VRM 1. Measures of Financial Risk

Learning Objectives

1) Describe the mean-variance framework and the efficient frontier.

2) Compare the normal distribution with the typical distribution of returns of risky financial assets such as equities.

3) Define the VaR measure of risk, describe assumptions about return distributions and holding periods, and explain the limitations of VaR.

4) Explain and calculate ES and compare and contrast VaR and ES.

5) Define the properties of a coherent risk measure and explain the meaning of each property.

6) Explain why VaR is not a coherent risk measure.