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Credit Engineering for Bankers, 2nd Edition by Johnathan Mun, Morton Glantz

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Chapter 7 A Primer on Quantitative Risk Analysis

Chapter Outline

  • A Brief History of Risk: What Exactly Is Risk? 130
  • The Basics of Risk 133
  • The Nature of Risk and Return 133
  • Uncertainty versus Risk 134
  • Risk Simulation Applications 136
  • Running a Monte Carlo Simulation 138
    • Start a New Simulation Profile 138
    • Define Input Assumptions 140
    • Define Output Forecasts 143
    • Run Simulation 144
    • Interpret the Forecast Results 145
  • Using Forecast Charts and Confidence Intervals 150
    • Some Tips 150
  • Correlations and Precision Control 151
    • The Basics of Correlations 151
    • Applying Correlations in Risk Simulator 152
    • The Effects of Correlations in Monte Carlo Simulation 153
    • Precision and Error Control 153
  • Exercise 1: Basic Simulation Model 157
    • Model Background ...

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