance with new regulations and reporting. Seems to me that many of these risk management jobs touch IT, project management, systems implementations, process redesigns, Basel, capital calculations and risk attributions to divisions - and go beyond number crunchers doing VaR stuff. Because many of these jobs may not be the standard analyst variety, a good way to reach them may be either through the network or by trying to move around in the organization you are in.

Here is a graph showing the trend of the number of jobs with 'Risk Management' in their title - a bit crude but quite certainly directionally accurate - sourced from indeed.com, a job aggregation website. Note that the left axis is not the number of risk management jobs available, it represents the growth rate. Therefore if the line is anywhere above the zero axis, and above the rate of growth of the economy (which is roughly where things should be at steady state), that is a very positive thing. Of course, having the PRM designation can only help establish one's credentials.

Written by Mukul Pareek Every now and then I get an email from someone who would say they are interested in writing the PRMIA exams, but find the math too difficult. “I am not a math guy”. “I have no math background. I studied business.” Without a doubt, there is some element of math involved in risk management.

The PRMIA syllabus has its fair share of math. Some aptitude for math is certainly helpful, but determination takes you further. My personal view however is that even though some of the math required for the PRM exam may be stuff you may not have studied before, it is not particularly difficult if you give it a bit of attention and time.

There are just a couple of concepts you need to get clear – particularly understanding how distributions, quantiles etc work, a little bit of understanding first and second derivatives, and the rest is all reasonably doable. For those intimidated by the math, I have a couple of things to say: 1. First, the math looks more difficult than it actually is. One of the reasons for that is that the notation makes even simple things look frightening. It is easy to understand that the gas mileage on your car depends upon how fast you drive, and the pressure in your tires.

But it becomes tricky if you say this as And the above is an oversimplification on my part – replace the u, x and y with an unpronounceable Greek letter, put a sigma in the front (in case you had more than one car), a couple of superscript and subscript numbers and then it is easy to get scared. And if you want to know how well you did on your last drive, ie the marginal mileage, make it dy/dx of the above function, and you have it. One of the things I often did when preparing for the exam would be to just circle individual parts of equations and write down in plain English what they stood for.

That helped me a great deal 2. Second, do not forget that the bar is set at 60%, not 100%. You don’t have to know everything. Third, determination counts for a lot. If the stuff is difficult, stick to it.

Don’t give up easy. Do it once, come back again a second time. It will make more sense.

Come back again a third time, it will make even more sense. Come back again a fourth time, and it will leave you ‘richer’ in your understanding and more confident. Delay the exam by a couple of weeks if you have to, that is okay. (Your riskprep subscription is running out, not a problem.

Write to me and I can extend it.) 4. Fourth, you will notice there are only a few concepts that go round and keep showing up in different forms. What you learn in Exam 1 helps for Exam 2, and for Exam 3 as well. Remember that the PRM certification is not just about math. It is about risk management that goes way beyond models. The PRM designation does not make you a quant, and you are not competing with the math PhD from Stanford. Share your experience, and feel free to post a comment and share your experience.

(You can change your screenname if you don’t wish to be known). Written by Mukul Pareek A brief message to all PRM candidates: focus on the learning, and enjoy it. Don't worry too much about the exam. If you are passionate about it, you would have enriched your life regardless of the outcome of the exam. If you focus on the concepts and internalizing the learning rather than worrying about what questions will be asked, you will find your learning to be a great experience, and not a drudgery. Remember - you are studying for this certification because you want to, and not because you have to (ie, it isn't your high school exam that you had to have done). Here is a great video for when you are looking for a break from your studies.

I would highly recommend taking 20 minutes out for this. Prof Srikumar has taught at Columbia, Haas and London Business Schools. Written by Mukul Pareek If you are subscribed to both Exams 1 and 2 on Riskprep, you will notice that some of the questions are present in both the questions pools. These relate to options and the Greeks, and the reason to put them in both the places is that the exam for either may ask questions relating to these. So better safe than sorry, and therefore the questions are there in both the question pools. That helps those who are subscribed to either Exam 1 or Exam 2 alone.

That's all for this post! Written by Mukul Pareek Here is an interesting extract from Lloyd Blankfein's testimony to the Financial Crisis Inquiry Commission on Goldman's risk management practices. I would not want to add much by way of editorial comment here, except that Lloyd Blankfein gets to the heart of risk management - which isn't about fancy math or regulation alone. The complete testimony can be found at 'Our approach to risk management is rooted in accountability, escalation and communication. A large part of this discipline is reflected in the marking process, which assigns current values to financial assets and liabilities. We believe that rigorous fair value accounting for financial instruments is fundamental to prudent management because it facilitates a clear view of risk. It allows us to manage market risk limits, monitor exposure to credit risk and manage our liquidity requirements.

