Case Study: Cyberthreats and Information Security Risk
After completing this reading, you should be able to: Provide examples of cyber threats and information security risks and describe frameworks and best practices for managing cyber risks. Describe lessons learned from the Equifax case study. Examples of Cyber Threats…
Integrated Risk Management
After completing this reading, you should be able to: Describe the role of risk governance, risk appetite, and risk culture in the context of an enterprise risk management (ERM) framework. Summarize the role of Basel regulatory capital and the process…
Introduction to Operational Risk and Resilience
After completing this reading, you should be able to: Describe an operational risk management framework and assess the types of risks that can fall within the scope of such a framework. Describe the seven Basel II event risk categories…
The Blockchain Revolution: Decoding Digital Currencies
After completing this reading, you should be able to: Explain how a blockchain-based cryptocurrency system works and compare cryptocurrencies to conventional money and payment systems. Describe elements of a decentralized finance structure, including smart contracts, tokenized assets, decentralized autonomous organizations,…
The Future Monetary System
After completing this reading, you should be able to: Identify and describe the benefits and limitations of crypto and decentralized finance (DeFi) innovations. Describe the role of stablecoins in DeFi ecosystems and differentiate among the types of stablecoins. Discuss possible…
Heuristic and other Approaches to Asset Allocation
Heuristics, also known as rules of thumb, are simplistic and generic rules that investors use to satisfice. Satisficing, as covered in the behavioral economics section, reflects an attempt to reach a satisfactory economic decision at the expense of an optimal…
Factors Affecting Rebalancing Policy
In rebalancing, securities within a portfolio are adjusted based on their relative weights. Disciplined rebalancing tends to reduce risk while incrementally adding to returns. Interpretations of this empirical finding include the following: Rebalancing earns a diversification return, in that rebalancing…
Absolute and Relative Risk Budgets
Risk budgeting is a means of making optimal use of risk to pursue return. A risk budget is optimal when the ratio of excess return to marginal contribution to total risk (MCTR) is the same for all assets in the…
Asset Allocation Relative to an Investor’s Economic Balance Sheet
An economic balance sheet differs from a traditional balance sheet as it includes tradable financial assets and non-tradable extended assets and liabilities. Extended assets often include the relatively large values of residential real estate and the present value of human…
Mean-Variance Optimization – an Overview
Mean-variance optimization (“MVO”) forms the foundation for most modern asset allocation methods. MVO works by shifting the weights of asset classes within a portfolio until an optimal mix is found. An optimal mix is found when the portfolio has the…
