Jorion, Chapters 7 & 17 practice question set consists of 35 pages reviewing the following learning objectives:
Chapter 7: Portfolio Risk: Analytical Methods
* Define, calculate, and distinguish between the following portfolio VaR measures: diversified and undiversified portfolio VaR, individual VaR, incremental VaR, marginal VaR, and component VaR.
* Explain the role of correlation on portfolio risk.
* Apply the concept of marginal VaR to guide decisions about portfolio VaR.
* Explain the risk-minimizing position and the risk and return-optimizing position of a portfolio.
* Explain the difference between risk management and portfolio management, and describe how to use marginal VaR in portfolio management.
Chapter 17: VaR and Risk Budgeting in Investment Management
* Define risk budgeting.
* Describe the impact of horizon, turnover, and leverage on the risk management process in the investment management industry.
* Describe the investment process of large investors such as pension funds.
* Describe the risk management challenges associated with investments in hedge funds.
* Distinguish among the following types of risk: absolute risk, relative risk, policy-mix risk, active management risk, funding risk, and sponsor risk.
* Explain the use of VaR to check manager compliance and monitor risk.
* Explain how VaR can be used in the development of investment guidelines and for improving the investment process.
* Describe the risk budgeting process and calculate risk budgets across asset classes and active managers.
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