Counterparty Risk

After completing this reading you should be able to: Describe counterparty risk and differentiate it from lending risk. Describe transactions that carry counterparty risk and explain how counterparty risk can arise in each transaction. Identify and describe institutions that take…

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Risk Monitoring and Performance Measurement

After completing this reading, you should be able to: Define, compare, and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects, and the participants in its development. Describe risk budgeting and the role of…

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The Credit Decision

After completing this reading you should be able to: Define credit risk and explain how it arises using examples. Explain the components of credit risk evaluation. Describe, compare and contrast various credit risk mitigants and their role in credit analysis….

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Regression with a Single Regressor – Hypothesis Tests and Confidence Intervals

After completing this reading you should be able to: Calculate and interpret confidence intervals for regression coefficients. Interpret the \(p-value\). Interpret hypothesis tests about regression coefficients. Evaluate the implications of homoskedasticity and heteroskedasticity. Determine the conditions under which the OLS…

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Properties of Options

After completing this reading, you should be able to: Identify the six factors that affect an option’s price. Identify and compute upper and lower bounds for option prices on non-dividend and dividend paying stocks. Explain put-call parity and apply it…

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Bayesian Analysis

After completing this reading you should be able to: Describe Bayes’ theorem and apply this theorem in the calculation of conditional probabilities. Compare the Bayesian approach to the frequentist approach. Apply Bayes’ theorem to scenarios with more than two possible…

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Linear Regression

After completing this reading, you should be able to: Describe the models that can be estimated using linear regression and differentiate them from those which cannot. Interpret the results of an OLS regression with a single explanatory variable. Describe the…

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Validating Rating Models

After completing this reading you should be able to: Explain the process of model validation and describe best practices for the roles of internal organizational units in the validation process. Compare qualitative and quantitative processes to validate internal ratings and…

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Default Probability, Credit Spreads and Funding Costs

For credit valuation adjustments (CVA) and debt valuation adjustments (DVA) in the qualification of counterparty risk to be defined comprehensively, default probability and recovery rates associated with those are required. Relevant funding costs that are required when a position is…

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Country Risk: Determinants, Measures, and Implications

After completing this reading you should be able to: Identify sources of country risk. Explain how a country’s position in the economic growth life cycle, political risk, legal risk, and economic structure affect its risk exposure. Evaluate composite measures of…

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