Category: Market Risk

From Uncorrelated to Correlated Random Variables: The Gauss+ Case

In this video, we learn how to construct correlated standard normal variables from uncorrelated ones using linear combinations — a technique that is foundational in many quantitative models, including Gauss+. This post explains the math, provides visual intuition, and shows why this approach is so important in risk modeling and quantitative finance.
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Understanding Equilibrium Interest Rate Models: The Vasicek Way

Explore the world of interest rate modeling with this clear and concise walkthrough of the Vasicek equilibrium model. Learn how an equilibrium interest model is created, and understand why equilibrium models, while not ideal for pricing, can still be used for other meaningful purposes.
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Understanding the Short Rate

In this video, we explore the concept of the short rate — a fundamental but often misunderstood concept in interest rate modeling. Learn how this unobservable, instantaneous rate powers the pricing of bonds, forward rates, and the entire yield curve. Whether you’re diving into the Vasicek or CIR model or prepping for your FRM exams, this explanation will give you a clear conceptual foundation.
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Extreme Value Theory (EVT): A Quick Review

In this video from FRM Part 2 curriculum (Market Risk section), we review this reading on “Parametric Approaches: Extreme Value Theory (EVT)”.
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Cox Ingersoll Ross Model – Solved Example

In this video from the FRM Part 2 curriculum, we take a look at a solved example covering the learning objective “Calculate the short-term rate change and describe the basis point volatility using the CIR and lognormal models.”
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Expected Shortfall: The Two Formulas

In this video we establish an equivalence between the two formulas to compute Expected Shortfall (ES) – the formula that computes it as a conditional expectation of losses, and the formula that computes it as an average of all loss quantiles whose associated probability exceeds the chosen confidence level.
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VaR Mapping of Forward Rate Agreement

In this short video from FRM Part 2 curriculum, we take a look at how to map a long position in a T1xT2 Forward Rate Agreement onto a long position in a Zero Coupon Bond (ZCB) of maturity T1 and a short maturity in a ZCB of maturity T2.
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Standard Brownian Motion / Wiener Process

In this video, we take a look at the Standard Brownian Motion (Wiener Process) – an important building block that we encounter in the four readings on Interest Rate Models (FRM Part 2, Market Risk).
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