FINANCIAL RISK MANAGEMENT

LEVEL I PREPARATIONS
FOUNDATION RISK MANAGERMENT
1
Core Concepts In Risk Management

2
Introduction to Foundation of Risk Management

3
 Topics in Foundation of Risk Management

01 Risk Management: ?
A Helicopter View

02 Corporate Risk ?
Management: A Primer

03 Corporate Governance and ?

1st Group Risk Management
Risk Management Overview
04 ?
What is ERM?

05 Risk Management, Governance, ?

Culture, and Risk Taking in Banks.

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4
Topics in Foundation of Risk Management

?
06 Financial Disasters

07 Deciphering the Liquidity and ?

Credit Crunch 2007-2008

2nd Group Getting Up to Speed on the Financial ?

08
Crisis: A One-Weekend- Readers Guide
Financial Crisis and
Risk Management
Failures 09 Risk Management Failures: What Are They ?
and When Do They Happen?

13 Principles for Effective Risk Data ?

Aggregation and Risk Reporting.

14 GARP Code of Conduct ?

5
Topics in Foundation of Risk Management

?
10 Delineating Efficient Portfolio
A

10 The Standard Capital Asset ?

Pricing Model

Applying the CAPM to Performance ?

3rd Group 11 Measurement: Single-Index Performance
Efficient Portfolio and Measurement Indicators.
CAPM, APT Models
12 Arbitrage Pricing Theory and Multifactor ?
Models of Risk and Return.

14 GARP Code of Conduct

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Topic 1: Risk Management: A Helicopter View

Describe and differentiate between the key classes of

06 risks, explain how each type of risk can arise, and assess
the potential impact

05 Interpret the relationship between risk and reward and

explain the impact of the conflicts of interest

04 Distinguish between expected loss and unexpected loss,

and provide example of each.

03 Evaluate and apply tools and procedures used to

measure and manage risk

02 The risk management process and identify problems

and challenges.

01 Explain the concept of risk and compare risk

management with risk taking.

7
TOPIC 1

L.O 1.1: Explain the concept of risk and compare risk management with risk taking.

What is Risk ?
Risk arises from the uncertainty regarding an entitys future losses as well as future gains.

Cc s kin tng lai khng th d on trc mt cch chc chn. S khng chc chn ca cc s kin din ra
trong tng lai l ngun gc pht sinh ri ro.

Mt s quan im cho rng ri ro ch tp trung vo cc bin ng bt li (variability of adverse outcomes).

Mt s quan im khc th ri ro l bt k s bin ng no ca li nhun ca mt khon u t quanh mc li

nhun k vng.

C hai quan im u c th chp nhn c, tuy nhin trong ri ro ti chnh ngi ta thng quan tm hn ti
ri ro gc s bin ng ca cc khon l ngoi k vng (volatility of an unexpected losses).

Mt lu l theo Crouhy th cc kt qu khng chc chn phi c th kim sot (tc l c th p dng cc bin
php, k thut gim thiu hoc phng trnh) c th mi c coi l ri ro.

8
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1

L.O 1.1: Explain the concept of risk and compare risk management with risk taking.

What is Risk ?
Risk is not necessarily related to the size of the potential loss.

Mt s nh ngha v ri ro quan nim rng ri ro lun bao gm hai yu t nh tnh (unexpected) v nh lng
(consequences of the event / amount potential loss), tuy nhin theo Crounhy khng cn thit phi c yu t nh
lng m ch cn c yu t nh tnh l c th cu thnh ri ro.

Ri ro ch thc s pht sinh khi n tc ng ti s bin ng ca chi ph v thu nhp mc ln v vt ra

ngoi d tnh (expected) ca nh u t hay doanh nghip.

Phn bit c s khc nhau gia expected loss v unexpected loss l mt trong nhng c s chnh hiu cc
khi nim qun l ri ro hin i.

9
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1
L.O 1.1: Explain the concept of risk and compare risk management with risk taking.

What is Risk ?
A formal treatment to define the extent and potential cost of any exposure is using statistics.

