Counterparty Risk and Beyond
After completing this reading, you should be able to: Describe counterparty risk and differentiate it from lending risk. Describe transactions that carry counterparty risk and explain how counterparty risk can arise in each transaction. Identify and describe institutions that…
Illiquid Assets
After completing this reading, you should be able to: Explain the essential features of illiquid markets. Explain the effects of market imperfections on illiquidity. Assess the effects of biases on the reported illiquid asset returns. Explain the Geltner-Ross-Zisler unsmoothing process…
Financial Correlation Modeling – Bottom-Up Approaches
After completing this reading, you should be able to: Explain the purpose of copula functions and the translation of the copula equation. Describe the Gaussian copula and explain how to use it to derive the joint probability of default of…
Empirical Properties of Correlation: Behaviors of Correlation in the Real World
After completing this reading, you should be able to: Describe how equity correlations and correlation volatilities behave throughout various economic states. Calculate a mean reversion rate using standard regression and calculate the corresponding autocorrelation. Identify the best-fit distribution for equity,…
The Credit Decision
After completing this reading, you should be able to: Define credit risk and use examples to explain how it arises. Explain the components of credit risk evaluation. Describe, compare, and contrast various credit risk mitigants and their role in credit…
Fundamental Review of the Trading Book (FRTB)
After completing this reading, you should be able to: Describe the changes to the Basel framework for calculating market risk capital under the Fundamental Review of the Trading Book (FRTB) and the motivations for these changes. Compare the various liquidity…
Netting, Close-out and Related Aspects
After completing this reading, you should be able to: Explain the purpose of an ISDA master agreement. Summarize netting and close-out procedures (including multilateral netting), explain their advantages and disadvantages, and describe how they fit into the framework of the…
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…
Margin (Collateral) and Settlement
After completing this reading, you should be able to: Describe the rationale for collateral management. Describe the terms of a collateral and features of a credit support annex (CSA) within the ISDA Master Agreement including threshold, initial margin, minimum transfer…
Exchanges and OTC Markets
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…
