Financial Markets Yale Coursera with correct answers

VaR Value at risk, variance 1% one year VaR of 10 million 1% chance portfolio will lose 10$ mil in one year stress test popular as of 2009, Dodd Frank, fed has to 3 diff scenarios for non bank entities it supervises annually Freddie Mac & ginne mae did stress tests for 13% in 2005 home prices dropped 30% Stress test pros and cons show legitimacy, incentivizes white washing Dodd Frank Subpoena power to office of financial research Market Risk risk Apple does something in response to entire market Idiosyncratic risk Apple only risk Regression/dot's residual vertical distance between regression line and dot Y= mx + b b= alpha, y=return on apple stock, slope m= beta, x=market return slope beta shows how much a stock co moves w/ the market, measure of stock's systematic risk Cachy distribution fat tailed distribution Covariance relationship between two entities Covariance 2 identical firms # of scenarios 4 Beta covariance with market Risk Pooling if n policies each with independent probability p of a claim, then # of claims follows binomial distribution. SD of fraction of policies that claim = square root p(1-p)/n Law of Large #s as n gets large, SD reaches 0 Nears expected value Moral hazard actor has incentive to increase exposure to risk bc bears less of consequences of risk selection bias failure to achieve random sample Insurance framing we can allow your husband to protect you from the grave McCarron Ferguson Act 1945 delegated insurance regulation to the states HMO Health maintenance organization, attempt to overcome moral hazard, doctors are salaried, primaries act as gatekeeper US Patient Protection and Affordable Care Act 2010 tries to solve for selection bias, penalties for individuals/companies not buying, insurance exchange, preexisting conditions Market Portfolio If perfect information everyone has same portfolio Hedge Fund can't advertise, leverage themselves, lots of risk, not approved for retail investor Accredited Investor above certain net worth, industry credentials