Expected loss: c hiu nh mt khon thua l trung bnh v c d bo trc. V d nh danh mc

tn dng ca bank, da trn s liu lch s ta c th tnh ton c cc khon l pht sinh do khch hng
khng tr c n. V bank d kin rng mi nm h c th s pht sinh mt khon l nh vy.

Expected loss thng c coi nh mt khon chi ph trong hot ng kinh doanh v s c tnh vo gi
ca cc sn phm hoc dch v cung cp cho khch hng.

Unexpected loss: Trong mt s trng hp do tc ng ca mt s yu t ti danh mc lm pht sinh cc

khon l vt ra ngoi khon l k vng (m bank/firm d phng trc). Bank/Firm bit rng
unexpected loss l c th xy ra nhng khng xc nh c mt cch chc chn s xy ra ti thi im no
v mc ra sao.

Lu : Unexpected loss khng xy ra thng xuyn, nhng khi xy ra th mc thit hi rt ln v c

th nh hng mnh ti hot ng ca bank/firm.
10
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1

L.O 1.1: Explain the concept of risk and compare risk management with risk taking.

What is Risk ?
A formal treatment to define the extent and potential cost of any exposure is using statistics.

Cc tip cn xc nh ra expected loss v unexpected loss l s dng cc phng php v phn tch thng k
da trn cc thng tin sn c.

Trc ht, risk manager cn xc nh c cc nhn t ri ro c th gy ra bin ng v thu nhp ca danh mc

ca bank/firm.Tip theo, thc hin phn tch thng k tnh ton xc sut cho cc kt qu c th xy ra da
trn cc nhn t xc nh. a ra c phn phi xc sut

11
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1
L.O 1.1: Explain the concept of risk and compare risk management with risk taking.

Compare risk management vs risk taking

Risk Management and Risk Taking

Risk management:Trong qu kh risk management thng c nh ngha theo quan im ca nhng risk
hedgers, nhng ngi nhn nhn risk management vi mc ch gim thiu hoc loi tr ri ro. Nh vy, ta
c th nh ngha Risk management l mt quy trnh lin tc nm trong cc hot ng ca bank/firm nhm
mc tiu gim thiu/ loi tr ri ro.

Cng vi s pht trin ca th trng v cc sn phm ti chnh th Risk management c nhn nhn cc
kha cnh khc khng ch dng risk hedging (phng ng ri ro, cc bin php gim thiu, loi tr ri ro)
m cn xc nh cc chin lc v mc sn sng chp nhn ri ro (risk taking) ca firm nhm t c
mt mc li nhun khng chc chn trong tng lai.

Risk taking c hiu l vic firm chp nhn tham gia vo mt hoc mt s hot ng lm gia tng ri ro
m firm phi i mt vi gi nh rng ri ro tng thm to ra li ch tng thm cho firm. Khi , risk c th
coi nh mt c hi firm tng thm thu nhp.

12
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1
L.O 1.2: Describe the risk management process and identify problems and challenges that can
arise in the risk management process

The Risk Management Process

The main function of the management process is the capacity to make forward-looking choices about risk
in relation to reward, and to evaluate performance.

Risk management concerns the firms selection of its appropriate type(s) and level(s) of risk.

Most business decisions involve a sacrifice of current resources for future uncertain returns. In
this way, risk management and risk-taking arent opposites, but two sides of the same coin.

At the heart of the management process is the capacity to make forward-looking choices about risk
in relation to reward, and to evaluate performance.

13
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1
L.O 1.2: Describe the risk management process and identify problems and challenges that can
arise in the risk management process

The Risk Management Process

The risk management process involves the following five steps:

Step 1:

14
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
TOPIC 1
L.O 1.2: Describe the risk management process and identify problems and challenges that can
arise in the risk management process

The Risk Management Process

Challenge: To manage unexpected levels of variability

Step 1:

15
Reading: Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, Chapter 1
AGAINST THE
MAINSTREAM
CONCEPT
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