Exam I of the PRM certification tests a candidate’s knowledge and understanding of the foundations of finance theory, the financial instruments that provide tools for the mitigation or transfer of risk, and the financial markets in which instruments are traded and capital is raised.
SECTION 1: Finance Theory
The modern theory of finance is the solid basis of risk management and thus it naturally represents the basis of the PRM certification program. All major areas of finance are involved in the process of risk management: from the expected utility approach and risk aversion, which were the forerunners of the capital asset pricing model (CAPM), to portfolio theory and the risk-neutral approach to pricing derivatives.
This section of PRM Exam I covers all the topics related to Finance Theory.
‧ Interest Rates and Time Value: This tutorial presents the fundamental concept that money has a time value that results from investment opportunities. It covers basic measures of interest rates, the value of time and compounding methods. These foundational concepts have relevance for the valuation of all financial assets.
‧ Risk and Risk Aversion: Coming Soon...
‧ Portfolio Mathematics: Key concepts related to portfolio mathematics and calculating the risk of a portfolio.
‧ Capital Allocation: Coming Soon...
‧ The CAPM and Multifactor Models: This tutorial discusses the Capital Asset Pricing Model and the multi-factor models used to determine the return on risky assets.
‧ Basics of Capital Structure: This tutorial discusses the concepts related to capital structure, agency costs of debt and equity, and capital structure decisions.
‧ Term Structure of Interest Rates: This tutorial explains the methods for constructing the yield curve from observed bond prices, and also discusses the theories and models of term structure.
‧ Valuing Forward Contracts: This tutorial explains the methods for constructing the term structure of yields from observed bond prices, and also describes the models that practitioners use in valuation, portfolio construction and risk management. Coming Soon...
‧ Basic Principles of Option Pricing: This tutorial covers the basic principles of option pricing, the binomial and Black-Scholes models for option pricing, and option greeks. Coming Soon...
SECTION 2: Financial Instruments
In the previous section we learned about the finance theory. This section applies these theories to the common financial instruments.
‧ General Characteristics of Bonds: This tutorial discusses the various types of bonds, their market conventions and characteristics.
‧ Bond Analysis: This tutorial discusses how to calculate the price of bonds, and the measures of interest rate risk such as duration, convexity and basis point value.
‧ Futures and Forwards :This tutorial explains the features of futures and forward contracts and how these instruments are used for speculation and hedging.
‧ Swaps: This tutorial discusses the functioning and pricing of the common swaps such as interest rate swaps, equity swaps, currency swaps, and others. It also discusses how these swaps are used for risk management.
‧ Vanilla Options: This tutorial introduces options, and discusses the various option trading strategies.
‧ Credit Derivatives: Coming Soon...
‧ Caps, Floors, and Swaptions: This tutorial discusses caps, floors, and swaptions as the main option strategies used in interest rate markets.
SECTION 3: Financial Markets
This section provides detailed coverage of the major financial markets, and how they operate.
‧ The Structure of Financial Markets: Coming Soon...
‧ The Money Markets: This tutorial discusses the various money market instruments and the repo market.
‧ Bond Markets: Coming Soon...
‧ The Foreign Exchange Market：This tutorial discusses various aspects of the foreign exchange market such as its history, quoting conventions, cross trades, forward rates, etc.
‧ The Stock Market: This tutorial discusses how stock markets function, trading conventions, settlement cycles, stock valuation techniques, IPOs, etc.
‧ The Futures Market: Coming Soon...
‧ The Structure of Commodities Markets: This tutorial discusses the structure of commodity markets, the various types of commodities that are traded, spot market, the commodity futures and forwards, and the concepts related to commodity prices.
‧ The Energy Markets: This tutorial discusses the fundamentals of energy markets including oil and gas, electricity, and coal.
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