Topics Covered in this Course

  • Risk
  • Insurance
  • Diversification
  • History of Insurance
  • Innovation
  • Efficient Markets
  • Behavioral finance
  • Debt
  • Stocks
  • Real Estate
  • Regulation
  • Banking
  • Futures
  • Monetary policy
  • Edowment management
  • Investment banking
  • Options
  • Money managers
  • Exchanges
  • Public finance
  • Nonprofits
  • Purpose


Stands for Value at Risk. It measures the variance of a portifolio to quantify risk of it or its parts.

Stress Tests

Looks at the details of the portifolio and ask what vulnerabilities there are for various kinds of financial crisis. Executed by the government.

S&P 500

Stocks & Poor’s 500 price index used as becnhmark for returns. The Law of Large Numbers doesn’t work here because it’s the average price of 500 stocks. The experience of investing is puzzling because the noise dominates. Using an scatter plot with the S&P on the X axis and the Apple Stock on the Y axis it’s possible to determine wheather there is a correlation or not and how much more variable either are. Given that the regression is greater than 1 it’s possible to see that the stock overreacts what happens in the aggregate stock market.


Is the correlation between a given stock and the aggregate market. If Beta is 1 then the asset tends to go up and down one for one in the terms of returns with the aggregate market.

By construction the residuals in a regression are uncorrelated with the fitted or predicted value.

So, the variance of the return of a stock is equal to its beta squared times the variance of the market returns (systematic risk) plus the variance of the residual in the regression (idiosyncratic risk)


Given two stocks if their covariance is 0 it’s good for the investor since their business is betting on orthogonal directions. Risk is determined by covariance. Beta = COV(r, r_market)/var(r_market).

Investors are willing to take no return if the Beta is low. That means it’s less contributing to risk in the portifolio. There are even negative beta stocks like gold. It has no return at all, it doesn’t pay dividens, nothing. But it moves the opposite as your other investments, that’s the theory.

Tries to incorporate all potential economic and financial crises, such as recessions, appreciation and depreciation of currency, liquidity crisis, et

Does not look at historical returns, and looks at all the details of the portfolios and their vulnerabilities during all sorts of potential financial crises.

A 5% chance of the asset declining in value by $1 million during the 3-month time frame.

The BEta

s the risk for an asset to experience losses due factors that solely affect the industry associated with the asset

Is the risk which is endemic to a specific asset and therefore not the market as a whole (FALSE)

Is the risk for an asset to experience losses due to factors that affect the entire stock market

Is the risk which is endemic to the industry of the asset and therefore not the market as a whole (FALSE)

Their stock prices are highly volatile, and thu

It does not have many outliers