Skewness

A measure of the asymmetry of a distribution. Negative skewness means a longer tail of large losses than of gains.

Where you will meet it

Skewness comes up in 28 learning outcome notes across the FRM syllabus. A few of them:

• Fund Management
  FRM Part I · Financial markets and products

  “Hedge fund returns are more varied and often show negative skew, fat tails and serial correlation.”

• Random Variables
  FRM Part I · Quantitative analysis

  “Skewness is the standardised third central moment: Skewness = E((X − μ)³) ÷ σ³.”

• Measures of Financial Risk
  FRM Part I · Valuation and risk models

  “The normal distribution is symmetric, with skewness 0 and kurtosis 3, and is fully described by its mean and variance.”

• Capital Structure in Banks
  FRM Part II · Credit risk measurement and management

  “The exam point: skewness makes normal-based multiples of UL understate capital.”

All terms beginning with S · FRM glossary

GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.