The most comprehensive educational resources for finance

Financial Risk Manager Handbook: FRM Part I and Part II

Financial Risk Manager Handbook is the definitive book for risk management worldwide. This book is recommended by GARP as the textbook for study for the Financial Risk Manager (FRM) exam. This guide summarizes the core body of knowledge for financial risk managers. The book covers important ground with respect to Risk Management that includes the

Case Study: Equity Derivative Losses at UBS

In 1997, United Bank of Switzerland lost heavily in the equity derivatives market, with estimated losses  pegged between $400 and $700 million. It is said to have lost $700 million in long positions in LTCM (Long Term Capital Management). The UBS case speaks strongly for strong internal risk control measures and adherence to the same.

The Dog and the Frisbee (Handling a Financial Crisis)

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Current Issues in Financial Markets’. Catching a crisis, like catching a frisbee, is difficult. Doing so requires the regulator to weigh a complex array of financial and psychological factors, among them innovation and risk appetite. Were an economist to

Tails of the Unexpected (Andrew Haldane and Benjamin Nelson)

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Current Issues in Financial Markets’. The normal distribution provides a beguilingly simple description of the world. Outcomes lie symmetrically around the mean, with a probability that steadily decays. It is well-known that repeated games of chance deliver random outcomes

Sovereign Creditworthiness and Financial Stability: An International Perspective

Financial stability depends critically on the two-way interaction between banks and governments. Sovereign creditworthiness represents the ultimate source of insurance for the fi nancial system and provides a solid basis for the pricing of assets, by supplying a risk-free security. A sound banking sector ensures the smooth fl ow of credit to the economy as

Challenges of Financial Innovation

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Current Issues in Financial Markets’. The ebook below is Challenges to Business in the Twenty-First Century. For FRM exam, only chapter 2 – Challenges of Financial Innovation is relevant. In this chapter, Myron S. Scholes argues that financial innovation

Perspectives on Liquidity Stress Testing (Iceland Example)

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Current Issues in Financial Markets’. The global financial crisis revealed weaknesses in the stress testing exercises performed on financial institutions and systems around the world. These failures were most evident in the area of liquidity risk, where now-obvious vulnerabilities

Trust and Delegation (Operational Risk in Hedge Funds)

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Risk Management and Investment Management’. This paper studies operational risk in the hedge fund industry using due diligence reports. Many funds suffer from operational problems, including limited disclosure of legal and regulatory issues. We use direct evidence of inadequate

Risk Management for Hedge Funds

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Risk Management and Investment Management’. Despite the rapid growth in hedge-fund assets over the past decade, the industry is poised for even more growth as individual and institutional investors become more attuned to its risks and rewards. However, an

Stress Testing Banks

This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Operational and Integrated Risk Management’. How much capital and liquidity does a bank need – to support its risk taking activities? During the recent (and still ongoing) financial crisis, answers to this question using standard approaches, e.g. regulatory capital