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					Changes in
2012 FRM®
Examination
Study Guide
www.YeaBook.org
                                                                                           Changes in 2012 FRM® Examination Study Guide




 NEW READINGS

 FRM PART I—TOPICS AND READINGS
 No new readings



 FRM PART II—TOPICS AND READINGS

 New Readings for Market Risk Measurement and Management

 1.   Pietro Veronesi, Fixed Income Securities (Hoboken, NJ: John Wiley & Sons, 2010).
      • Chapter 8 .....................Basics of Residential Mortgage Backed Securities




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 2.   Frank Fabozzi, Anand Bhattacharya, William Berliner, Mortgage Backed Securities, 2nd Edition
      (Hoboken, NJ: John Wiley & Sons, 2006).
      • Chapter 1.......................Overview of Mortgages and the Consumer Mortgage Market
      • Chapter 2......................Overview of the Mortgage-Backed Securities Market
      • Chapter 10....................Techniques for Valuing MBS



 New Readings for Credit Risk Measurement and Management

 3.   Eduardo Canabarro (editor), Counterparty Credit Risk (London: Risk Books, 2009).
      • Chapter 6 .....................Pricing and Hedging Counterparty Risk: Lessons Re-Learned?, by Eduardo Canabarro



 New Readings for Operational and Integrated Risk Management

 4.   Philippe Carrel, The Handbook of Risk Management (West Sussex, UK: John Wiley & Sons, Ltd, 2010).
      • Chapter 16....................Liquidity, the Ultimate Operational Risk
      • Chapter 17 ....................Analyzing and Measuring Liquidity Risk
      • Chapter 18 ....................Funding Risk
      • Chapter 19....................Managing and Mitigating Liquidity Risks



 New Readings for Risk Management and Investment Management

 5.   Greg N. Gregoriou and Franciois-Serge Lhatant, “Madoff: A Riot of Red Flags” (December, 2008).


 6.   Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments, 9th Edition (New York: McGraw-Hill, 2010).
      • Chapter 24...................Portfolio Performance Evaluation




 © 2012 Global Association of Risk Professionals. All rights reserved.                                                                1
 Changes in 2012 FRM® Examination Study Guide




 New Readings for Current Issues in Financial Markets

 7.     David P. Stowell, An Introduction to Investment Banks, Hedge Funds, and Private Equity (Academic Press, 2010).
       • Chapter 11 .....................Overview of Hedge Funds
       • Chapter 12 ....................Hedge Fund Investment Strategies
       • Chapter 16....................Overview of Private Equity


 8.    Report to the Boards of Directors of Allied Irish Banks, P.L.C., Allfirst Financial Inc., and Allfirst Bank concerning
       currency trading losses submitted by Promontory Financial Group and Wachtell, Lipton, Rosen & Katz (March 12, 2002).


 9.    Gary Gorton, “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007+,” (May 9, 2009).


 10. IMF, “Global Financial Stability Report (Summary Version)”, (September 2011).




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       • Chapter 3 .....................Toward Operationalizing Macroprudential Policies: When to Act? (excluding Annex)


 11.   Arthur M. Berd (editor), Lessons From the Financial Crisis (London: Risk Books, 2010).
       • Chapter 4 .....................The Collapse of the Icelandic Banking System, by René Kallestrup and David Lando
       • Chapter 9 .....................Measuring and Managing Risk in Innovative Financial Instruments, by Stuart Turnbull
       • Chapter 20...................Active Risk Management: A Credit Investor’s Perspective, by Vineer Bhansali




 DELETED READINGS

 FRM PART I—TOPICS AND READINGS

 Deleted Readings from Foundations of Risk Management

 1.    René Stulz, Risk Management & Derivatives (Florence, KY: Thomson South-Western, 2002).
       • Chapter 2......................Investors and Risk Management



 Deleted Readings from Valuation and Risk Models

 2.    Dale F. Gray, Robert C. Merton and Zvi Bodie, “Contingent Claims Approach to Measuring and Managing Sovereign
       Credit Risk,” Journal of Investment Management, Vol. 5, No. 4 (2007).




