Credit Scoring and Retail Credit Risk Management
After completing this reading, you should be able to: Analyze the credit risks and other risks generated by retail banking. Explain the differences between retail credit risk and corporate credit risk. Discuss the “dark side” of retail credit risk and…
Pricing Financial Forwards and Futures
After completing this reading, you should be able to: Define and describe financial assets. Define short-selling and calculate the net profit of a short sale of a dividend-paying stock. Describe the differences between forward and futures contracts and explain the…
Risk Management, Governance, Culture, and Risk taking in Banks
After completing this reading, you should be able to: Assess methods that banks can use to determine their optimal level of risk exposure, and explain how the optimal level of risk can differ across banks. Describe implications for a bank…
Risk Management Failures – What Are They and When Do They Happen?
After completing this reading, you should be able to: Explain how a large financial loss may not necessarily be evidence of a risk management failure. Analyze and identify instances of risk management failure. Explain how risk management failures can arise…
Applying the CAPM to Performance Measurement
After completing this reading, you should be able to: Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen’s alpha. Compute and interpret tracking error, the information ratio, and the Sortino ratio. Exam tip: Be sure to understand…
Principles for the Sound Management of Operational Risk
After completing this reading you should be able to: Describe the three “lines of defense” in the Basel model for operational risk governance. Summarize the fundamental principles of operational risk management as suggested by the Basel Committee. Explain guidelines for…
Assessing the Quality of Risk Measures
After completing this reading, you should be able to: Describe ways that errors can be introduced into models. Explain how model risk and variability can arise through the implementation of VaR models and the mapping of risk factors to portfolio…
Messages from the Academic Literature on Risk Management for the Trading Book
After completing this reading, you should be able to: Explain the following lessons on VaR implementation: time horizon over which VaR is estimated, the recognition of time-varying volatility in VaR risk factors, and VaR backtesting. Describe exogenous and endogenous liquidity…
Deciphering the Liquidity and Credit Crunch 2007-2008
After completing this reading, you should be able to: Describe the key factors that contributed to the lending boom housing frenzy. Explain the banking industry trends leading up to the financial crisis and assess the triggers for the liquidity crisis….
Volatility Smiles
After completing this reading, you should be able to: Define volatility smile and volatility skew. Explain the implications of put-call parity on the implied volatility of call and put options. Compare the shape of the volatility smile (or skew) to…
