Valuation and Risk Models Archives

Understanding the Concept of Riding the Yield Curve

This video explains how a bond can earn a higher return even if interest rates remain unchanged — through a concept known as “riding the yield curve.” Using a simple six-year coupon bond and spot rate term structures, we walk through step-by-step valuation and highlight how changes (or the lack thereof) in the yield curve impact bond prices and holding period returns.

Expected Shortfall for Uniform Distribution: Solved Example

In this video from FRM Part 1 curriculum, we calculate the Expected Shortfall for a continuous random loss variable that follows the Uniform Distribution. Along the way, we calculate the Value-at-Risk and also explore key properties of a uniformly distributed random variable.

Bond Pricing: Dirty Price, Clean Price and Accrued Interest

In this video from FRP Part 1 and CFA Level 1 curricula, through a solved example, we take a look at how bond pricing works when settlement date is somewhere between coupon dates. We calculate the dirty price, clean price and accrued interest on a given settlement date.

Lognormal Distribution Assumption for Stock Prices (Solved Example)

In this video through a solved example, we take a look at the lognormal distribution assumption that the Black Scholes model makes for stock prices.

Vasicek Model for Credit Risk Capital

In this video for FRM Part I and FRM Part II, we explore the Vasicek Model for determining the credit risk capital for a portfolio of loans.

Estimating VaR and ES using Hybrid Historical Simulation

In this multiple choice question, we explore how Hybrid historical simulation technique (that combines non-parametric historical simulation with parametric age-weighting) can be used to estimate VaR and Expected Shortfall of a portfolio.

Valuing Warrants using Black Scholes Formula: Solved Example

In this video from FRM Part I curriculum (Valuation and Risk Models section), we describe warrants, calculate the value of a warrant and calculate the dilution cost of the warrant to existing shareholders.

Credit Risk: Regulatory and Economic Capital (Solved Example)

In this solved example taken from FRM Part 1 curriculum, we explore why equity capital as a buffer against credit losses and we estimate the capital required both from regulatory perspective (i.e. regulatory capital) and internal perspective (i.e. economic capital).

Binomial Option Pricing Model: Three Approaches

In this video from FRM Part 1 curriculum, we take a look at the Binomial option pricing model using a simple solved example.

VaR and ES using Historical Simulation

In this short video from FRM Part 1 curriculum, we take a look at how to use the Historical Simulation approach for estimating the Value-at-Risk (VaR) and Expected Shortfall (ES) for a portfolio.