 2                                                                         © 2012 Global Association of Risk Professionals. All rights reserved.
                                                                                            Changes in 2012 FRM® Examination Study Guide




 FRM PART II—TOPICS AND READINGS

 Deleted Readings from Market Risk Measurement and Management

 3.    Bruce Tuckman, Fixed Income Securities, 2nd Edition (Hoboken, NJ: John Wiley & Sons, 2002).
       • Chapter 21 ....................Mortgage-Backed Securities


 4.    Frank Fabozzi, Handbook of Mortgage Backed Securities, 6th Edition (New York: McGraw-Hill, 2006).
       • Chapter 1.......................An Overview of Mortgages and the Mortgage Market
       • Chapter 31 ....................Valuation of Mortgage-Backed Securities



 Deleted Readings from Credit Risk Measurement and Management




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 5.    Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability” (July 2008).


 6.    “Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research
       Task Force project” (Basel Committee on Banking Supervision Publication, November 2006).



 Deleted Readings from Operational and Integrated Risk Management

 7.    Jimmy Hong, John Knight, Steve Satchell and Bernd Scherer, “Using approximate results for validating
       value-at-risk,” The Journal of Risk Model Validation, Volume 4/Number 3, Fall 2010: pp. 69-81.



 Deleted Readings for Basel Reference

 8.    “Guidelines for computing capital for incremental risk in the trading book—final version” (Basel Committee on
       Banking Supervision Publication, July 2009).



 Deleted Readings from Investment Management and Risk Management

 9.    Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers,”
       (December 2009).


 10. Grinold and Kahn, Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and
       Controlling Risk, 2nd Edition. (New York: McGraw-Hill, 2000).
       • Chapter 17 ....................Performance Analysis


 11.   Lars Jaeger, Through the Alpha Smoke Screens: A Guide to Hedge Fund Returns (New York: Euromoney
       Institutional Investor Books, 2005).
       • Chapter 5......................Individual Hedge Fund Strategies


 12. Steven N. Kaplan and Per Stromberg, 2009. “Leveraged Buyouts and Private Equity” Journal of Economic
       Perspectives 23:1, 121-146.



 © 2012 Global Association of Risk Professionals. All rights reserved.                                                                3
 Changes in 2012 FRM® Examination Study Guide




 Deleted Readings from Current Issues in Financial Markets

 13. Gary Gorton, “The Panic of 2007,” (August 2008).


 14. Raghuram Rajan, “Has Financial Development Made The World Riskier?” (September 2005).


 15. Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.”


 16. Bennett Golub and Conan Crum, “Risk Management Lessons Worth Remembering from the Credit Crisis of
       2007-2009,” (October 2009).


 17.   “Findings Regarding the Market Events of May 6, 2010, (Executive Summary)” Report of the Staffs of the CFTC
       and SEC to the Joint Advisory Committee on Emerging Regulatory Issues (September 2010).




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 18. Eli Remolona, Michela Scatigna and Eliza Wu, “Interpreting sovereign spreads,” BIS Quarterly Review, March 2007.


 19. “Making Over-the-Counter Derivatives Safer: The Role of Central Counterparties.” IMF Global Financial Stability
       Report, April 2010, Chapter 3.


 20. “FSF Principles for Sound Compensation Practices,” Financial Stability Forum, April 2009.


 21. Brunnermeier, Markus, 2009. “Deciphering the Liquidity and Credit Crunch 2007-2008.” Journal of Economic
       Perspectives 23:1, 77-100.


 22. Examiner’s Report on Lehman, Appendix 8 (pages 1–49).




 UPDATED READINGS

 FRM PART I—TOPICS AND READINGS

 Updated Readings for Foundations of Risk Management

 1.    Edwin J. Elton, Martin J. Gruber, Stephen J. Brown and William N. Goetzmann, Modern Portfolio Theory and
       Investment Analysis: All chapters in 7th Edition (Hoboken, NJ: John Wiley & Sons, 2007) are replaced with chapters in
       8th Edition (Hoboken, NJ: John Wiley & Sons, 2009).


