Portfolio Risk: Analytical Methods
After completing this reading, you should be able to: Define, calculate, and distinguish between the following portfolio VaR measures: individual VaR, incremental VaR, marginal VaR, component VaR, undiversified portfolio VaR, and diversified portfolio VaR. Explain the role of correlation on…
The Evolution of Short Rates and the Shape of the Term Structure
After completing this reading, you should be able to: Explain the role of interest rate expectations in determining the shape of the term structure. Apply a risk-neutral interest rate tree to assess the effect of volatility on the shape of…
Empirical Approaches to Risk Metrics and Hedging
After completing this reading, you should be able to: Explain the drawbacks to using a DV01-neutral hedge for a bond position. Describe a regression hedge and explain how it can improve a standard DV01-neutral hedge. Calculate the regression hedge adjustment…
OpRisk Data and Governance
After completing this reading, you should be able to: Describe the seven Basel II event risk categories and identify examples of operational risk events in each category. Summarize the process of collecting and reporting internal operational loss data, including the…
Statistical Correlation Models – Application to Finance
There are three popular correlation models that are statistical which we seek to discuss in this chapter. These models are: Spearman rank correlation. Pearson correlation measure. Kendall \(\tau \). Two or more variables usually have a degree of association that…
Understanding the Securitization of Subprime Mortgage Credit
After completing this reading, you should be able to: Explain the subprime mortgage credit securitization process in the United States. Identify and describe key frictions in subprime mortgage securitization and assess the relative contribution of each factor to the subprime…
