The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation, and fi- nancial instrument analysis as well as much more. In select instances, permission credits and source information appear directly on any chapter reprinted with permission of The McGraw-Hill Companies or South-Western, a division of Thomson Learning.
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Reprinted with permission from Schaum’s Outline of Theory and Problems of Probability and Statistics, 2nd ed. Altman, and Paul Narayanan Reprinted with permission from Managing Credit Risk (New York: John Wiley & Sons.
APPENDIX
ABOUT THE CD-ROM
T he objective of this volume is to house in one place many of the core readings recommended by the Global Association of Risk Professionals’. T his FRM® readings CD was made possible through the work of the Global Association of Risk Professionals’ FRM Committee. To choose the readings for the FRM examination, the Committee re- viewed an extremely large number of published works.
The readings se- lected—those included in the CD as well as the other readings—were chosen because they meet high expositional standards and together provide coverage of the issues the Committee expects candidates to master. GARP’s FRM examination has attained global benchmark status in large part because of the hard work and dedication of this core group of risk management professionals. James Gutman, Risk Analyst, Global Investment Research, Goldman Sachs International; Kai Leifert, FRM, Vice President, Head of Risk Manage- ment, Credit Suisse Asset Management; Steve Lerit, Vice President, Invest- ment Analyst, New York Life; Dr.
Miller, FRM, Risk Analyst, Fortress In- vestment Group LLC; Peter Nerby, Senior Vice President, Moody’s Finan- cial Institutions and Sovereign Risk Group; Victor Ng, Vice President, Head of Risk Modeling—Firmwide Risk, Goldman Sachs; Dr. Elliott Noma, Chief Risk Officer, Asset Alliance Corporation; Gadi Pickholz, Pro- fessor, Global Capital Markets, Financial Risk Management, Ben Gurion University of the Negev; and Robert Scanlon, Chief Risk Officer, Standard Chartered Bank. W hen the FRM®examination was first developed in 1997, the profession of financial risk management was still in its infancy.
However, unlike many inventions or companies that failed not because their idea was not viable but because they were ahead of the market, the FRM examination program was prescient. Globalization of the financial markets in the late 1980s and growth of the derivatives markets, scandals, and emerging market issues in the late 1990s fueled the need to develop a sophisticated expertise in financial risk management. Now, in the beginning of the twenty-first century, markets are truly global, communication is instantaneous, and credit, market, and opera- tional risks are becoming so interrelated that being knowledgeable in just one area of risk management is insufficient.
Many risk professionals are already predicting that credit experts will ultimately take on a new and unique role as internal traders of risk. Most of all, risk managers of the future will have to possess the ability to clearly and in easily understood terms communicate risk theories, con- cepts, and strategies to senior management, boards of directors, regulators, and shareholders or investors. Choosing the right vendor of a risk measure- ment system can be just as important as determining whether to purchase or sell a certain type of financial instrument.
The risk manager is no longer an adjunct in the accounting department or junior member of the credit team. The chief risk officer or head of risk management is now recognized as a full member of the senior management team, on a par in many cases with the CFO. In some firms the importance of the function and the need for its independence have been recognized, with the chief risk officer reporting directly to a board committee and to the CEO or COO in a matrix management structure.
The definition of risk management is still evolving, but the need to have specialized profes- sionals perform that role is no longer in question.
