start learning


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



What is financial crisis? start learning


State of disequilibrium in financial market characterized by lack of liquidity



What is financial stability? start learning


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.



What is expected shortfall? start learning


Present Value of the part of debt which is not backed by assets in the case of default



What measures of risk of banking sector depend on? start learning


Capitalization of bank –the higher, the lower risk, Volatility of assets –the higher, the higher risk, Correlation of assets –the higher, the higher risk



What are the measures of risk in banking sector? start learning


probability that group of banks will collapse, probability that fraction of the banks will collapse, expected shortfall



What are characteristics of price stability? start learning


simple administrative procedure, standard forecasts, accountable, instruments of control, measurable



What are characteristics of financial stability? start learning


hardly measurable, not accountable, forecasted by stress tests and simulations, difficult administrative procedure



Why measure financial stability? start learning


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, modelbased definition



How financial fragility is characterised? start learning


It is characterised by reduced bank profitability and increased aggregate default.



what bank profitability and increased aggregate default is linked to? 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.



What usually is taken for a measure of volatility? start learning


standard deviation of returns



What is historical volatility? start learning


volatility determined on the basis of historical data



What is implied volatility? start learning


volatility determined from option prices



What is forecasted volatility? start learning


volatility for future period



What is Realized volatility? start learning


volatility of past period



What volatility is related to? start learning


to particular period, for example daily, monthly annual. This allows us to determine term structure of volatility –for each time period volatility is determined



What is volatility clustering? start learning


large changes are followed by large changes, small changes are followed by small changes



Name some volatility properties? start learning


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



What are the two groups of historical volatility models? start learning


Simple estimators, Estimators in financial econometrics models



What Estimator of Anderson is? start learning


o called integrated volatility –sum of logarithmic returns determined for short intraday intervals, Considered as a benchmark for simple volatility estimators



What is EWMA (Exponentially Weighted Moving Average)? start learning


JP Morgan in Riskmetrics Estimated sequentially as weighted average of previous variance and current squared deviation from mean



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Generalized AutoRegressive Conditional Heteroscedasticity



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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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Name some volatility indices? start learning


VXN (NASDAQ 100), VXD (DJIA), RVX (Russell 2000)


