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After completing this reading, you should be able to: Describe a one-factor interest rate model and identify common examples of interest rate factors. Define and compute the DV01 of fixed income security, given a change in yield and the resulting…

After completing this reading, you should be able to: Describe the rationale for the use of stress testing as a risk management tool. Identify key aspects of stress testing governance, including choice of scenarios, regulatory specifications, model building, stress-testing coverage,…

After completing this reading, you should be able to: Describe the mean-variance framework and an efficient frontier. Explain the limitations of the mean-variance framework with respect to assumptions about return distributions. Compare the normal distribution with the typical distribution of…

After completing this reading, you should be able to: Define discount factor and use a discount function to compute present and future values. Define the “law of one price,” explain it using an arbitrage argument, and describe how it can…

After completing this reading, you should be able to: Describe the types, positions variations, and typical underlying assets of options. Differentiate between the two types of options. Explain how a trader can make profits trading with options. Understand the concepts…

After completing this reading, you should be able to: Distinguish between gross, and net realized returns and calculate the realized return for a bond over a holding period, including reinvestments. Define and interpret the spread of a bond and explain…

After completing this reading you should be able to: Calculate the value of an American and a European call or put option using a one-step and two-step binomial model. Describe how volatility is captured in the binomial model. Describe how…

After completing this reading, you should be able to: Describe how exchanges can be used to alleviate counterparty risk. Explain the developments in clearing that reduce risk. Describe netting and describe a netting process. Describe the implementation of a margining…

After completing this reading, you should be able to: Calculate a financial institution’s overall foreign exchange exposure. Explain how a financial institution could alter its net position exposure to reduce foreign exchange risk. Calculate a financial institution’s potential dollar gain…

After completing this reading, you should be able to: Evaluate a bank’s economic capital relative to its level of credit risk. Explain the distinctions between economic capital and regulatory capital, and describe how economic capital is derived. Identify and describe…