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Basel II: Three Pillars
While Basel I improved the way capital requirements were determined for banks worldwide, it had some major limitations.
Binomial Trees
A binomial model is a model that assumes that interest rates can take only one of two possible values in the next period
What is Technology Risk?
Technology can be used to mitigate operational risks. Automated procedures are generally less prone to error than manual procedures
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How to Calculate Discount Factor?
Discount factors is the value that allow us to relate a cash flow received in the future to its value today.
What are Credit Ratings?
A credit Rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a financial obligation.
Volatility Smiles
Volatility smiles are implied volatility patterns generated when option traders allow implied volatility to depend on the strike price
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What is a Subprime Mortgage?
A subprime mortgage is a loan secured by real estate and issued to a credit-worthy borrower.Subprime borrowers have a history of delinquent payments.
Migration Risk
Migration risk is the risk that the credit quality of a debtor decreases following the lowering of credit ratings.
Bond Valuation
Bond Valuation is the amount of money that investors are willing to pay for the stability and guaranteed interest that the bond offers.
Exposure, Loss Given & Probability Defaults
After the financial crisis, international laws were added to reduce the Exposure at Default, Loss Given Default and Probability of Default.
European Options
A European options contract limits execution to the expiration date, providing more certainty for the buyer.
Expected Loss
The expected loss is the amount of money that a company anticipates losing in the normal course of operations.