Risk

How losses are measured and managed. These lessons start with value at risk and expected shortfall, then cover interest-rate risk and duration, hedging currency risk with forwards, liquidity risk and bank runs, operational and concentration risk, and stress tests within enterprise risk management.

Real S&P 500 returns from 1928 to 2024, the Federal Reserve's 2025 stress test, Basel Committee standards and company filings from Delta, NIKE, Emerson Radio and Oil-Dri carry the lessons, and an invented bank or firm runs each calculator.

6 lessons, about 2 hours 37 minutes of reading in all. Start at the top and go in order.

After this module you will be able to

• compute value at risk and expected shortfall and say what a confidence level does and does not promise
• estimate how a bond's price moves with yields using duration and see how it hurt banks in 2022
• hedge a foreign-currency sale with a forward and weigh the cost against the risk removed
• tell liquidity risk from insolvency and compute a liquidity coverage ratio
• measure operational and concentration risk, including the loss of a large customer
• run a stress test and a reverse stress test, and explain risk appetite and the three lines of defence

The lessons

1. Value at risk26 minCompute value at risk and expected shortfall from 97 years of real S&P 500 returns, and compare them with a normal curve using a live calculator.
2. Interest-rate risk27 minMeasure interest-rate risk with duration, then see how a bank's assets, liabilities and equity react when yields rise, with a live calculator.
3. Hedging currency risk26 minSee how a forward contract fixes an exchange rate, what it costs, and how hedge ratios change profit across 26 years of real euro-dollar moves.
4. Liquidity risk26 minSee why a bank with more assets than debts can still fail, how the liquidity coverage ratio works, and how deposits left SVB, with a live calculator.
5. Operational and concentration risk26 minSee what a systems outage cost Delta, how banks set capital for operational risk, and what losing a big customer does to profit, with a live calculator.
6. Stress tests and risk management26 minLearn how the Fed stress-tests banks, how a reverse stress test works, and how risk appetite and three lines of defence fit together, with a live calculator.

Start with the first lesson