Structured Credit Risk

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…

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Parametric Approaches (II): Extreme Value

After completing this reading, you should be able to: Explain the importance and challenges of extreme values in risk management. Describe extreme value theory (EVT) and its use in risk management. Describe the peaks-over-threshold (POT) approach. Compare and contrast generalized…

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Commodity Forwards and Futures

After completing this reading, you should be able to: Explain the key differences between commodities and financial assets. Define and apply commodity concepts such as storage costs, carry markets, lease rate and convenience yield. Identify factors that impact prices on…

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Common Univariate Random Variables

After completing this reading, you should be able to: Distinguish the key properties among the following distributions: uniform distribution, Bernoulli distribution, Binomial distribution, Poisson distribution, normal distribution, lognormal distribution, Chi-squared distribution, Student’s t, and F-distributions, and identify common occurrences of…

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Range of Practices and Issues in Economic Capital Frameworks

There are methods and practices that allow banks to assess risks effectively and to cover for the economic effects associated with risk-taking. These methods can be referred to as Economic Capital. In this chapter, the importance of understanding the relationship…

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Model Risk

The objective of this chapter is to identify and explain modeling assumption errors through which model risk can be introduced. The arising of model risk in a model’s implementation will be studied. Furthermore, in risk mitigation, risk managers can apply…

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The Evolution of Stress Testing Counterparty Exposure

After completing this reading you should be able to: Differentiate among current exposure, peak exposure, expected exposure and expected positive exposure. Explain the treatment of counterparty credit risk (CCR) both as a credit risk and as a market risk and…

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The Art of Term Structure Models: Drift

After completing this reading you should be able to: Construct and describe the effectiveness of a short-term interest rate tree assuming normally distributed rates, both with and without drift. Calculate the short-term rate change and standard deviation of the rate…

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An Introduction to Securitization

After completing this reading, you should be able to: Define securitization, describe the securitization process and explain the role of participants in the process. Explain the terms over-collateralization, first-loss piece, equity piece and cash waterfall within the securitization process. Analyze…

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Enterprise Risk Management: Theory and Practice

After completing this reading you should be able to: Define enterprise risk management (ERM) and explain how implementing ERM practices and policies can create shareholder value, both at the macro and the micro level. Explain how a company can determine…

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