The most comprehensive educational resources for finance

Role of Risk Management

The role of risk management function is to enable the company to maximize return on capital and help it grow profitably. A risk control function is created whose objective is to preserve capital in trading and to also contribute to the decision making process. The various risks are identified and measured through an independent risk

Collateralized Mortgage Obligations and Prepayment Risk

Collateralized Mortgage Obligations are a type of Special Purpose Vehicle (SPV), which is separate from the entity that created it. The CMO is created to issue securities to different investors based on a pool of mortgages owned by the SPV. All the mortgages put together are called a pool. In a CMO the investors buy

Key Risks Associated with Investing in Bonds

Bonds are a lucrative investment class for investors and portfolio managers. However, just like any other investment, investing in bonds also has many risks associated with it. This article lists the key risks: Interest Rate Risk: Bond prices are inversely related to interest rates. When interest rates rise, bond prices fall and vice versa. Call

Risk and Financial Crises

Professor Shiller introduces basic concepts from probability theory and embeds these concepts into the concrete context of financial crises, with examples from the financial crisis from 2007-2008. Subsequent to a historical narrative of the financial crisis from 2007-2008, he turns to the definition of the expected value and the variance of a random variable, as

How to Calculate Portfolio Risk and Return

In this article, we will learn how to compute the risk and return of a portfolio of assets. Let’s start with a two asset portfolio. Portfolio Return Let’s say the returns from the two assets in the portfolio are R1 and R2. Also, assume the weights of the two assets in the portfolio are w1