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Risk Management
FRM Part II Market Risk Measurement and Management Exam Preparation
Study market-risk estimation, VaR validation, correlation, hedging, term-structure models, volatility surfaces and FRTB before combining every FRM Part II domain.
80 Unique Questions · 5 Mocks × 20 Detailed Study Notes Timed topic practice
Course syllabus information reviewed for 2026. Always check the awarding body’s latest official syllabus and candidate updates before booking or sitting your exam. Exams Academy is an independent education provider and is not affiliated with GARP.
Exactly what is included
- 5 mock exams × 20 questions · 80 unique questions · 100 total question slots · unlimited retakes
- Focus Learn · key areas, pitfalls, exam traps & key numbers
- Flashcards · fun, fast and effective recall
- Exam cheat sheet · key facts, rules and numbers by chapter
- Audio Learning · every chapter in audio
- AI Analyzer & Mentor · pinpoints your weak areas
- Study Mode Exams · learn while you train
- AI Chat trained specifically for this exam
- Community-polished data, improved every day
- Up-to-date, accuracy-checked content
AI Audio Summaries New
Listen to course modules on the go. Perfect for studying while driving or commuting.
🎧 Audio
* This is a chapter sample. All audio is available in the full version.
Syllabus
Module 1: Estimating Market Risk Measures
🎧 Audio
P/L and return data, historical and parametric VaR, expected shortfall, quantiles, standard errors and QQ plots.
- • VaR and ES
- • Quantile precision
- • Distribution diagnostics
Module 2: Non-Parametric Approaches
Historical simulation variants, density estimation, bootstrap intervals and method limitations.
- • Weighted historical simulation
- • Filtered HS
- • Bootstrap inference
Module 3: Parametric Approaches (II): Extreme Value
GEV, peaks over threshold, generalized Pareto and dependent or multivariate extremes.
- • Block maxima
- • POT and GPD
- • Conditional EVT
Module 4: Backtesting VaR
Exceptions, failure rates, model verification, conditional coverage and Basel rules.
- • Kupiec testing
- • Error types and power
- • Traffic-light zones
Module 5: VaR Mapping
Primitive factors, general and specific risk, fixed-income and derivative mapping.
- • Cash-flow and duration mapping
- • Forward and swap mapping
- • Option mapping
Module 6: Validating Value-at-Risk Models for Market Risk
Conceptual soundness, sensitivity analysis, confidence intervals, backtesting and benchmarking.
- • Model scope
- • Sensitivity and uncertainty
- • Independent challenge
Module 7: PIT-Based Backtesting of Value-at-Risk Models
Probability integral transforms, uniformity diagnostics and full-distribution tests.
- • PIT derivation
- • Histogram diagnosis
- • KS, AD and Cramér–von Mises
Module 8: Correlation Basics
Correlation risk in investments, derivatives, market risk, credit risk and systemic concentration.
- • Diversification
- • Quanto and correlation swaps
- • Systemic risk
Module 9: Empirical Properties of Correlation
Economic-state behavior, volatility, mean reversion, autocorrelation and fitted distributions.
- • State dependence
- • Mean-reversion half-life
- • Bounded distributions
Module 10: Financial Correlation Modeling—Bottom-Up Approaches
Copula functions, Gaussian dependence and correlated default-time simulation.
- • Marginals and copulas
- • Joint default
- • Tail-dependence risk
Module 11: Regression Hedging and Principal Component Analysis
DV01 limitations, regression adjustments, multi-variable hedges and PCA.
- • Regression beta
- • Level versus change
- • PCA factors
Module 12: Arbitrage Pricing with Term Structure Models
Rate trees, replication, risk-neutral pricing, OAS and constant-maturity Treasury swaps.
- • Backward induction
- • Risk-neutral probabilities
- • OAS and time steps
Module 13: Expectations, Risk Premium, Convexity, and the Term Structure
Expected rates, risk premium, Jensen convexity and bond-return decomposition.
- • Forward-rate components
- • Volatility and convexity
- • Expected bond return
Module 14: The Art of Term Structure Models: Drift
Normal-rate trees, Ho–Lee fitting, Vasicek mean reversion and half-life.
- • True and risk-neutral drift
- • Ho–Lee
- • Vasicek
Module 15: The Art of Term Structure Models: Volatility and Distribution
Time-dependent volatility, CIR and lognormal short-rate models.
- • Volatility calibration
- • Square-root process
- • Lognormal process
Module 16: The Vasicek and Gauss+ Models
One- and multi-factor Gaussian curve models, estimation and trading applications.
- • Short, medium and long factors
- • Parameter estimation
- • Relative-value use
Module 17: Volatility Smiles and Volatility Surfaces
Smile, skew, implied distributions, term structures, surfaces and adjusted Greeks.
- • FX and equity shapes
- • Surface construction
- • Smile risk
Module 18: Fundamental Review of the Trading Book
Trading-book boundary, standardized and internal-model approaches, liquidity horizons and PLA.
- • Sensitivity charges
- • Expected shortfall
- • Desk eligibility
Interactive preview
Free GARP FRM Part II — Market Risk Measurement and Management (Book 1) Practice Questions & Exam Preview
Try 15 GARP FRM Part II — Market Risk Measurement and Management (Book 1) practice questions from VaR, Backtesting and Market Risk Models
Practice GARP FRM Part II — Market Risk Measurement and Management (Book 1) exam questions with answers and explanations. The full course includes 5 mock exams and complete syllabus coverage.
Exam Preview
VaR, Backtesting and Market Risk Models
Which statement correctly defines Profit/loss convention?
