Risk Management Selected Concepts - International …:风险管理选择的概念-国际… .ppt
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1、Risk Management Selected Concepts,Agenda Definitions Basic Concepts of Modern Portfolio Theory Selected Risk Management Metrics Investment Policy and Conclusions,Definitions,Quite often risk is perceived only with negative connotations D defines risk as: 1. The possibility of suffering harm or loss;
2、 danger. 2. A factor, thing, element, or course involving uncertain danger; 3. a. The danger or probability of loss to an insurer. b. The amount that an insurance company stands to lose. 4. a. The variability of returns from an investment. b. The chance of nonpayment of a debt. 5. One considered wit
3、h respect to the possibility of loss: a poor risk. However, risk may also contain another element The Chinese use two symbols to define risk: 1. The first symbol is for “danger” 2. The second is for “opportunity”,What is Risk?,From our previous definition, Risk Management (RM) would entail administe
4、ring a mix of danger and opportunity. A more classic approach defines RM as a process (an attempt, really) to identify, measure, monitor and control uncertainty in an orderly and methodical manner (often using mathematical models). Both approaches to RM are correct. However, RM is more of avoiding d
5、angers than seeking the opportunities. RM in a modern acception entails following a pre-established management process and performing mathematical models (Greek letters and other sophisticated financial metrics). RM is about understanding human behavior and finding a “comfortable” trade-off between
6、expected reward and potential loss.,What is Risk Management ?,RM entails managing exposure and uncertainty.,Risk Topology in the Investment Management context,Investment Risks,Liquidity,Operational,Regulatory,Human Factor,Market Risk,Credit,Portfolio Concentration,Issuer,Counterparty Risk,Equity/com
7、modity (price),Interest Rates,Currency,Legal,Systemic,Market risk is the uncertainty of changes in the assets returns relative to changes in the market. Derives from market-wide factors which affect issuers and investors. Such factors will include (but will not limited to): Interest rates; Inflation
8、 rates; Currency exchange rates; Demographics (remember Michael Cichons comments about demographic implications!); Unemployment rates; General legislation; Risk of natural disasters (Katrina, Rita, earthquakes, floods, fire, etc.).,Market Risk,- Credit risk is the uncertainty in a counterpartys (or
9、obligors) ability to meet payment of its obligations. Associated concepts: Default probability is the likelihood that the obligor will default on its obligation either over the life of the transaction or at an specific timeframe. Credit exposure is the amount of outstanding at the time of a potentia
10、l default. Recovery rate is the fraction of the exposure that might be recovered. Credit quality is the perceived ability (usually by a credit rating agency) of an issuer or counterparty to meet its obligation. Credit rating is assigned by credit analysts to the counterparty (or specific obligation)
11、 and can be used for making credit decisions.,Credit Risk,Standard & Poors Credit Ratings,AAA Best credit quality - Extremely reliable with regard to financial obligations AA Very good credit quality - Very reliable A More susceptible to economic conditions - still good credit quality BBB Lowest rat
12、ing in investment grade BB Caution is necessary - Best sub-investment credit quality B Vulnerable to changes in economic conditions - Currently showing the ability to meet its financial obligations CCC Currently vulnerable to nonpayment - Dependent on favorable economic conditions CC Highly vulnerab
13、le to a payment default C Close to or already bankrupt - Payment on the obligation currently continued D Payment default on some financial obligations has actually occurred,Simple, market wide, common, homogeneous (to a broad range of assets), easily available and (+ - ) objective. But have limitati
14、ons (remember Enron!).,Liquidity risk is the uncertainty of being able to easily and without undue cost avail oneself of cash either through converting financial assets to cash (“liquidate a position”) or through credit. A person or institution might be exposed to liquidity risk if sudden unexpected
15、 cash outflows occurs and the markets on which it depends are subject to loss of liquidity, or if a financial asset it holds losses “marketability” or if the credit rating of the institution falls. A position can be hedged against market risk but still entail liquidity risk. Accordingly, liquidity r
16、isk has to be managed in addition to market, credit and other risks. Cash flow exercises and stress testing (along with asset-liability matching) cab be applied to assess liquidity risk. However, Comprehensive metrics of liquidity risk due to systemic failures are not easily available. Remember Jame
17、s Thompsons comment about matching assets and liabilities, this reduces exposure to liquidity risk!.,Liquidity Risk,Risk that a localized problem in the financial markets could cause a chain of events which ultimately cripple the market. A default by a major market participant (i.e. Government defau
18、lt, and even maybe foreign currency depletion and/or inability to access international markets) might cause liquidity problems for a number of that institutions counterparties. This might cause those counterparties to fail to make payment on their own obligations, and a liquidity crisis could spread
19、 throughout the market. One of the purposes of financial regulation is to ensure that the market operates in a manner that minimizes systemic risk. This issue might be discussed by Edgardo Podjarny for the Argentina case.,Systemic Risk,“Risk management” as it is understood today, largely emerged dur
20、ing the early 1990s. It is different from earlier forms (it is more oriented to financial solutions using derivatives). The four approaches to risk management are: Risk Transfer: through the purchase of traditional insurance products, or through the acquisition of derivative products to “hedge” expo
21、sures. Termination (or mitigation) of risks: via safety measures, quality control and hazard education. Risk transformation: also through the use of derivatives. Tolerate risks: alternative risk financing, including self-insurance and captive insurance (assume expected value of impact or loss is low
22、er than cost of hedging, transferring risk or preventive measures).,Basic Risk Management Concepts,Basic Concepts of Modern Portfolio Theory,Markowitz (1952) “Portfolio Selection” Harry Markowitz proposed that investors focus on selecting portfolios based on their overall risk-reward characteristics
23、 instead of merely compiling portfolios form securities that have (individually) attractive risk-reward characteristics. MPT treats volatility and expected return as proxies for risk and reward. Out of the entire set of possible portfolios, a certain sub-set will optimally balance risk and reward. (
24、sub-set = efficient frontier of portfolios) An investor should select a portfolio that lies on the efficient frontier. MPT provides a broad context for understanding the structuring of a portfolio.,Modern Portfolio Theory (MPT),Today, it is possible to monitor daily the values (reflecting price chan
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