FRM Part 1 Glossary — Key Terms & Definitions
- Alpha
- Arbitrage
- Arbitrage Pricing Theory (APT)
- Backtesting
- Backwardation / Contango
- Barrier option
- Basis
- Basis point
- Bayes' theorem
- Beta
- Binomial option pricing model
- Black-Scholes-Merton model
- Bootstrapping (term structure)
- Capital Asset Pricing Model (CAPM)
- Central counterparty (CCP)
- Central limit theorem
- Cheapest-to-deliver (CTD)
- Coherent risk measure
- Component VaR
- Convenience yield
- Conversion factor
- Convexity
- Copula
- Cost of carry
- Covered interest rate parity
- Credit valuation adjustment (CVA)
- Delta
- Diversification
- Duration (modified)
- DV01
- Economic capital
- Effective duration
- Enterprise Risk Management (ERM)
- Expected loss (EL)
- Expected shortfall (ES)
- Exponentially weighted moving average (EWMA)
- Exposure at default (EAD)
- Forward rate agreement (FRA)
- Gamma
- GARCH
- Hazard rate
- Hedge ratio (minimum-variance)
- Heteroskedasticity
- Historical simulation
- Immunization
- Implied volatility
- Information ratio
- Initial, maintenance, and variation margin
- Interest rate swap
- Jensen's alpha
- Key-rate duration
- Kurtosis
- Law of one price
- Lease rate (δ)
- Loss given default (LGD)
- Macaulay duration
- Marginal VaR
- Marking to market
- Martingale
- Modern portfolio theory (MPT)
- Monte Carlo simulation
- Netting
- Novation
- Operational risk
- Option-adjusted spread (OAS)
- Ordinary least squares (OLS)
- Parametric (delta-normal) VaR
- Par yield
- Pass-through security
- Prepayment risk
- Probability of default (PD)
- Put-call parity
- p-value
- RAROC
- Rho
- Risk-neutral valuation
- R-squared
- Sharpe ratio
- Skewness
- Sklar's theorem
- Sortino ratio
- Stationarity
- Stress testing
- Student's t-distribution
- Subadditivity
- Swap rate
- Systematic vs unsystematic risk
- Theta
- Three lines of defense
- Tracking error
- Transition matrix
- Treynor ratio
- Type I and Type II error
- Unexpected loss (UL)
- Value at risk (VaR)
- Vega
- Volatility smile
- Yield to maturity (YTM)
- Zero-coupon (spot) rate
- Risk appetite
- Risk capacity
- Risk limit
- Risk tolerance
- Market risk
- Credit risk
- Liquidity risk
- Funding liquidity risk
- Model risk
- Basis risk
- Settlement risk
- Counterparty credit risk
- Wrong-way risk
- Recovery rate
- Credit spread
- Credit default swap (CDS)
- Collateral
- Haircut
- Repurchase agreement (repo)
- Forward contract
- Futures contract
- Call option
- Put option
- Moneyness
- Intrinsic value
- Time value
- American option
- Delta hedging
- Confidence interval
- Statistical power
- Multicollinearity
- Autocorrelation
- Unit root
- Mean reversion
- Maximum likelihood estimation
- Likelihood-ratio test
- Kupiec POF test
- Christoffersen test
- Tail dependence
- Gaussian copula
- Machine learning
- Bias-variance trade-off
- Overfitting
- Cross-validation
- Ridge regression
- Lasso regression
- Random forest
- Principal component analysis (PCA)
- Scenario analysis
- Reverse stress testing
- GARP Code of Conduct
- Risk Adjusted Performance Measures
- Risk Taxonomy & the Risk Management Process
- Time Series & Volatility Modeling
- CAPM & Multifactor Models
- Financial Disasters & Case Studies
- Probability & Distributions
- Statistical Inference & Hypothesis Testing
- Correlation, Copulas & Dependence
- Regression Analysis
- Financial Institutions (Banks, Insurers, Funds)
- Futures & Forwards Mechanics & Hedging
- Swaps
- Commodities & Foreign Exchange
- Options Markets & Strategies
- Properties & Pricing Bounds of Options
- Interest Rates & Term Structure
- Forward & Futures Pricing
- Option Valuation (BSM & Binomial Trees)
- Fixed Income Valuation, Duration & Convexity
- The Greeks & Option Sensitivities