1 / 15
Flashcards
Card 1 of 10Chapter 1
Question
How should you explain Profit/loss convention in FRM Part II market-risk practice?
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Focus Learn
- Profit/loss convention
- Arithmetic return
- Geometric return
- Historical-simulation VaR
- Normal P/L VaR
- Lognormal VaR
- Expected shortfall
- Quantile estimator precision
- Coherent risk measure
- QQ plot
Chapter 1: Estimating Market Risk Measures
Core ideas
Market-risk estimation starts by choosing the data convention. Profit/loss records gains as positive, while loss/profit reverses the sign so the risk measure is expressed as a positive loss. Arithmetic and geometric returns also differ: geometric returns add across periods and are consistent with continuous reinvestment. Historical simulation estimates a loss quantile from ordered observations. Parametric methods instead impose a distribution on P/L or returns. Expected shortfall then looks past the VaR threshold to the average tail loss. Sampling error matters throughout, especially where few observations lie near the desired quantile.
Exam method
Identify the data form, horizon and confidence level before selecting the estimator. For historical simulation, order losse…
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Preparation Package at a Glance
| Feature | Exams Academy | Details |
|---|---|---|
| Access Period | Lifetime Access | One-time enrollment with no recurring fee |
| Practice Exams | Unlimited Retakes | Five 20-question timed book-level mock exams |
| Study Support | Instant 24/7 AI Tutor | Self-service AI support; live instructor support is not included |
| Cost | $71 (One-Time) | One-time payment with no recurring subscription |
Preview & See What You Will Get
Frequently Asked Questions
No. This course covers the Market Risk Measurement and Management printed book. Candidates also need the other Part II books and the required Current Issues readings.
GARP describes Part II as 80 equally weighted multiple-choice questions completed in four hours across all Part II domains.
No. They are book-level topical practice. Full Part II practice should combine every domain and Current Issues in the official 80-question format.
The course preserves the official Part II pace of three minutes per question: 20 topical questions in 60 minutes.
No. GARP does not publish a fixed percentage pass mark. The platform uses 70% only as an internal mastery target.
No. Exams Academy is an independent education provider and is not affiliated with or endorsed by GARP.
You receive lifetime access to this course content with no recurring subscription fee.
Yes! Test your knowledge and review detailed explanations with the free GARP FRM Part II — Market Risk Measurement and Management (Book 1) Mock Exam Preview below. It contains 15 exam-style questions from one named topic; the full course provides complete mock exams and syllabus coverage.
Key Benefits
Five Timed Book-Level Mock Exams
Test all 18 chapters through five 20-question practice papers at the official Part II pace.
- ✓ 80 distinct questions across the first four papers.
- ✓ Mock 5 samples five questions from each earlier paper.
- ✓ Every answer includes a source-grounded explanation.
Market Risk AI Tutor
Clarify estimation, validation, dependence, hedging and regulatory relationships.
- ✓ Compare VaR, ES, historical simulation and EVT.
- ✓ Review backtesting, PITs, correlation and copulas.
- ✓ Work through term-structure models, smiles and FRTB.
Active-Recall Revision
Strengthen memory with 200 flashcards and a 220-item searchable reference sheet.
- ✓ Ten focused chapter cards for every reading.
- ✓ Twenty dedicated number-recall cards.
- ✓ Twenty specific exam traps and close distinctions.
Detailed Chapter Summaries
Connect each model with its inputs, workflow, interpretation and limitation.
- ✓ Market-risk estimation and model validation.
- ✓ Correlation, copulas and regression hedging.
- ✓ Term-structure models, volatility surfaces and FRTB.
Exam Format & Details
| Assessment | Book-level topical practice: 20 multiple-choice questions in 60 minutes. The official FRM Part II exam covers all Part II domains with 80 equally weighted questions in four hours. |
| Duration | 60 Minutes |
Focused preparation for FRM Part II Book 1
Market Risk Measurement and Management moves from VaR and expected shortfall into non-parametric and extreme-value methods, model validation, PIT backtesting, correlation and copulas, regression hedging, term-structure models, volatility surfaces and the Fundamental Review of the Trading Book.
This course keeps all 18 chapters together as one book-level learning hub. Detailed summaries show the method and assumptions, 200 flashcards build active recall, the 220-item reference sheet supports fast review, and the AI tutor is grounded in the supplied Market Risk Measurement and Management source.
Practise the book before combining all Part II domains
The five course mocks each contain 20 questions and run for 60 minutes, preserving the official Part II pace of three minutes per question. Mocks 1-4 contain 80 distinct questions; Mock 5 takes an equal sample from those papers. The 70% platform result is a book-level mastery target, not an official GARP pass mark.
The official FRM Part II exam contains 80 equally weighted multiple-choice questions across all Part II domains and lasts four hours. Complete the other printed books and the required Current Issues readings before full Part II practice.
Who Is This For?
✓ Candidates preparing for the GARP FRM Part II examination
✓ Market-risk, model-validation and regulatory-capital analysts
✓ Candidates who want to complete and track each official Part II book separately
✓ Professionals strengthening VaR, correlation, fixed-income and volatility-model skills
Preparation centre
GARP FRM Part II — Market Risk Measurement and Management (Book 1) Exam Guides
Use these connected guides for the syllabus, exam format, booking and revision strategy.
Ready to Pass Your Exam?
Master this FRM curriculum book with source-grounded summaries, active recall and clearly scoped book-level practice before combining it with the rest of the curriculum.
GARP FRM Part II — Market Risk Measurement and Management (Book 1)
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