For Goldman Sachs, the daily marking of positions to their fair value was a key contributor to our decision to reduce risk relatively early in markets and in positions that were deteriorating. This process can be difficult, and sometimes painful, but we believe it is a discipline that should define financial institutions. We fair value our positions, not only because we are required to, but because we wouldn’t know how to assess or manage risk if market prices were not reflected on our books. As I look back prior to the beginning and throughout the course of the crisis, we never knew at any moment if asset prices would deteriorate further, or had declined too much and would snap back.

Having to fair value our assets on a daily basis and see the results of that marking in our P&L forced us to cut risk regardless of market or individual views, estimates or expectations. After the fact, it is easy to be convinced that the signs were visible and compelling. In hindsight, events not only look predictable, but look like they were obvious or known. But none of us know what is going to happen. Risk management begins by admitting this fundamental reality and planning with that mindset as the dominant one running through all of our processes. More broadly, we place great importance on communication between revenue and control areas. This translates into a constant flow of risk reports, and the end result is a better understanding of the risks we are taking.

At the same time, risk and control functions are completely independent from the businesses. Independent verification of prices is frequent and thorough. And, risk managers have at least equal stature with their counterparts in producing divisions.

If there is a question about a mark or a disagreement about a risk limit, the risk manager’s view prevails. Closely related to communication and escalation is accountability. People have to feel responsible for the decisions they make, and for the decisions their subordinates make. If we suffer a credit loss, the relevant business is not absolved of the consequences simply because the risk was approved by the credit department. All flow into one another: Communication encourages escalation and escalation reinforces accountability.'

Written by Mukul Pareek Recently I received a mail from someone who used Riskprep to say that he practiced all the questions on the site multiple times, and yet he did not pass. I am confident that he will get through in his next attempt, he wasn’t too far off. I did however wish to stress this message to all candidates: be aware that Riskprep cannot be, and is not even designed to be your primary study source. You need to read the handbook.

You need to understand it well. If there are topics in the handbook that you don’t understand, you should read Hull or other reference text book to clarify that particular topic. The idea behind Riskprep is to provide you ‘exam-like’ questions.

You can use it to test if you understand the subject matter at a level that goes beyond skimming dense text in the handbook. But the question pool at Riskprep is finite and once you have seen the answers, it is very likely that you will get it right the next time around. So if on your third or fourth round of going through the questions, you are getting nearly everything right, do not let that fool you into thinking that you know it all. All that means is that you know the questions on Riskprep. The same logic applies to any other set of questions you might be preparing from.

All questions are ‘easy’ once you know the answer. The real test is only when you see it the first time. Use the questions on Riskprep to confirm your understanding of the topics, but repeatedly practicing the same questions will have rather low marginal utility. When I set up Riskprep, my objective was to help people assess their state of preparation, identify their areas of weakness, time themselves and get a feel for the real exam. The questions in the real exam will be different because Riskprep (or anyone else) does not have (nor desires) access to the PRMIA question pool. If you are conceptually clear on the topics, you will do just fine on the exam.

Also read Feel free to share your experience or leave a comment. Written by Mukul Pareek In the past month (ie Dec 2009 - Jan 2010) I have received some feedback on the level of difficulty of the PRM exams. The feedback is consistent - the questions have been described as 'weird' and 'twisted', which probably means PRMIA is going more towards a model of increasing the difficulty level of the exams.

My personal view of course is that exams should test knowledge and expertise, and not try to trick the exam taker with confusing choices that can be interpreted in different ways. My own experience from having taken the exams last year is that some of the questions could have been framed better. However, that is not something we have control over, the only thing we control is how we answer those questions. My advice is for everyone taking the exams to improve their conceptual understanding of issues, so that no matter how a question is framed, you are able to understand the intent and answer it. At the same time, remember that the bar for passing the exam is set at 60%, which means no matter how strange the questions appear, you should still be able to pass with a comfortable margin if you have studied well. I also have a post on the 'forum' on not breaking into a sweat if the questions appear unfamiliar - have a read of that as well.

Any feedback, or experience, please do share with me - you can write to me directly at This email address is being protected from spambots. You need JavaScript enabled to view it. Written by Mukul Pareek A question that arises in the mind of any PRM holder or candidate is how having the designation affects his (or her) job prospects. Can it help find a better job, get a promotion, a payrise, or for someone not working in the risk field, can it help them gain an entry into the profession? Well, like everything, it depends. There isn't an easy answer to this question. But one thing that can be said about the PRM designation is that it is known to practitioners in the industry, and well respected.

