Jorion, Value-at-Risk: The New Benchmark for Managing Financial Risk Study Notes contains 41 pages covering the following learning objectives:
Chapter 7: Portfolio Risk: Analytical Methods
Define, calculate, and distinguish between the following portfolio VaR measures: individual VaR, incremental VaR, marginal VaR, component VaR, undiversified portfolio VaR, and diversified portfolio VaR.
Explain the role of correlation on portfolio risk.
Describe the challenges associated with VaR measurement as portfolio size increases.
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
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
Apply VaR to check compliance, monitor risk budgets and reverse engineer sources of risk.
Explain how VaR can be used in the investment process and the development of investment guidelines.
Describe the risk budgeting process and calculate risk budgets across asset classes and active managers.
After reviewing the notes you will be able to apply what you learned with practice questions.
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