Reading 38
Measuring And Managing Market Risk
5 modules 28 min
0/5
Exam Focus
This topic review discusses different approaches to risk measurement as well as mechanisms to manage and control risk. VaR is an important risk metric, and you should know different ways to compute it as well as pros and cons of different approaches. Also know the limitations of VaR as a risk metric and the variations of VaR.
The discussion on scenario and sensitivity analysis is mostly qualitative. Finally, know the risk measures that are more relevant for different asset managers, such as banks, pension funds, et cetera.
Modules
- Module 38.1Value At Risk (VaR)Explain the use of value at risk (VaR) in measuring portfolio risk. · Compare the parametric (variance−covariance), historical simulation, and Monte Carlo simulation methods for estimating VaR. · Estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation methods.7 min · 3 LOS
- Module 38.2Using VaRDescribe advantages and limitations of VaR. · Describe extensions of VaR. · Describe sensitivity risk measures and scenario risk measures and compare these measures to VaR. · Demonstrate how equity, fixed income, and options exposure measures may be used in measuring and managing market risk and volatility risk.9 min · 4 LOS
- Module 38.3Sensitivity And Scenario Risk MeasuresDescribe the use of sensitivity risk measures and scenario risk measures. · Describe advantages and limitations of sensitivity risk measures and scenario risk measures.4 min · 2 LOS
- Module 38.4Applications Of Risk MeasuresDescribe risk measures used by banks, asset managers, pension funds, and insurers.5 min · 1 LOS
- Module 38.5Constraints And Capital Allocation DecisionsExplain constraints used in managing market risks, including risk budgeting, position limits, scenario limits, and stop loss limits. · Explain how risk measures may be used in capital allocation decisions.3 min · 2 LOS