The Evolution of Stress Testing Counterparty Exposure
After completing this reading, you should be able to: Differentiate among current exposure, peak exposure, expected exposure, and expected positive exposure. Explain the treatment of counterparty credit risk (CCR) both as a credit risk and as a market risk and…
The Art of Term Structure Models: Drift
After completing this reading, you should be able to: Construct and describe the effectiveness of a short-term interest rate tree assuming normally distributed rates, both with and without drift. Calculate the short-term rate change and standard deviation of the rate…
An Introduction to Securitization
After completing this reading, you should be able to: Define securitization, describe the securitization process and explain the role of participants in the process. Explain the terms over-collateralization, first-loss piece, equity piece, and cash waterfall within the securitization process. Analyze…
Enterprise Risk Management: Theory and Practice
After completing this reading, you should be able to: Define enterprise risk management (ERM) and explain how implementing ERM practices and policies can create shareholder value, both at the macro and micro levels. Explain how a company can determine its…
VaR and Risk Budgeting in Investment Management
After completing this reading, you should be able to: Define risk budgeting. Describe the impact of horizon, turnover, and leverage on the risk management process in the investment management industry. Describe the investment process of large investors, such as pension…
Rating Assignment Methodologies
p> After completing this reading, you should be able to: Explain the key features of a good rating system. Describe the expert-based approaches, statistical-based models, and numerical approaches to predicting default. Describe a rating migration matrix and calculate the probability…
The Science of Term Structure Models
After completing this reading, you should be able to: Calculate the expected discounted value of a zero-coupon security using a binomial tree. Construct and apply an arbitrage argument to price a call option on a zero-coupon security using replicating portfolios….
CVA (Part B – Wrong-way Risk)
After completing this reading, you should be able to: Describe wrong-way risk and contrast it with right-way risk. Identify examples of wrong-way risk and examples of right-way risk. Discuss the impact of collateral on wrong-way risk. Discuss the impact of…
The Art of Term Structure Models: Volatility and Distribution
After completing this reading, you should be able to: Describe the short-term rate process under a model with time-dependent volatility. Calculate the short-term rate change and determine the behavior of the standard deviation of the rate change using a model…
Non-Parametric Approaches
p> After completing this reading, you should be able to: Apply the bootstrap historical simulation approach to estimate coherent risk measures. Describe historical simulation using non-parametric density estimation. Compare and contrast the age-weighted, the volatility-weighted, the correlation-weighted, and the filtered…
