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Chapter 1 – The Building Blocks of Risk Management
This chapter provides FRM exam candidates with a comprehensive foundation in risk management, covering the historical development of the field, key building blocks, and modern frameworks used by financial institutions. Across 12 lessons, candidates will learn how to identify, measure, and manage risk, while also understanding the limitations of traditional models and the importance of adapting to structural change, human behavior, and innovation. Topics include the history of risk management, fundamental building blocks, typologies of risk, the risk management process, identifying knowns and unknowns, expected and unexpected loss, risk factor decomposition, the shift from tail risk to systemic risk, human agency and conflicts of interest, methods of risk aggregation, balancing risk and reward, and enterprise risk management. By the end of this chapter, FRM Part I candidates will have a clear, structured understanding of how risk management evolved, why different risks must be managed through a unified framework, and how modern approaches such as ERM, stress testing, and data science shape today’s risk practices.

  • 1. Risk Management Historical Timeline
    11:17
  • 2. Building Blocks of Risk Management & Typologies of Risk
    05:05
  • 3. Typologies of Risk
    09:11
  • 4. The Risk Management Process
    08:01
  • 5. Identifying Risk – Knowns and Unknowns
    06:41
  • 6. Expected Loss, Unexpected Loss & Tail Loss
    05:56
  • 7. Risk Factor Breakdown
    03:12
  • 8. Structural Change – From Tail Risk to Systemic Risk
    03:32
  • 9. Human Agency and Conflict of Interest
    04:04
  • 10. Risk Aggregation
    05:52
  • 11. Balancing Reward & Risk
    03:30
  • 12. Enterprise Risk Management (ERM)
    03:14

1. Risk Management Historical Timeline
This lesson introduces FRM exam candidates to the historical evolution of risk management. We trace the development of risk management from ancient practices of mitigating uncertainty, through the rise of probability theory in the 1600s, to modern regulatory frameworks. The timeline highlights four key dimensions: advancements in theory, actions to mitigate risk, shocks that raised awareness, and the growth of regulation. By understanding this big picture, FRM Part I candidates can better appreciate how risk management is both an old craft and a young science—and why today’s profession continues to evolve in response to global events and regulatory changes. This video is part of a full FRM preparation series designed to provide clear explanations of core concepts tested in the FRM exam.

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