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Week in risk (ending April 24th)

David Harper CFA FRM

David Harper CFA FRM
Staff member
FRM Exam (week ending 4/24)

Key definitions
Value at Risk (VaR) and expected shortfall (ES)
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Helpful tips or insights
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Notable Errors :oops:

Risk (general risk-related news that I find relevant, or just interesting ... )

Risk perception
Finance and Investing
Interest Rates
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David Harper CFA FRM

David Harper CFA FRM
Staff member
I just wanted to share three spreadsheet snippets (i.e., very simple sheets) that illustrate three of the concepts discussed above. I hope they are helpful!

1. Default probability definitions
This spreadsheet snippet compares the different default probability definitions, for both annual discrete and continuous (Malz and Hull assume continuous): https://www.dropbox.com/s/55f00wzt749ee1x/0425-T6-default-probabilities.xlsx?dl=0

2. Normal expected shortfall has very convenient properties
This spreadsheet snippet demonstrates the convenient property of normal expected shortfall (ES) https://www.dropbox.com/s/55f00wzt749ee1x/0425-T6-default-probabilities.xlsx?dl=0
(provoked by @Kavita.bhangdia 's question at https://www.bionicturtle.com/forum/threads/var-and-es.9497/)

3. Minimum variance hedge (we'd much prefer a higher correlation to hedge!)
This sheet illustrates the minimum variance hedge under two very different correlation assumptions: https://www.dropbox.com/s/is5hrnapuyk541k/0419-min-var-hedge.xlsx?dl=0
(provoked by @materio 's question at https://www.bionicturtle.com/forum/threads/optimal-hedge-ratio-correlation-understanding.9482/)
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