GARP FRM Formulas

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In our free formula guide, we discuss many different formulas that are all segmented into their relevant sections;

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Level 1 Formulas  

Level 1, Segment 1: Foundations of Risk Management

  • Correlation coefficient between two Securities, Variance of Two Securities
  • Perfect Positive Correlation, Perfect Negative Correlation
  • Standard Deviation, Risk Adjusted Ranking
  • Sharpe Ratio, Sortino Ratio, Treynor Measure, Jenson’s Alpha
  • Information Ratio, Portfolio beta, Portfolio Expected Return
  • Expected Return, Capital Asset Pricing Model, Adjusted Exposure
  • Expected Loss, Adjusted Exposure, Probability of Default, Loss Given Default
  • Basis, Futures price of contract, Market Coefficient of Variation
  • Market Expected Return, Standard Deviation of Market, Covariance
  • Correlation Coefficient, Standard deviation of a two-stock portfolio
  • Total Risk, Market Risk, Firm Specific Risk, Systematic Risk, Unsystematic Risk
  • Un-diversifiable risk, Expected Return, Stock’s Alpha, Risk Free Rate
  • Excess Return, Beta, Value at Risk, Portfolio Value at Risk
  • Initial Portfolio Value, Capital Markets Line, Expected Residual Return
  • Residual Risk, Covariance for Markets A and B, Equation of a Straight Line


Level 1, Segment 2: Quantitative Analysis

  • Exceptions, Confidence Interval, Portfolio’s Value-at-Risk, Semi-annual comparable yield
  • YTM for Annual Pay Bond, Standard Deviation, Volatility Estimate, Combinations
  • Standard Error, Standard Error of a Mean, Standard Deviation of Returns
  • Basis, Bayes’ Theorem, Expectations, Value of the z-statistic
  • Hypothesized Mean, Standard Deviation of Population, Sample Mean
  • Sample Size, Sample Variance, Sample Standard Deviation, General Regression Equation
  • Total Variation, Unexplained Variation, Coefficient of Determination
  • Standard Error, Correlation Coefficient, F-Statistic, MSR, MSE, RSS, SSE
  • Kurtosis, Variance, Slope Coefficient, Regression, Sum Total of Squares
  • Standard Error of the Estimate, Population Regression, The Vasicek model
  • Chi Square Test, F Test, Bond Survival Rate, Total Variation
  • Sum of Squares Error, Residual Sum of Squares, Explained Sum of Squares
  • Risk-Adjusted Return, Business Line RAROC


Level 1, Segment 3: Financial Markets and Products

  • Price of a Bond, Present Value of Coupon Payments, Time to Maturity
  • Forward Pricing, Spot Price, Value of a Long Forward, Price of Delivery
  • Time of Payoff, Continuous return, Total Asset Price, Maximum Bond Values
  • Minimum Bond Values, American Call, American Put, European Call
  • European Put, Value of a Swap, Present Value of Payments, Present Value of Par Values
  • Accrued Interest, Forward Rate Agreement, Settlement Rate, Dollar Default Rate
  • Par Value of defaulted bonds, Required Rate of Return, Beta
  • Market Risk Premium, Cheapest to Deliver, Current Futures Price
  • Conversion Factor, Riskless Pure Discount, The KMV model
  • Weighted Debt, Convexity, Interest Rate Parity, The theoretical contract price
  • Interest Rate Parity for Currencies, Foreign Currency Rate
  • Interest Earned between Dates, Fair Value of a Futures Contract
  • No-Arbitrage Forward Price, Put-Call Parity Formula, PV of the strike
  • The Optimal Hedge Ratio for a Fund, The Value of the Fixed Payment
  • Fixed Rate Coupon, Notional value, Annual fixed rate, Cost of Carry
  • Storage Cost, Convenience Yield for a Consumption Asset, Issuer Default Rate, Key Rate Duration, Dollar Default Rate


Level 1, Segment 4: Valuation and Risk Models

  • Put Option’s Value, Call Option’s Value, Down Volatility, Up Volatility
  • Put-call parity relationship, Call Premium, Put Premium, Annual Interest Rate
  • Value at Risk, Z-Score, Price Change Standard Deviation, Annual Standard Deviation
  • Daily Standard Deviation, Convexity Adjustment, Synthetic Call Price
  • Covered Call, Short Call, Unexpected Loss, loss rate, exposure amount
  • Implied 1‐Yr Forward Rate, Risk Neutral Probability, Dirty Price
  • Daily Delta Normal VaR, Mean Loss Rate, Sample-Mean, Portfolio’s Beta



Level 2 Formulas

Level 2, Segment 1: Market Risk Measurement and Management

  • Value at Risk, Sharpe Ratio, Sortino Ratio, Treynor Measure, Portfolio beta
  • Information Ratio, Jenson’s Alpha, Minimum Accepted Return
  • Return on Portfolio, Standard Deviation of Returns, CAPM predicted Return
  • Tracking Error, Benchmark Return, Hedging Relationships, Correlation coefficient
  • Covariance, The Vasicek Model, Binomial Distribution, Binomial Distribution of Exceedances
  • Forward Pricing


Level 2, Segment 2: Credit Risk Measurement and Management

  • Firm Value, Netting Factor, Expected Loss, Debt Value
  • Value of Risk Free Debt, Value of Put Option, Credit Spread, Conditional Prepayment Rate
  • Credit Valuation Adjustment, Average Life
  • Discount Factor, Probability of Default, Recovery Rate, Exposure at Default
  • Loan Equivalent Ratio


Level 2, Segment 3: Operational Risk and Resiliency

  • Risk-adjusted return on capital
  • Risk Adjusted Capital
  • Expected Losses
  • Adjusted RAROC
  • Market Return
  • Probability of Default
  • Recovery Rate
  • Worst Case Default Rate
  • Default Correction
  • Liquidity Cost


Level 2, Segment 4: Liquidity and Treasury Risk Measurement

  • Liquidity Risk Ratios
  • Leverage Indicators
  • Portfolio Pricing
  • Return on Portfolio
  • Portfolio Standard Deviation


Level 2, Segment 5: Risk Management and Investment Management

  • Risk Aversion
  • Sharpe Ratio
  • Sortino Ratio
  • Minimum Accepted Return
  • Return on Portfolio
  • Portfolio Standard Deviation of Return
  • Treynor Measure
  • Jenson’s Alpha
  • Information Ratio
  • Information Ratio
  • Marginal Contribution to Value Added
  • Marginal Contribution to Active Risk