Country Risk: Determinants, Measures, and Implications
After completing this reading you should be able to: Explain how a country’s position in the economic growth life cycle, political risk, legal risk, and economic structure affect its risk exposure. Evaluate composite measures of risk that incorporate all major…
Commodity Forwards and Futures
After completing this reading, you should be able to: Explain the key differences between commodities and financial assets. Define and apply commodity concepts such as storage costs, carry markets, lease rate, and convenience yield. Identify factors that impact prices on…
Common Univariate Random Variables
After completing this reading, you should be able to: Distinguish the key properties among the following distributions: uniform distribution, Bernoulli distribution, Binomial distribution, Poisson distribution, normal distribution, lognormal distribution, Chi-squared distribution, student’s t, and F-distributions, and identify common occurrences of…
Model Risk
The objective of this chapter is to identify and explain modeling assumption errors through which model risk can be introduced. The arising of model risk in a model’s implementation will be studied. Furthermore, in risk mitigation, risk managers can apply…
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…
Regulation of OTC Derivatives Market
After completing this reading, you should be able to: Summarize the clearing process in OTC derivative markets. Describe changes to the regulation of OTC derivatives that took place after the 2007-2009 financial crisis and explain the impact of these changes….
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…
