Measuring and managing market, credit and Op risk [40]

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Bullet points include: If focus is on (instantaneous) volatility Implicitly assumes markets move akin to Brownian motion Risk dependent on (instantaneous) mean and (instantaneous) variance of underlying factor processes, succinctly expressible using matrix algebra And on how processes for different instruments co-move (the covariance matrix) Some subtleties regarding how to identify factors when only finite sized data series are available, see e.g. Kemp (2009) and Appendix D Or if we are seeking to use and/or take advantage of market implied data or when handling potentially fat-tailed behaviour, see e.g. Kemp (2009) and Kemp (2011)

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