       2012 FRM Study Guide (8th Edition)                             2011 FRM Study Guide (7th Edition)
       Chapter 5..........Delineating Efficient Portfolios            Chapter 5..........Delineating Efficient Portfolios
       Chapter 13.........The Standard Capital Asset Pricing Model    Chapter 13.........The Standard Capital Asset Pricing Model
       Chapter 14..........Nonstandard Forms of Capital               Chapter 14 ........Nonstandard Forms of Capital Asset
                       Asset Pricing Models                                             Pricing Models
       Chapter 16 ........The Arbitrage Pricing Model APT—A New       Chapter 16 ........The Arbitrage Pricing Model APT—A New
                       Approach to Explaining Asset Prices                              Approach to Explaining Asset Prices




 4                                                                   © 2012 Global Association of Risk Professionals. All rights reserved.
                                                                                            Changes in 2012 FRM® Examination Study Guide




 Updated Readings for Quantitative Analysis

 2.   John Hull, Options, Futures, and Other Derivatives: All chapters in 7th Edition (New York: Pearson Prentice Hall, 2009)
      are updated with chapters in 8th Edition (New York: Pearson Prentice Hall, 2012).


      2012 FRM Study Guide (8th Edition)                                   2011 Study Guide (7th Edition)
      Chapter 22........Estimating Volatilities and Correlations           Chapter 21 ........Estimating Volatilities and Correlations



 Updated Readings for Financial Markets and Products

 3.   John Hull, Options, Futures, and Other Derivatives: All chapters in 7th Edition (New York: Pearson Prentice Hall, 2009)
      are updated with chapters in 8th Edition (New York: Pearson Prentice Hall, 2012).




www.YeaBook.org
      2012 FRM Study Guide (8th Edition)                                   2011 Study Guide (7th Edition)
      Chapter 1...........Introduction                                     Chapter 1...........Introduction
      Chapter 2..........Mechanics of Futures Markets                      Chapter 2..........Mechanics of Futures Markets
      Chapter 3..........Hedging Strategies Using Futures                  Chapter 2..........Hedging Strategies Using Futures
      Chapter 4..........Interest Rates                                    Chapter 4..........Interest Rates
      Chapter 5..............Determination of Forward and Futures Prices   Chapter 5..............Determination of Forward and Futures Prices
      Chapter 6..........Interest Rate Futures                             Chapter 6..........Interest Rate Futures
      Chapter 7...........Swaps                                            Chapter 7...........Swaps
      Chapter 10 ........Properties of Stock Options                       Chapter 9..........Properties of Stock Options
      Chapter 11 .........Trading Strategies Involving Options             Chapter 10 ........Trading Strategies Involving Options


 4.   Anthony Saunders and Marcia Millon Cornett, Financial Institutions Management: A Risk Management Approach:
      The chapter in 6th Edition (New York: McGraw-Hill, 2008) is replaced by chapter in 7th Edition
      (New York: McGraw-Hill, 2010).


      2012 FRM Study Guide (7th Edition)                                   2011 FRM Study Guide (6th Edition)
      Chapter 15.........Foreign Exchange Risk                             Chapter 14 ........Foreign Exchange Risk



 Updated Readings for Valuation and Risk Models

 5.   John Hull, Options, Futures, and Other Derivatives: All chapters in 7th Edition (New York: Pearson Prentice Hall, 2009)
      are updated with chapters in 8th Edition (New York: Pearson Prentice Hall, 2012).


