The normal distribution with a mean of zero and a standard deviation of one. Any normal variable can be converted to it by subtracting the mean and dividing by the standard deviation.
Where you will meet it
Standard normal distribution comes up in 25 learning outcome notes across the FRM syllabus.
A few of them:
Random Variables FRM Part I · Quantitative analysis
“Here z is the standard normal quantile at p, which is 1.645 at 95% and 2.326 at 99%, one-tailed.”
Measures of Financial Risk FRM Part I · Valuation and risk models
“Here φ(z) is the standard normal density at the VaR quantile z, and c is the confidence level.”
Estimating Default Probabilities FRM Part II · Credit risk measurement and management
“Under normality, the Merton default probability is then given by the standard normal cumulative distribution function: PD = N(−DD).”
Monitoring Liquidity FRM Part II · Liquidity and treasury risk measurement and management
“For normal flows, z is the standard normal value for that confidence level and σ is the standard deviation of net cash flow.”
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.