As part of the course, we review current risk models and practices used by large financial institutions. VaR and Expected Shortfall) and portfolios (e.g. We will cover the construction of risk measures (e.g. This course is an introduction to portfolio and risk management techniques for portfolios of (i) equities, delta-1 securities, and futures and (ii) basic fixed income securities.Ī systematic approach to the subject is adopted, based on selection of risk factors, econometric analysis, extreme-value theory for tail estimation, correlation analysis, and copulas to estimate joint factor distributions. 6.6.Prerequisites: Multivariate calculus, linear algebra, and calculus-based probability.ĭescription: Risk management is arguably one of the most important tools for managing investment portfolios and trading books and quantifying the effects of leverage and diversification (or lack thereof).6.6: Classification of Finance Problems.6.5.1: Miscellaneous Application Problems (Exercises).Now we use these tools to solve some application problems. 6.5: Miscellaneous Application Problems We have already developed the tools to solve most finance problems.6.4.1: Present Value of an Annuity and Installment Payment (Exercises).6.4: Present Value of an Annuity and Installment Payment.6.3.1: Annuities and Sinking Funds (Exercises).When a sequence of payments of some fixed amount are made in an account at equal intervals of time, we call that an annuity. 6.3: Annuities and Sinking Funds This section addressed problems where timely payments are made in an account.6.1.1: Simple Interest and Discount (Exercises).When the money is loaned out, the person who borrows the money generally pays a fixed rate of interest on the principal for the time period he keeps the money. Simple interest is paid only on the original amount borrowed. The amount of money that is being borrowed or loaned is called the principal or present value. The rent one pays for the use of money is called the interest. 6.1: Simple Interest and Discount It costs to borrow money.
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