      2012 FRM Study Guide (8th Edition)                                   2011 Study Guide (7th Edition)
      Chapter 12 ........Binomial Trees                                    Chapter 11 .........Binomial Trees
      Chapter 14 ........The Black-Scholes-Merton Model                    Chapter 13 ........The Black-Scholes-Merton Model
      Chapter 18 ........The Greek Letters                                 Chapter 17.........The Greek Letters


 6.   “Principles for Sound Stress Testing Practices and Supervision” (Basel Committee on Banking Supervision
      Publication, May 2009).




 © 2012 Global Association of Risk Professionals. All rights reserved.                                                                      5
 Changes in 2012 FRM® Examination Study Guide




 FRM PART II—TOPICS AND READINGS

 Updated Readings for Market Risk Measurement and Management

 7.    John Hull, Options, Futures, and Other Derivatives: All chapters in 7th Edition (New York: Pearson Prentice Hall, 2009)
       are updated with chapters in 8th Edition (New York: Pearson Prentice Hall, 2012).


       2012 FRM Study Guide (8th Edition)                            2011 Study Guide (7th Edition)
       Chapter 19 ........Volatility Smiles                          Chapter 18 ........Volatility Smiles
       Chapter 25........Exotic Options                              Chapter 24 .......Exotic Options



 Updated Readings for Credit Risk Measurement and Management




www.YeaBook.org
 8.    John Hull, Options, Futures, and Other Derivatives: All chapters in 7th Edition (New York: Pearson Prentice Hall, 2009)
       are updated with chapters in 8th Edition (New York: Pearson Prentice Hall, 2012).


       2012 FRM Study Guide (8th Edition)                            2011 Study Guide (7th Edition)
       Chapter 23........Credit Risk                                 Chapter 22 .......Credit Risk
       Chapter 24 .......Credit Derivatives                          Chapter 23 .......Credit Derivatives



 Updated Readings for Operational and Integrated Risk Management
 Updated Readings for Basel Reference

 9.    Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems-Revised Version
       (Basel Committee on Banking Supervision Publication, June 2011).


 10. “Revisions to the Basel II Market Risk Framework—Updated as of 31 December 2010” (Basel Committee on Banking
       Supervision Publication, February 2011).


 11.   Developments in Modelling Risk Aggregation (Basel Committee on Banking Supervision Publication, October 2010).




 6                                                                 © 2012 Global Association of Risk Professionals. All rights reserved.
    2012 FRM Committee Members

    Dr. René Stulz (Chairman)...................................................Ohio State University

    Richard Apostolik ...................................................................Global Association of Risk Professionals

    Richard Brandt.........................................................................Citibank

    Juan Carlos Garcia Cespedes ............................................Banco Bilbao Vizcaya Argentaria

    Dr. Christopher Donohue.....................................................Global Association of Risk Professionals

    Hervé Geny................................................................................Independent Risk Consultant

    Dr. Satyajit Karnik, FRM .......................................................Temple University

    Kai Leifert, FRM.......................................................................Northern Trust Global Investments




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    Steve Lerit, CFA.......................................................................Bank of America

    William May...............................................................................Global Association of Risk Professionals

    Michelle McCarthy ..................................................................Nuveen Investments

    Michael B. Miller, FRM ...........................................................Tremblant Capital Group

    Ezra Uzi Moualem, FRM .......................................................The Financial Institute of Israel & ZRisk

    Dr. Victor Ng .............................................................................Goldman Sachs & Co

    Dr. Elliot Noma.........................................................................Garrett Asset Management

    Liu Ruixia....................................................................................Industrial and Commercial Bank of China

    Robert Scanlon ........................................................................Standard Chartered Bank

    Dr. Til Schuermann .................................................................Oliver Wyman

    Serge Sverdlov.........................................................................Microsoft Corporation

    Alan Weindorf ..........................................................................Visa
 Creating a culture of
 risk awareness.TM




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 Risk Professionals

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 About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to
 preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk manage-
 ment practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and
 corporations from more than 195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy
 Risk Professional (ERP®) Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk
 management via comprehensive professional education and training for professionals of all levels. www.garp.org.




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