Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM)
After completing this reading, you should be able to: Explain modern portfolio theory and interpret the Markowitz efficient frontier. Understand the derivation and components of the CAPM. Describe the assumptions underlying the CAPM. Interpret and compare the capital market line…
GARP Code of Conduct
After completing this reading, you should be able to: Describe the responsibility of each GARP Member concerning professional integrity, ethical conduct, conflicts of interest, the confidentiality of information, and adherence to generally accepted practices in risk management. Describe the potential…
Introduction to Derivatives
After completing this reading, you should be able to: Define derivatives, describe the features and uses of derivatives, and compare linear and non-linear derivatives. Describe the specifics of exchange-traded and over-the-counter markets, and evaluate the advantages and disadvantages of each….
Liquidity Risk
After completing this reading, you should be in a position to: Explain and calculate liquidity trading risk via the cost of liquidation and liquidity-adjusted VaR (LVaR). Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock,…
Learning From Financial Disasters
After completing this reading, you should be able to: Analyze the key factors that led to and derive the lessons learned from case studies involving the following risk factors: Interest rate risk, including the 1980s savings and loan crisis in…
Factor Theory
After completing this reading, you should be able to: Give examples of factors that impact asset prices and describe the theory of factor risk premiums. Discuss the capital asset pricing model (CAPM), its assumptions, and how factor risk is addressed in…
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…
The Failure Mechanics of Dealer Banks
After completing this reading, you should be able to: Compare and contrast the main lines of business in which dealer banks operate and the risk factors they encounter in each of the lines. Identify circumstances that can cause a liquidity…
Futures Markets
After completing this reading, you should be able to: Define and describe the key features and specifications of a futures contract, including the underlying asset, the contract price and size, trading volume, open interest, delivery, and limits. Explain the convergence…
Central Clearing
After completing this reading, you should be able to: Provide examples of the mechanics of a central counterparty (CCP). Describe the role of CCPs and distinguish between bilateral and centralized clearing. Describe the advantages and disadvantages of the central clearing…