If the person interviewing you, or maybe even your boss is a PRM, or a member of PRMIA, then certainly getting the designation can only help. It establishes the fact beyond doubt that you have a minimum level of competence and that your chances of success in a risk management role are greater than similar others who do not have such a certification. Note that I said.similar.

others. Of course, if you are just a few years out of college with no experience in the markets, then a PRM is not going to give you more credibility than the math PhD who has spent ten years in the field. The same goes for career switchers. The PRM designation may help you get a foot in the door, or it may not. It certainly cannot hurt.

What it will definitely do is improve your knowledge levels to a point that you will be far more confident dealing with interviewers, or doing a better & more structured job at your workplace. Over time, this can only lead to good things.

But at the end of the day, there is no guarantee that a PRM certificate will get you a better job or help you switch careers. It can help, and like so many other things in life, we are children of chance, and a lot would depend upon your individual circumstances and the opportunities that come your way.

Written by Mukul Pareek The PRM syllabus has changed, and candidates appearing for the exam after March 1, 2010 will be tested based upon the new syllabus. The changes do not affect Exams 1 and 2. (Updates to the Riskprep question pool have been completed - March 18, 2010.) The bulk of the change is in Exam 3, Risk Management Practices. New papers have been introduced and some available web based papers on stress testing, scenario testing and supervisory assessment of capital have been added. There have been changes to Exam 4 as well, where older case studies have been dropped and newer more relevant case studies have been included. Summary of changes to Exam III: New supplementary papers: Available only as part of the PRMIA handbook (downloadable):. Funding Liquidity: Risk Analysis and Management - By Selwyn Blair-Ford and Ioanuis Akkizidis, Copyright PRMIA (not free).

Enterprise Risk Information Management - By Dilip Krishna and Robert M. Marks, Copyright PRMIA (not free).

By Andrew G Haldane, Copyright 2009 The Bank of England This was dropped in May 2011 and replaced by 'Why Banks Failed the Stress Test' (#4 below). By Andrew Haldane. By Stephen Figlewski, Copyright 2009 Institutional Investor, Inc.

Reproduced and republished from The Journal of Derivatives, Vol. 16, No.3, Spring 2009. The above are downloadable from PRMIA's website only if you have purchased the handbook in the last two years or so. If you have an older copy, you will need to buy the handbook again to get access to the above papers.

Freely downloadable from the web:. – released January 2009. – released December 2008 – pages 1-39 only. – released May 2009 – pages 1-17 only. Written by Mukul Pareek Futures and spot prices move in lockstep, but the moves are not identical. This is because the delta of a futures contract is not equal to 1. If it were, the futures contract would be an exact replacement for the spot security, but it is not so.

To understand this, consider the following scenario for a hypothetical security that is currently selling in the spot market at $100. Interest for 3 months is 3%, and expected dividend is $1, so futures sellers are offering a futures contract with a notional of $100 for $102 today. Just to keep the math simple, assume that at the end of the three months, the spot price stays at $100, ie the security earned no returns other than its dividend. Now if I desire exposure to this security, I have two alternatives.

I could buy the spot security and keep it, or alternatively I could buy a futures contract. Let us look at what happens to my cash flows under each of these scenarios:.

Scenario 1: I buy the spot security: If I buy the spot security today for $100, at the end of 3 months I end up with $100 in the spot security plus $1 in cash from dividend. (Assume the security's price return during this period is zero, and cash from dividends returns $1). Scenario 2: I buy the futures contract: If I buy the futures contract for $102, at the end of 3 months I end up with $100 in the spot security, have paid $102 to the seller of the futures contract, and earned $3 in interest. In other words, I am in the same position as having brought the spot security.

So far so good. What this really means is that to get $100 worth of spot security exposure, I need to buy a futures contract today with a notional of $102. The delta ratio therefore is just 100/102, or the spot price divided by the futures price. Since the futures price = spot.(l+r)-dividend, the 'delta ratio' is: spot/spot.(l+r)-dividend; Or 1/(l+r)-(dividend yield); Or simply 1/(1 + r - d) That's about it.

It is important to know intuitively why the delta of a futures position is not the same as the delta of the cash instrument. It could be more, or less, depending upon the carrying costs.

Another implication of the above is that as we get closer to the expiry of the futures contract, delta gets closer and closer to 1.