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Which of the following BEST describes the difference between PV01 and DV01?

PV01 measures the change in present value for a 1 basis point parallel shift in the yield curve, while DV01 is the dollar value of a 1 basis point change — in practice the two terms are used interchangeably

PV01 is the price for a 1% move; DV01 is the price for a 1bp move

PV01 is used only for equities; DV01 is used only for bonds

PV01 is forward-looking; DV01 is backward-looking

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2026 Statistics

Key Facts: MLARM Exam

100 Qs

Exam Questions

PRMIA

3 hrs

Exam Time

PRMIA Pearson VUE

60%

Passing Score (scaled)

PRMIA

~$925

Exam Fee

PRMIA (member discount)

97.5%

ES Confidence under FRTB IMA

BCBS d457

15%

IRRBB SOT (ΔEVE / Tier 1)

BCBS 368

The PRMIA MLARM Certificate is a 100-question, 3-hour CBT exam delivered via Pearson VUE, with a passing standard around 60% (scaled) and a fee of approximately $925 (PRMIA member discount available; sustaining members get eCoach included). It is a stand-alone certificate covering market risk concepts (PV01/DV01, key rate duration, convexity, Greeks, VaR, 97.5% ES, FRTB IMA/SA), IRRBB under BCBS 368 (six standardised shocks, ΔEVE, ΔNII, 15% Tier 1 SOT), ALM frameworks (duration gap, income simulation, EVE simulation, behavioural NMD/prepayment assumptions), liquidity risk (LCR, NSFR, intraday, CFP), FTP (matched-maturity, term and contingent liquidity premiums), stress testing (CCAR/DFAST, reverse stress) and Basel III/IV implementation. Risk/treasury/ALM background is recommended.

Sample MLARM Practice Questions

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1Which of the following BEST describes the difference between PV01 and DV01?

A.PV01 measures the change in present value for a 1 basis point parallel shift in the yield curve, while DV01 is the dollar value of a 1 basis point change — in practice the two terms are used interchangeably

B.PV01 is the price for a 1% move; DV01 is the price for a 1bp move

C.PV01 is used only for equities; DV01 is used only for bonds

D.PV01 is forward-looking; DV01 is backward-looking

Explanation: PV01 (price value of a basis point) and DV01 (dollar value of a basis point) both measure the change in the present value of a fixed-income position for a 1 basis point parallel shift in the yield curve. Most practitioners use the two terms interchangeably; they are first-order linear sensitivities equal to roughly modified duration multiplied by price multiplied by 0.0001.

2A bond has modified duration of 6.0 and a price of $100. What is the approximate DV01?

A.$0.06

B.$0.60

C.$6.00

D.$60.00

Explanation: DV01 ≈ Modified Duration × Price × 0.0001 = 6.0 × 100 × 0.0001 = $0.06. This is the approximate change in price for a 1 basis point parallel move in yields. It is a first-order linear measure that ignores convexity, which becomes material for large rate shocks.

3Why is key rate duration (KRD) preferred over a single modified duration measure for managing a non-parallel yield curve risk?

A.KRD captures the bond's sensitivity to changes at specific maturity points (e.g. 2y, 5y, 10y, 30y), allowing the manager to hedge twists and butterflies that a single duration cannot

B.KRD is always smaller than modified duration

C.KRD ignores convexity entirely

D.KRD applies only to floating-rate notes

Explanation: Key rate (or partial) duration measures a portfolio's sensitivity to a 1bp shift at a specific point on the yield curve while holding other points constant. The vector of KRDs across standard tenors lets risk managers identify and hedge non-parallel curve risks — steepeners, flatteners and butterfly twists — that a single aggregate duration cannot reveal.

