Learning Outcome Statements

1. Value at Risk

a. explain the use of value at risk (VaR) in measuring portfolio risk;

b. compare the parametric (variance-covariance), historical simulation, and Monte Carlo simulation methods for estimating VaR;

c. estimate and interpret VaR under the parametric, historical simulation, and Monte Carlo simulation methods;

d. describe advantages and limitations of VaR;

e. describe extensions of VaR;
2. Other Key Risk Measures

f. describe sensitivity risk measures and scenario risk measures and compare these measures to VaR;

g. demonstrate how equity, fixed-income, and options exposure measures may be used in measuring and managing market risk and volatility risk;

h. describe the use of sensitivity risk measures and scenario risk measures;

i. describe advantages and limitations of sensitivity risk measures and scenario risk measures;
3. Applications of Risk Measures

j. describe risk measures used by banks, asset managers, pension funds, and insurers;

4. Using Constraints in Market Risk Management

k. explain constraints used in managing market risks, including risk budgeting, position limits, scenario limits, and stop-loss limits;

l. explain how risk measures may be used in capital allocation decisions.