Exercices on risk management

Résumé du document

The exercices in this document deal with the different risk measures, the paramaters of the VaR model, the evaluation factors of risk management capabilities and define some concepts.
Extract: "Describe the advantages and disadvantages for each of the following risk measures: DV01 (2)
Advantages :
- Easy to read and understand
- It allows to see the higher risk level of future trade
- It facilitates the calculation of the BPV (basis point value, which is a method used for calculating the interest rate risk)
- If you know the BPV and the link with DV01, you can use the financial tools for knowing the cash flow and also calculate BPV for money market and swaps."

Extraits

[...] The risk analysis should be detailed and explained to all the people. Training people is really important in the management because it allows to be sure that all the tools would be used in an efficient way. The capacity to monitor and manage people is compulsory in order to maximize the results and avoid the important losses Consider a portfolio that consists of Treasuries, corporate bonds, interest rate swaps and options a. Describe in the limit structure you would put in place to manage this trading book Treasuries: Treasuries are debt financing instruments of the United States Federal government”. [...]

[...] Why are these factors important in effecting risk management? If you manage the risk of a medium sized hedge fund, you have to take into account : The measurement : to develop efficient and specific measurement risk tools which are adapted to the markets, products or situations, accessible to all actors, with clear and correct information about the positions and the counterparties, with regular updates. The company should, according to the information and tools, take balanced risks and understand the consequences. [...]

[...] It is difficult to find the risks linked to the complex products. In the VaR model, it is important to take into account the measurement of the product's exposure with product complexity. b. Liquidity Liquidity is another parameter “which measures the degree to which an asset or security can be bought or sold in the market without affecting the asset's price.” Liquidity risk is financial risk due to uncertain liquidity. It is better to invest in liquid assets than illiquid ones because it is easier to take you money back. [...]

[...] "An Overview of Value at Risk." Www.iijournals.com. Web . "United States Treasury Security." Www.wikipedia.org. Web . 10) "Corporate Bond." Www.wikipedia.org. Web . 11) "Interest Rate Swap." Http://easybib.com. Web . 12) "Option (finance)." Www.wikipedia.org. Web . [...]

[...] It is efficient for several products and it allows to avoid the losses or to limit them. The BPV allows to add and complete the VaR model, above all, in specific markets with changes and big variations (question 1). Bibliography "Applying Stress-Testing to Operational Risk Exposure." Web log post. Www.qfinance.com. Web . "Basis Point Value (BPV, DV01)." Www.barbicanconsulting.co.uk. Web . Kurt Karl. "Benefits of Scenario Analyses." Www.claimsmag.com July 2009. Web . [...]