4Convexity adjustment to a duration-based price estimate is BEST described as:

A.A second-order term that adds approximately 0.5 × Convexity × (Δy)² × Price to the linear duration estimate

B.A first-order term identical to duration

C.An adjustment relevant only to options, not bonds

D.A linear adjustment that subtracts duration from price

Explanation: The full price change is approximately ΔP ≈ −Modified Duration × Δy × P + 0.5 × Convexity × (Δy)² × P. The convexity term is positive for plain bonds, meaning duration alone underestimates gains from rate falls and overestimates losses from rate rises. Convexity becomes material for rate shocks larger than ~25–50 bps.

5Which option Greek measures the rate of change of delta with respect to the underlying price?

A.Vega

B.Theta

C.Gamma

D.Rho

Explanation: Gamma (Γ) is the second derivative of option value with respect to the underlying price, equivalently the first derivative of delta. High gamma means delta changes rapidly, requiring more frequent rebalancing of a delta-hedged book. Gamma is largest for at-the-money options near expiry.

6An options book is delta-neutral but has large positive gamma. Which of the following best describes its risk profile?

A.It is fully hedged against any market move

B.It loses money in a stable market (negative theta) but profits from large moves in either direction

C.It profits from a stable market and loses from large moves

D.It has no exposure to volatility

Explanation: A long-gamma, delta-neutral book benefits from large underlying moves — gamma scalping captures convexity as delta becomes positive on rallies and negative on selloffs. The cost is negative theta: the option time value decays each day in a calm market. Long gamma and short theta are two sides of the same coin.

7Vega measures the change in option value for which of the following?

A.A 1% (100bp) change in interest rates

B.A 1 percentage point (1 vol point) change in implied volatility

C.A 1-day passage of time

D.A 1% change in the underlying price

Explanation: Vega is the sensitivity of an option's value to a 1 percentage point (i.e. 1 vol point, or 0.01 in decimal form) change in implied volatility. Vega is largest for at-the-money options with longer time to expiry. Note that vega is not technically a Greek letter but is universally used in the options market.

8Which of the following is the formula for parametric (variance-covariance) 1-day VaR at 99% confidence for a single position?

A.VaR = 1.645 × σ × Position

B.VaR = 2.326 × σ × Position

C.VaR = 1.96 × σ × Position

D.VaR = 3.090 × σ × Position

Explanation: Under the variance-covariance method assuming normality, 99% one-tailed VaR uses the standard-normal z-score 2.326. For 95% it is 1.645 and for 97.5% it is 1.960. The formula is VaR = z × σ × Position value, where σ is the position's daily return volatility in dollar terms.

9Under the parametric VaR approach, scaling a 1-day VaR to a 10-day horizon is done using:

A.Multiplying by 10

B.Multiplying by sqrt(10) (square-root-of-time rule)

C.Multiplying by ln(10)

D.Multiplying by 1.96

Explanation: The square-root-of-time rule scales VaR by sqrt(T) when returns are assumed to be independent and identically distributed (i.i.d.) and normally distributed with zero drift. So 10-day VaR = 1-day VaR × sqrt(10) ≈ 1-day VaR × 3.162. The rule breaks down when returns are autocorrelated, mean-reverting or fat-tailed.

10Which of the following is a key LIMITATION of the square-root-of-time rule for scaling VaR?

A.It cannot be applied to portfolios containing more than one asset

B.It assumes returns are i.i.d. with zero drift; in practice returns exhibit autocorrelation, mean reversion, and volatility clustering

C.It is only valid for credit risk, not market risk

D.It requires Monte Carlo simulation

Explanation: The sqrt(T) rule assumes returns are independent, identically distributed, normally distributed and have zero drift. In real markets, returns show volatility clustering (GARCH effects), mean reversion in rates, autocorrelation in some assets, and fat tails — all of which can make sqrt(T) under- or over-estimate true risk. FRTB Liquidity Horizons (vs simple 10-day scaling) were partly designed to address this.

