Name: Michael Nasatka, FRM

City: Jersey City

Current Job: VP, FRM Program, Global Association of Risk Professionals (GARP)

GARP Individual Member Since: 2008

Michael Nastka: After setting out to major in computer science as an undergrad at Cornell University, I decided that I did not want my day-to-day to revolve around coding. Being uncertain about what I wanted to specialize in, I decided to pursue what I thought to be a more generic engineering field in operations research and industrial engineering. I'm happy that I chose this area of study, for it opened me to a lot of possible career possibilities, one of which was risk management. Looking back, I realize that my course selection covered a number of topics on the FRM Exam today. With a few sophisticated courses in statistics and finance, one can have a decent foundation from which to start preparing for the exam.

Along with my engineering degree, I also decided to pursue a second degree in economics. While I'm not sure if having another Bachelor's has substantially increased my resume's attractiveness, I do believe that having the economics mindset has served as a useful complement to my engineering degree. Understanding the bigger picture concerning the economy and stock market can be invaluable to a quantitative-oriented practitioner -- not to mention, it obviously can help you pass the "what's in the news?" question on your job interview, give you something different (besides the chi-squared distribution) to chat about at a GARP Chapter Meeting, or even serve as an ice-breaker with your nerdy date.

MN: I wish I had known that there are so many ways to pursue a career in financial risk management. It doesn't have to be just tweaking risk models and running VaR reports.

I started out as a business analyst in technology consulting at Accenture creating business requirements and performing testing for trading systems at large banks, then transitioned to other consulting roles where I specialized in regulatory and risk reporting. When consulting lost its appeal, I decided to obtain the FRM Certification and then get my Masters of Science in Entrepreneurship. Now, as a research team member for the FRM Program at GARP, I am devising material for FRM candidates.

While I work in the professional education industry and do not manage risk per se, I consider myself a risk management specialist. The work I do enables risk practitioners to develop new knowledge and best practices. If I had known there were so many options when considering a career risk management, I might have opted for the FRM Certification sooner.

MN: Unfortunately, there is no "magic bullet" or "secret sauce" for success. I think the best approach to passing the exam is the old-fashioned one (and the one I used): hard work and sticking to a study plan. Cramming all of your studying into the month before the exam will definitely be stressful, and may not bring the desired outcome.

To assist candidates in their preparation, GARP has this year created an FRM Exam Preparation Handbook to aid in the formulation of individualized study plans. Part of developing and implementing a successful study plan is focusing on the important things. For this, I highly recommend that candidates read both the Study Guide and the AIM Statements to better understand the knowledge the exam tests, and to get insights into the exam's approach to certain subject areas.

For example, the Basel-related documents are quite extensive and number in the hundreds of pages, with a great deal of detail. To give some guidance as to how to approach these readings, the Study Guide and AIM Statement state: "Candidates are expected to understand the objective and general structure of the Basel II and Basel III Accords and general application of the various approaches for calculating minimum capital requirements. Candidates are not expected to memorize specific details like risk weights for different assets." If you hadn't read this caveat, your approach to studying this section might be sub-optimal.

Another suggestion, although it might seem obvious, is to solve problems. The FRM Practice Exams that GARP makes available to candidates should be of significant value in this regard, as they comprise actual FRM questions from past exams. As another bonus, GARP's FRM Part I Books now have sample questions at the end of each section. These new tools should be of great benefit to candidates looking for that extra boost.

MN: That risk management is not just about what is in the numbers, now more than ever. Understanding people and processes is critical to many areas of risk -- a risk manager with a critical eye and questioning mindset might be more valuable than the top scholar in many senior management positions. In recent rogue trading incidents, risk managers failed in their due diligence. Here's an interesting question to ask yourself: If you had been a bystander to the rogue trading, would you have been in a position to catch it?

MN: Students can prepare to be better risk managers by trying to round themselves out with soft skills like leadership and communication. One way to do this is by discussing risk management case studies like those in the FRM curriculum. Many MBA programs use the case study approach to learning, but a lot of students do not see a case study before a Masters degree. I, for one, would have benefitted greatly from learning how to investigate a case study and communicate the facets of a case at a much earlier stage.

MN: I am particularly fond of the Part I questions on the GARP Code of Conduct. For an exam taker, these questions may be a bit tricky, just as decisions for a risk manager can be. The ethics of the risk management profession are still being solidified and are constantly evolving in my opinion -- a lot of gray areas remain.

The recent changes in compensation practices, for example, reflect the evolution of ethics. Morals and values still guide a lot of risk management practices, and these tend to vary among professionals. I find it interesting to look at the interplay of these rules of behavior and their importance to the profession. Ethics and culture will be more highly emphasized in the risk profession going forward, and the GARP Code of Conduct will be a part of that future.

MN: One might think of behavioral finance as the final frontier of risk management. Risk practice has only begun to be influenced by its "younger cousin" field -- though modern risk management is also rather young.

I became interested in behavioral finance when I read the new short e-book, "How to Be a Rogue Trader," by John Gapper. (Disclaimer: I do not have any intention of going rogue one day.) He explains the psychological make-up of rogue traders by comparing them to junco sparrows, placing much of the blame for rogue action on natural instinct. Interestingly enough, it made sense. By being able to better understand risk-taking behavior, maybe rogue trading, certain types of crashes, fraud, etc., could become predictable. And with that, risk management could become more of a science than an art, as it might be seen today.