Beruflich Dokumente
Kultur Dokumente
Henny Zahrany
2912551
MBA ITB 48
Risk Management
Directional Risks
Interest Rate Risk
The risk that the value of a fixed-income security
will fall as a result of a change in market interest
rates, Open positions arise most often from
differences in the maturities, nominal values, and
reset dates of instruments and cash flows that are
assetlike (i.e., "longs") and those that are
liabilitylike (i.e., "shorts").(Crouhy, 178).
Imperfect
correlation
between
offsetting
instruments, both across the yield curve and within
the same maturity for different issuers, can
generate significant interest rate exposures.
Measurement
Measurement (2)
Value at Risk
Jorion (2007) said that VaR summarizes the worst
loss over a target horizon that will not be exceeded
with a given level of confidence.
Crouhy: VaR is proving to be a very powerful way
of assessing the overall risk of trading positions
over a short horizon, such as a 10-day period, and
under "normal" market conditions
Crouhy: The danger posed by exceptional market
shocks can only be captured by means of
supplemental methodologies such as stress
testing and scenario analysis.
Value at Risk
2.
3.
4.
Only the first definition of VaR (3) is consistent with economic capital
attribution and RAROC calculations. In VaR the expected profit/loss is
already priced in, and accounted for, in the return calculation. Capital is
provided only as a cushion against unexpected losses.
Operational Risk
Financial Risk
Definition
Business Line
Comparison of Approaches
Top Down Models
Measure at the broadest level, a firm-wide or
industrywide data.
Bottom-up Models
Start at the individual business unit or process level.
Actuarial Models
Estimate the objective distribution of losses from
historical data and are widely used in the insurance
industry. Such models combine two distributions,
loss frequencies and loss severities.
o
o
o
o
o
o
o
o
o
o
Four-Step Measurement
Process for Operational Risk
Four-Step Measurement
Process for Operational Risk (2)
Step 1 Input
The first step in the operational risk
measurement process is to gather the
information needed to perform a complete
assessment of all significant operational risks.
Four-Step Measurement
Process for Operational Risk (3)
Four-Step Measurement
Process for Operational Risk (4)
Four-Step Measurement
Process for Operational Risk (5)
1.
2.
Four-Step Measurement
Process for Operational Risk (6)
Step 4 Output
Four-Step Measurement
Process for Operational Risk (7)
if a business unit falls in the upper righthand quadrant, then the business unit has a
high likelihood of operational risk and a high
severity of loss, if failure occurs.
References