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PRMIA PRM 8007

8007

Exam Code: 8007

Exam Name: Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition

Updated: Aug 05, 2026

Q&A Number: 133 Q&As

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PRMIA 8007 Exam Syllabus Topics:

SectionWeightObjectives
Topic 1: Probability Theory25%- Basic probability concepts
  • 1. Conditional probability and independence
    • 2. Axioms and rules
      - Random variables and distributions
      • 1. Expected value, variance, covariance
        • 2. Discrete and continuous distributions
          Topic 2: Numerical Methods & Financial Mathematics15%- Root finding and approximation
          - Basics of risk modeling
          - Time value of money
          Topic 3: Calculus and Functions20%- Multivariable calculus
          • 1. Optimization
            • 2. Partial derivatives
              - Single-variable calculus
              • 1. Integrals and applications
                • 2. Derivatives and applications
                  • 3. Limits and continuity
                    Topic 4: Linear Algebra and Matrix Theory20%- Vectors and eigenvalues
                    • 1. Eigenvalues and eigenvectors
                      • 2. Diagonalization
                        - Matrix operations
                        • 1. Addition, multiplication, inversion
                          • 2. Determinants and trace
                            Topic 5: Statistics and Regression Analysis20%- Linear regression
                            • 1. Hypothesis testing and confidence intervals
                              • 2. Simple and multiple regression
                                - Descriptive statistics
                                • 1. Correlation and covariance
                                  • 2. Measures of location and dispersion

                                    PRMIA Exam II: Mathematical Foundations of Risk Measurement - 2015 Edition Sample Questions:

                                    1. If the annual volatility of returns is 25% what is the variance of the quarterly returns?

                                    A) None of the above
                                    B) 0.0625
                                    C) 0.0156
                                    D) 0.1250


                                    2. A quadratic form is

                                    A) defined as a positive definite Hessian matrix.
                                    B) an algebraic expression in two variables, x and y, involving , and terms.
                                    C) an algebraic expression in two variables, x and y, involving , , and terms.
                                    D) a specific solution of the Black-Scholes pricing formula


                                    3. In a quadratic Taylor approximation, a function is approximated by:

                                    A) a cubic polynomial
                                    B) a straight line
                                    C) a parabola
                                    D) a constant


                                    4. Consider a binomial lattice where a security price S moves up by a factor u with probability p, or down by a factor d with probability 1 - p. If we set d > 1/u then which of the following will be TRUE?

                                    A) None of the above
                                    B) There will always be a downward drift in the lattice
                                    C) The lattice will not recombine
                                    D) The probability of an up move will not be constant


                                    5. The Newton-Raphson method

                                    A) is based on Taylor series and uses the first derivative
                                    B) does provide an error bound along with every iteration
                                    C) can be used for continuous but not differentiable functions
                                    D) is based on finding a middle point between left and right end of the search interval


                                    Solutions:

                                    Question # 1
                                    Answer: C
                                    Question # 2
                                    Answer: B
                                    Question # 3
                                    Answer: C
                                    Question # 4
                                    Answer: A
                                    Question # 5
                                    Answer: A

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