FINANCIAL RISK MANAGER (FRM*)

2018 Financial Risk Manager (FRM®) Exam Part I Quantitative Analysis Eighth Custom Edition for the Global Association of Risk Professionals Global Association of Risk Professionals Excerpts taken from: Introduction to Econometrics, Brief Edition by James H. Stock and Mark W. Watson Excerpts taken from: Introduction to Econometrics, Brief Edition by James H. Stock and Mark W. Watson Copyright © 2008 by Pearson Education, Inc. Published by Addison Wesley Boston, Massachusetts 02116 Copyright © 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011 by Pearson Education, Inc. All rights reserved. Pearson Custom Edition. This copyright covers material written expressly for this volume by the editor/s as well as the compilation itself. It does not cover the individual selections herein that first appeared elsewhere. Permission to reprint these has been obtained by Pearson Education, Inc. for this edition only. Further reproduction by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system, must be arranged with the individual copyright holders noted. Grateful acknowledgment is made to the following sources for permission to reprint material copyrighted or controlled by them: Chapters 2, 3, 4, 6, and 7 by Michael Miller, reprinted from Mathematics and Statistics for Financial Risk Management, Second Edition (2013), by permission of John Wiley & Sons, Inc. Chapters 10 and 11 by John Hull, reprinted from Risk Management and Financial Institutions, Fourth Edition, by permission of John Wiley & Sons, Inc. Chapters 5, 6, 7, and 8 by Francis X. Diebold, reprinted from Elements of Forecasting, Fourth Edition (2006), by permission of the author. Chapter 13 "Simulation Methods," by Chris Brooks, reprinted from Introductory Econometrics for Finance, Third Edition (2014), by permission of Cambridge University Press. Learning Objectives provided by the Global Association of Risk Professionals. All trademarks, service marks, registered trademarks, and registered service marks are the property of their respective owners and are used herein for identification purposes only. Pearson Education, Inc., 330 Hudson Street, New York, New York 10013 A Pearson Education Company Printed in the United States of America XXXX EEB/KW PEARSON ISBN 10: 1-323-80119-7 ISBN 13: 978-1-323-80119-2 CHAPTER 1 PROBABILITIES 3 Discrete Random Variables Continuous Random Variables Probability Density Functions Cumulative Distribution Functions Inverse Cumulative Distribution Functions Mutually Exclusive Events Independent Events Probability Matrices Conditional Probability 4 4 4 5 6 7 7 8 8 CHAPTER 2 BASIC STATISTICS 11 Averages Population and Sample Data Discrete Random Variables Continuous Random Variables Expectations 12 12 13 13 14 Variance and Standard Deviation 17 Standardized Variable