VaR Mapping
After completing this reading, you should be able to: Explain the principles underlying VaR mapping, and describe the mapping process. Explain how the mapping process captures general and specific risks. Differentiate among the three methods of mapping portfolios of fixed…
Measures of Financial Risk
After completing this reading, you should be able to: Describe the mean-variance framework and an efficient frontier. Compare the normal distribution with the typical distribution of returns of risky financial assets such as equities. Define the VaR measure of risk,…
Risk Capital Attribution and Risk-adjusted Performance Measurement
After completing this reading, you should be able to: Define, compare, and contrast risk capital, economic capital, and regulatory capital, and explain methods and motivations for using economic capital approaches to allocate risk capital. Describe the RAROC (risk-adjusted return on…
Range of Practices and Issues in Economic Capital Frameworks
After completing this reading, you should be able to: Within the economic capital implementation framework, describe the challenges that appear in: Defining and calculating risk measures. Risk aggregation. Validation of models. Dependency modeling in credit risk. Evaluating counterparty credit risk….
Capital Planning at Large Bank Holding Companies – Supervisory Expectations and Range of Current Practice
After completing this reading, you should be able to: Describe the Federal Reserve’s Capital Plan Rule and explain the seven principles of an effective capital adequacy process for bank holding companies (BHCs) subject to the Capital Plan Rule. Describe practices…
Option Sensitivity Measures: The “Greeks”
After completing this reading you should be able to: Describe and assess the risks associated with naked and covered option positions. Describe the use of a stop-loss hedging strategy, including its advantages and disadvantages, and explain how this strategy can…
Sound Management of Risk Related to Money Laundering and Financing of Terrorism
After completing this reading, the candidate should be able to: Explain the best practices the Basel Committee recommends for the assessment, management, mitigation, and monitoring of money laundering and financing of terrorism (ML/FT) risks. Describe recommended practices for the acceptance,…
Common Behavioral Biases
Mnemonic Devices for Easy Recall Cognitive: The cognitive biases can be remembered with the following mnemonic device: Con-Con-Con-Rep-Hind + FAMA (think Fama and French). Emotional: The emotional biases can be remembered with the following mnemonic device: LESSOR (the owner of…
Stress Testing Banks
After completing this reading, you should be able to: Describe the historical evolution of the stress testing process and compare methodologies of historical EBA, CCAR, and SCAP stress tests. Explain challenges in designing stress test scenarios, including the problem of…
Applying Duration, Convexity, and DV01
p> 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 a fixed-income security given a change in rates and the…