About the MLARM Exam

The PRMIA Market, Liquidity and Asset Liability Management Risk Management (MLARM) Certificate is a stand-alone PRMIA credential for treasury, ALM, market-risk and liquidity-risk professionals. It tests sensitivities and Greeks, parametric/historical/Monte Carlo VaR and 97.5% Expected Shortfall under FRTB, IRRBB under BCBS 368 (six standardised shocks, ΔEVE, ΔNII, 15% Tier 1 SOT), ALM frameworks (duration gap, income simulation, EVE simulation, behavioural assumptions for NMDs and prepayments), liquidity risk (LCR ≥100% with HQLA Levels 1/2A/2B, NSFR ≥100%, intraday liquidity per BCBS 248, contingency funding plans), Funds Transfer Pricing (matched-maturity FTP, term and contingent liquidity premiums), stress testing and scenario analysis (idiosyncratic, market-wide, combined, reverse, CCAR/DFAST), and the regulatory framework (Basel III/IV, FRTB IMA/SA, output floor).

Questions

100 scored questions

Time Limit

3 hours (CBT)

Passing Score

60% scaled

Exam Fee

~$925 (PRMIA member discount) (PRMIA)

MLARM Exam Content Outline

25%

Market Risk Concepts

Sensitivities (PV01/DV01, key rate duration, convexity), Greeks (delta, gamma, vega, theta, rho), parametric / historical / Monte Carlo VaR, 97.5% Expected Shortfall, sqrt(t) scaling, backtesting (Kupiec POF, Christoffersen, traffic light)

15%

Interest Rate Risk in the Banking Book (IRRBB)

BCBS 368 framework, six standardised shock scenarios (parallel up/down, short up/down, steepener, flattener), ΔEVE vs ΔNII, 15% Tier 1 supervisory outlier test, basis and optionality risk, NMD behavioural modelling, CSRBB

20%

ALM Frameworks

Duration gap = DA × A − DL × L, duration of equity, repricing gap, income simulation (deterministic and stochastic), EVE simulation, behavioural assumptions, ALCO governance, hedge accounting under IFRS 9 / ASC 815

15%

Liquidity Risk Management

LCR ≥ 100% with HQLA Levels 1, 2A (15% haircut) and 2B (25–50% haircut); NSFR ≥ 100% with ASF/RSF factors; intraday liquidity (BCBS 248); contingency funding plans; survival horizon; asset encumbrance; market vs funding liquidity; SVB 2023 lessons

10%

Funds Transfer Pricing (FTP)

Matched-maturity FTP, term and contingent liquidity premiums, behavioural pricing for NMDs, two-way (symmetric) FTP, BCBS 144 Principle 4, central treasury margin, LCR/NSFR cost integration

10%

Stress Testing & Scenario Analysis

Idiosyncratic, market-wide and combined scenarios; reverse stress testing; CCAR/DFAST; EBA EU-wide stress test (dynamic balance sheet from 2025); ICAAP / ILAAP; BCBS d563 governance; counterbalancing capacity; sensitivity vs scenario analysis

Regulatory Framework (Basel III/IV, FRTB)

Basel III final reforms (CRR3 from 1 January 2025; US Basel III Endgame 2024 re-proposal phasing to 2028); 72.5% output floor; FRTB SBM + DRC + RRAO under SA, ES + SES (NMRF) + DRC under IMA; FRTB liquidity horizons (10–120 days); P&L Attribution test; trading/banking book boundary

How to Pass the MLARM Exam

What You Need to Know

Passing score: 60% scaled
Exam length: 100 questions
Time limit: 3 hours (CBT)
Exam fee: ~$925 (PRMIA member discount)

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

MLARM Study Tips from Top Performers

1Memorise the six BCBS 368 IRRBB shock scenarios (parallel up/down, short up/down, steepener, flattener) and the 15% Tier 1 ΔEVE supervisory outlier test — these are the most heavily-tested IRRBB facts

2Drill the FRTB stack cold: SA = SBM (delta + vega + curvature across 7 risk classes) + DRC + RRAO; IMA = 97.5% ES (with liquidity horizons 10–120 days) + SES (for NMRFs failing the RFET) + DRC, with PLA testing at desk level

