Study Notes: Measures of Financial Risk

Topic Progress:

Chapter 1. Measures of Financial Risk Study Notes cover the following learning objectives:

* Describe the mean-variance framework and the efficient frontier.

* Explain the limitations of the mean-variance framework with respect to assumptions about return distributions.

* Compare the normal distribution with the typical distribution of returns of risky financial assets such as equities.

* Define the VaR measure of risk, describe assumptions about return distributions and holding period, and explain the limitations of VaR.

* Explain and calculate Expected Shortfall (ES), and compare and contrast VaR and ES.

* Define the properties of a coherent risk measure and explain the meaning of each property.

* Explain why VaR is not a coherent risk measure.

* Describe spectral risk measures, and explain how VaR and ES are special cases of spectral risk measures.

After reviewing the notes, you will be able to apply what you learned with practice questions.

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