Spread Risk and Default Intensity Models
After completing this reading, you should be able to: Compare the different ways of representing credit spreads. Compute one credit spread, given others when possible. Define and compute the Spread ‘01. Explain how default risk for a single company can…
Counterparty Risk Intermediation
After completing this reading, you should be able to: Identify counterparty risk intermediaries, including central counterparties (CCPs), derivative product companies (DPCs), special purpose vehicles (SPVs), and monoline insurance companies (monolines) and describe their roles. Describe the risk management process of…
Interest Rate Futures
After completing this reading, you should be able to: Identify the most commonly used day count conventions, describe the markets that each one is typically used in, and apply each to an interest calculation. Calculate the conversion of a discount…
Calculating and Applying VaR
After completing this reading, you should be able to: Explain and give examples of linear and non-linear portfolios. Describe and explain the historical simulation approach for computing VaR and ES. Describe the delta-normal approach and use it to calculate VaR…
CVA (Part A)
After completing this reading, you should be able to: Explain the motivation for and the challenges of pricing counterparty risk. Describe credit value adjustment (CVA). Calculate CVA and the CVA spread with no wrong-way risk, netting, or collateralization. Evaluate the…
Basel II.5, Basel III, and Other Post-crisis Changes
In this chapter, we begin by discussing what Basel II.5 is all about. This is a collection of changes to the Market risk capital computation put in place by the Basel Committee due to the large losses banks experienced during…
Exotic Options
After completing this reading, you should be able to: Define and contrast exotic derivatives and plain vanilla derivatives. Describe some of the factors that drive the development of exotic products. Explain how any derivative can be converted into a zero-cost…
External Loss Data
External loss data is used in the operational risk framework to provide input to any operational risk calculation and valuable insights into these different forms of the risks. This external data in the advanced measurement approach (AMA) capital calculation is…
Credit Risks and Credit Derivatives
After completing this reading, you should be able to: Use the Merton model to calculate the value of a firm’s debt and equity and the volatility of firm value. Explain the relationship between credit spreads, time to maturity, and interest…
Repurchase Agreements and Financing
After completing this reading, you should be able to: Describe the mechanics of repurchase agreements (repos) and calculate the settlement for a repo transaction. Discuss common motivations for entering into repos, including their use in cash management and liquidity management….
