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A risk is a form of uncertainty that represents the ‘shadow price’ behind expected profits. The presence of the cost-benefit process is assured in the event that someone is willing to incur losses just to generate profits. For a return…

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….

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…

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…

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…

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…

By the end of the chapter, the candidate should be able to give an explanation of the model validation process. The procedures for the roles of internal organizational units in the process of validation should be well described by the…

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…

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…

After completing this reading you should be able to: Describe common types of structured products. Describe tranching and the distribution of credit losses in a securitization. Describe a waterfall structure in a securitization. Identify the key participants in the securitization…