Preparing for the PRM
Submitted by iadmin on Sat, 31/07/2010 - 1:17pm
You have decided to get your PRM Certificate. (See our previous post "PRM - do you need a Certificate?") You, probably, have a lot of questions, how to organize the process, in which order to pass exams, what literature to use. I'll try to answer them in this part.
PRM Certificate - in what order to pass.
I recommend to take PRM Exams in the following order: 2-1-3-4. The second exam tests the knowledge of mathematics. The Handbook text for PRM Exam 2 is good to begin with to read in English. Depending on your background and previous experience it may require from 1 week to a month on average.
The PRM Exam 1 and PRM Exam 2 are the most difficult of PRM Exams. PRM Exam 1 tests your knowledge of Finance. PRM Exam 3 tests your knowledge directly related to Risk Management Practices, what you need at work. It is not really good idea to try to pass the PRM Exam 3 prior to PRM Exam 1, as in the Exam 3 it is implicitly assumed that you have mastered the Finance.
PRM Exam 4 is better to pass the last in the queue, as Exam 4 addresses some practical history and cases of major crashes, which is a good opportunity to learn from the others' mistakes.
PRM Preparations for the second part - Mathematics.
PRM Exam 2 - the Math. I'd suggest to use Handbook extensively. Depending on your background and previous experience, not everything may be clear; for self-preparation you can use the "Cracking GRE Subject Math" - a Princeton textbook for teaching mathematics to undergraduates. Reading it from cover to cover is not necessary, it is better to use it as a reference book when you can not comprehend some topics of the Handbook. Alternatively, you may consider a corresponding training session on Quantitative methods, Financial Math, or respective BootCamp (Quantitative and Finance).
PRM Preparations for the first part - Finance.
In principle, Handbook is good enough for this. However, it is useful to read the book by Professor Hal - Options, Futures and Other Derivatives. Here is a link to his page : http://www.rotman.utoronto.ca/~hull/
What you should not do - is to read Russian literature on Risk Management. Most of them simply not-quality translations of English textbooks on risk management; often thrown calculations, missing some parts.
PRM Preparations for the third part of the exam - risk management practices.
Not surprisingly, Handbook provides very good insight into it ...
As an additional literature I would advise:
For operational risk - Carol Alexander "Operational Risk. Regulation, Analysis and Management ".
According to market and credit risks is very useful to read the technical documentation for the models that are mentioned in the textbook. They are in the public domain, and you can easily find them using virtually any search engine.
For example:
RiskMetrics http://www.riskmetrics.com/publications/techdocs/rmcovv.html
CreditMetrics http://www.riskmetrics.com/publications/techdocs/cmintovv.html
PRM Preparations for the fourth part of the exam - Ethics. Case studies.
The material is available on the Association website prmia.org. You don't need anything besides it. Ethics questions are not so obstructive, compared with to the CFA. The fourth part is comparably simple, and no additional literature is required.
PRM diagnostic exams.
Association offers diagnostic exams. I'd highly recommend to buy additional sections to each test. Typically, the questions there a bit easier than on the real exam. However, they are excellent tool to check your weaknesses.
PRM Exam - when are you ready to pass?
You may rely on your feelings. Also, you can estimate some criteria. I used them this way - I studied materials until could pass a pilot test with more than 60% correct answers in four consecutive examinations. The trick here is that the chance of accidentally pass with more than 60% score four times in a row is extremely small.
Have a successful exam!
Prepared specifically for the sites focustraining.ru and riskofficer.ru.
Can be copied, but the obligatory reference to the author.
Vladimir Manaev, PRM.
Business coach, head of market risk.
