The most comprehensive educational resources for finance

Mutual Funds and Exchange Traded Funds

This video by Arif Irfanullah provides a very clear conceptual understanding of the alternative investments: mutual funds and exchange-traded funds as a part of the CFA Level 1 syllabus. This video talks about: Mutual Funds Types of Mutual Funds Mutual Fund Expenses Investment Strategies Exchange-Traded Funds (ETFs)

Major Types of Return Measures

For the purpose of portfolio construction, the financial assets are primarily looked at from the perspective of risk and returns. Based on the analysis of risk and returns we analyse thousands of securities and portfolio combinations before making the right selection for our own portfolio. Therefore, it is important that we have a deeper understanding

Mitigation of Market Risk in Fund Management

To control and have methods to offset market risk is tough and complex. Fund managers cannot always fully estimate the impact of the market risk on their portfolios. 9/11 was an event that no one had ever envisaged. Yet, it happened, forever changing the way risk was viewed. Tim East, the Director of Corporate Risk

Market Risk Management in Fund Management

Several individuals have a higher appetite for risk and seek higher returns. Typically they entrust their funds with one kind of fund or the other. The funds that have lesser controls and are considered more risky are called hedge funds. These funds contrary to their name are considered more risky than most. The managers of

What does the Market Risk Department Do?

Market risk is unavoidable but not unmanageable. Market risk tends to occur when an unpredictable turn of events such as fluctuation in exchange rates, fluctuations in the prices of traded assets and commodities lead to a change in the value of financial instruments held by a firm. Assessing market risk is not unlike predicting the

Bankgesellschaft Berlin Case Study – Credit Risk and Operational Risk

This article briefly discusses the losses incurred by Bankgesellschaft Berlin in 2001 which was one of Germany’s top 10 banks. The Case In the mid-1990s some of the key subsidiaries of the bank started making massive loans to property developers. It also set-up property-backed funds that offered generous guarantees to retail investors. In 1999, the

Types of Operational Risk

The financial institutions encounter a variety of operational risks on a daily basis. It’s important that businesses are able to identify these risks and the losses incurred from them. The Basel Committee on Banking Supervision (BCBS) collected operational risk loss data and classified the losses in terms of eight business lines and seven loss event

Impact of Volatility Clustering on Value at Risk

We have seen that volatility clustering is a common phenomenon observed in financial data. This has serious implications for how risk managers calculate VaR for their portfolios to be adequately covered. We know that financial markets are characterized by unexpected information and shocks. When a market shock happens, the volatility in prices of financial assets

Models of Volatility Clustering: EWMA and GARCH(1,1)

Volatility clustering is one of the most important characteristics of financial data, and incorporating it in our models can produce a more realistic estimate of risk. Volatility clustering is evident from the fact that today’s volatility is positively correlated with yesterday’s volatility. So, if yesterday observed high volatility, today also we are likely to observe