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What @noob2 said: Actually there is empirical evidence of the opposite, i.e. the existence of a Term Premium. But this is not evidence of arbitrage, just that a more complicated risk model than assumed here is needed. And the simpler theory is still useful in many ways I feel it's helpful to unpack this a little. Let's say you are buying a 10 year Treasury/...


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I believe the document that @clarkmaio referred to is Minimum capital requirements for market risk and the issue described can be found on page 52. As explained here: The revised FRTB rules require ES to be calculated using a base liquidity horizon of 10-days and this ES to be scaled by mapping each risk factor to one of the risk categories below: Meaning ...


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Interesting question. The one book I heard about is "Market Risk Analysis" by Carol Alexander. However I think you should try to search for some company specific materials. Sometimes big banks like Credit-Suisse or Deutche Bank publish some materials which are hard-to-find by other means.


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Lookup something like "free FRM exam" or "FRM exercises". Here is a free exam from GARP itself, with explanations: http://www.garp.org/media/613028/frm%20practice%20exam052711.pdf I hope this helps Good luck!


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I'm not an expert of market risk, but, as regards the market risk references I know, the best one and more related to the question posted above is Dynamic Hedging by N. N. Taleb. Here below you can find the full reference: Taleb, Nassim. Dynamic hedging: managing vanilla and exotic options. Vol. 64. John Wiley & Sons, 1997. It concentrates the ...


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A CFO typically is not involved in managing risk, though that's not always the case. If your hypothetical CFO is involved in the day-to-day managing of FX risk, the following could be useful: MtM VaR & Stressed VaR Expected shortfall Correlation between traded currency pairs Sensitivities (Greeks) If your hypothetical CFO isn't involved in the day-to-...


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For business purposes, a CFO/CEO typically won't be interested at low-level modeling. Metrics such as: Maximum portfolio gross/net exposure (hence gross/net leverage) Maximum per trade size per product Maximum intraday exposure per product are probably among the more important ones for business decisions.


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Note that \begin{align*} \mathbb{E}\big(L \mid L\geq q_\alpha(L)\big) &= \frac{\mathbb{E}\big(\pmb{1}_{\{L\geq q_\alpha(L)\}} L\big)}{\mathbb{P}\big(L\geq q_\alpha(L) \big)}. \end{align*} The formula follows immediately.


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Bid Ask spreads should reflect the willingness of parties to exchange at a certain price, where market makers are the sellers it represents the risks they are prepared to take in order to make the the market, but as most trades now are through secondary sellers, not market makers or in dark pools, it would be impossible to estimate the initial risk of a ...


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For an example of the portfolio credit loss distribution, please check the Vasicek distribution, which is frequently used for modelling the credit portfolio losses. It shows a a very long tail - an example below: In market risk, one talks about Profit and Loss (as opposed to just loss because market portfolios do make profit from time to time!). The ...


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There are many ways to do this. Some are more computationally intense than others. Some are more realistic than others. If you want to stay in CreditMetrics universe I would jointly simulate systemic variables impacting credit AND interest rate variables. This can be done in a Gaussian setting quite easily (eg Hull White for interest rate and drift+...


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You find the IRC methodology paper written by Tim Xiao at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426836


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