Message from the Academic Literature on Risk Management for the Trading Book (FRM P2 – B1 – Ch6)

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The written summary can be found here:


After completing this reading you should be able to:


- Explain the following lessons on VaR implementation: time horizon over which VaR is estimated, the recognition of time varying volatility in VaR risk factors, and VaR backtesting.

- Describe exogenous and endogenous liquidity risk and explain how they might be integrated into VaR models.

- Compare VaR, expected shortfall, and other relevant risk measures.

- Compare unified and compartmentalized risk measurement.

- Compare the results of research on “top-down” and “bottom-up” risk aggregation methods.

- Describe the relationship between leverage, market value of asset, and VaR within an active balance sheet management framework.

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