Risk Management

Relevance of course

Finbank students
Actuaries
 Should know Case Studies

The 2006-2008 Global financial crisis

Should know texts

Basel requirements
Altman Z score
Real life events outcomes

Certainty
Risk
Uncertainty
Why risk management

Determination of
Value: real value
In the face of asymmetric information.
Hence need for

Financial modelling
Financial decision making
Intrinsic Versus Extrinsic Risk

Intrinsic related to the asset or variable itself.

Extrinsic relate information surrounding the product.
Intrinsic Versus Extrinsic Risk address

Intrinsic very difficult to predict due to the human element,

hence emerging of behavioral finance
Extrinsic obtaining more information
 Types of financial risk management

Market risk – changing asset values

Credit risk – one party in a financial transaction fails to honor
their obligation to the other: default risk, counterparty risk,
settlement risk.
Liquidity risk – not able to buy or sell an asset, or to transact in
the desired quantity at the current market price.
Operational risk – from all aspects of a firm’s business activities.
 Other risk

Enterprise risk – an eagle’s view of all the other risks aimed at

sustained operations.
What risk managers do

Defining risk
Monitoring risk
Controlling risk
Explaining or communicating risk