3Know LCR mechanics: HQLA / Net Cash Outflows over 30 days ≥ 100%; Level 1 (0% haircut, uncapped), Level 2A (15% haircut, combined cap 40%), Level 2B (25–50% haircut, sub-cap 15%); deposit run-offs 3–5% stable retail, 10% less stable, 25% operational, 40% non-financial wholesale, 100% FI

4Master NSFR: ASF / RSF ≥ 100% over 1-year horizon; ASF factors run capital 100%, retail 90–95%, non-financial < 6m up to 50%, FI < 6m 0%

5Be ready to discuss the SVB March 2023 lessons: duration mismatch + concentrated uninsured deposits + HTM unrealised losses + digital-run velocity overwhelmed LCR design assumptions

Frequently Asked Questions

What is the PRMIA MLARM Certificate?

The PRMIA Market, Liquidity and Asset Liability Management Risk Management (MLARM) Certificate is a stand-alone professional credential from PRMIA covering market risk, IRRBB, ALM, liquidity risk, FTP, stress testing and the Basel III/IV and FRTB regulatory frameworks. It is exam-only with no formal prerequisites and is widely recognised in bank treasury, ALM, liquidity-risk and market-risk roles globally.

What is the format of the MLARM exam?

MLARM is a 100-question multiple-choice exam delivered via Pearson VUE (test centre or online proctoring) over approximately 3 hours, with a passing standard around 60% (scaled). PRMIA Sustaining Members receive PRMIA's eCoach study tool included in their membership. The exam is offered globally on a flexible schedule throughout the year.

What does MLARM cover?

MLARM tests market risk concepts (PV01/DV01, key rate duration, convexity, Greeks, parametric/historical/Monte Carlo VaR, 97.5% Expected Shortfall under FRTB, backtesting); IRRBB under BCBS 368 (the six standardised shock scenarios, ΔEVE, ΔNII, 15% Tier 1 SOT, behavioural NMD modelling, CSRBB); ALM frameworks (duration gap, income simulation, EVE simulation); liquidity risk (LCR, NSFR, intraday per BCBS 248, CFP); FTP (matched-maturity, term and contingent liquidity premiums); stress testing (CCAR/DFAST, reverse stress); and regulatory framework (Basel III/IV, FRTB IMA/SA, output floor).

How does ΔEVE differ from ΔNII under IRRBB?

ΔEVE (Economic Value of Equity change) is a present-value, runoff-balance-sheet measure capturing the long-term economic impact of rate shocks across all interest-sensitive cash flows. ΔNII (Net Interest Income change) is an accrual measure projecting earnings over a 1–3 year horizon, typically with a constant or dynamic balance sheet. They can move in opposite directions and BCBS 368 requires both. The 15% Tier 1 supervisory outlier test (SOT) applies to ΔEVE under any of the six prescribed shock scenarios.

What replaced 99% VaR with 97.5% Expected Shortfall under FRTB?

FRTB (BCBS d457, finalised January 2019) replaced Basel 2.5's 99% VaR-based capital with 97.5% Expected Shortfall under the Internal Models Approach (IMA). ES is a coherent (sub-additive) risk measure that captures average loss in the tail beyond the threshold, addressing a weakness of VaR. Under a normal distribution 97.5% ES is approximately equal to 99% VaR (calibration choice), but ES is more responsive to fat-tail risk.

What is matched-maturity FTP and why does it matter?

Matched-maturity FTP charges (or credits) each balance-sheet item the wholesale funding rate corresponding to its expected maturity (or behavioural maturity for non-maturity products). This transfers interest-rate and liquidity risk from business lines to central treasury, leaving business units with credit and operating margin only. A well-designed FTP curve adds a term liquidity premium for tenor and a contingent liquidity premium for off-balance-sheet commitments. Misaligned FTP that under-prices long-dated lending was a contributing factor to the SVB-style duration mismatch that caused March 2023 failures.