the risk management process
manage
avoid: stop the bussiness
retain: taking risk which is belong the firm's risk appetite
mitigate: hedging and collectarl
identifying risk:known and unknown
expected loss,unexpected loss,and tail loss
Expected Loss
EL=PD(probability)+EAD(exposure amount)+LGD(severity)
structral change:from tail loss to symtic crisis
tail loss might lead to systemic crisis
when systemic crisis came,tail loss would became more frequen、more powerful、and greater effects
human agency problem and conflicts of interest
shareholder VS management
longterm development VS shorterm achievement
shareholder VS debtholder
more risk taking VS less risk taking
three lines to reduce the agency problem
balancing risk and reward
RAROC (risk adjusted return on capital)
in most case,economic capital repersent the risk
enterprise risk management
typoligy of risk and risk interactions
credit risk
counter-party risk(herstatt risk)
Driven factor:
less number but large amount loans
rate of return/default corelate posivitely
EAD、rate of default、loss amount corelate posivitely
operation risk
failed internal process、system
legal risk and reputation risk、strategy risk...
