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start learning
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Possibility that at least several banks will collapse, Situation in which default of one participant of financial system causes defaults of other participants, which leads to chain effect causing financial troubles
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What is financial crisis? start learning
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State of disequilibrium in financial market characterized by lack of liquidity
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What is financial stability? start learning
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Lack of financial crisis, State in which financial system fulfills all its functions in continuous and effective way, also in the case of unexpected and negative shocks at large scale, Ability to support economic processes, risk management and shock absorption.
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What is expected shortfall? start learning
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Present Value of the part of debt which is not backed by assets in the case of default
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What measures of risk of banking sector depend on? start learning
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-Capitalization of bank –the higher, the lower risk, Volatility of assets –the higher, the higher risk, Correlation of assets –the higher, the higher risk
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What are the measures of risk in banking sector? start learning
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probability that group of banks will collapse, probability that fraction of the banks will collapse, expected shortfall
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What are characteristics of price stability? start learning
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simple administrative procedure, standard forecasts, accountable, instruments of control, measurable
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What are characteristics of financial stability? start learning
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hardly measurable, not accountable, forecasted by stress tests and simulations, difficult administrative procedure
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Why measure financial stability? start learning
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1. It is easier to define, measure, model, analyse etc 2. problem of measurement should have priority as we need to compare and analyse 3. we need a formal, model-based definition
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How financial fragility is characterised? start learning
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It is characterised by reduced bank profitability and increased aggregate default.
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what bank profitability and increased aggregate default is linked to? start learning
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start learning
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measure reflecting changes of some index in the specified period, for example: stock prices, market index values, interest rates, exchange rates, commodity prices, etc.
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What usually is taken for a measure of volatility? start learning
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standard deviation of returns
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What is historical volatility? start learning
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volatility determined on the basis of historical data
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What is implied volatility? start learning
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volatility determined from option prices
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What is forecasted volatility? start learning
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volatility for future period
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What is Realized volatility? start learning
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volatility of past period
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What volatility is related to? start learning
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to particular period, for example daily, monthly annual. This allows us to determine term structure of volatility –for each time period volatility is determined
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What is volatility clustering? start learning
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large changes are followed by large changes, small changes are followed by small changes
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Name some volatility properties? start learning
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Volatility is mean reverting, Positive and negative shocks have asymmetric impact on volatility, Price changes and volatility are negatively correlated, Changes of volatility on the different markets are positively correlated
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What are the two groups of historical volatility models? start learning
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Simple estimators, Estimators in financial econometrics models
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What Estimator of Anderson is? start learning
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o called integrated volatility –sum of logarithmic returns determined for short intraday intervals, Considered as a benchmark for simple volatility estimators
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What is EWMA (Exponentially Weighted Moving Average)? start learning
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JP Morgan in Riskmetrics Estimated sequentially as weighted average of previous variance and current squared deviation from mean
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start learning
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Generalized AutoRegressive Conditional Heteroscedasticity
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start learning
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This is monthly volatility, calculated by using prices of options on S&P 500, with different strikes.
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start learning
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Name some volatility indices? start learning
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VXN (NASDAQ 100), VXD (DJIA), RVX (Russell 2000)
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