ĐẠI HỌC KINH TẾ QUỐC DÂN

KHOA TOÁN KINH TẾ

Bộ môn Toán tài chính

Bài giảng
Quản trị rủi ro định lượng I

www.mfe.neu.edu.vn
2021

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 Thông tin học phần
 Tiếng Anh: Quantitative risk management 1
 Số tín chỉ: Thời lượng: tiết
 Đánh giá: (Điểm (1), (2), (3) do giảng viên quyết định)
• (1) Chuyên cần:
• (2) Bài thuyết trình:
• (3) Bài kiểm tra: (45 phút)
• (4) Thi cuối kì: (90 phút)
 Nghỉ trên số giờ giảng trên lớp không được thi
 Chuyên cần dưới 5 điểm không được thi

LÝ THUYẾT XÁC SUẤT VÀ THỐNG KÊ TOÁN – BỘ MÔN TOÁN KINH TẾ - www.mfe.neu.edu.vn 2

 Thông tin học phần

TT Họ và tên Số điện thoại Email

1 ThS. Đào Bùi Kiên Trung 0932284396 trungdbk@neu.edu.vn

2 TS. Hoàng Đức Mạnh 0904633994 manhhd@neu.edu.vn

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Tài liệu
2020 FRM Exam Part 1, Foundations of
Risk Management
2020 FRM Exam Part 1, Quantitative
Analysis
2020 FRM Exam Part 1, Valuation and
Risk Models
[4] 2020 FRM Exam Part 1,
Financial Markets and Products

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Foundation of
risk
management
1. The Building Blocks of Risk Management
2. How do firms manage financial risk?
Learning objectives
• Explain the concept of risk and compare risk management with risk taking
• Describe the risk management process and identify problems and challenges that can
arise in the risk management process.
• Evaluate and apply tools and procedures used to measure and manage risk, including
quantitative measures, qualitative assessment, and enterprise risk management.
• Distinguish between expected loss and unexpected loss and provide examples of
each.
• Interpret the relationship between risk and reward and explain how conflicts of
interest can impact risk management.
• Describe and differentiate between the key classes of risks, explain how each type of
risk can arise and assess the potential impact of each type of risk on the organization.
• Explain how risk factors can interact with each other and describe challenges in
aggregating risk exposures.
RISK CLASSES

Operational
Market risk Credit risk Liquidity risk
risk

Legal and Reputation

Business risk Strategic risk
regulatory risk risk
TYPOLOGY OF RISKS AND RISK INTERACTIONS
  Market risk is the risk of losses arising from
changes in market risk factors. Market risk
MARKET can arise from
 Interest risk
RISK  Equity price risk
 Foreign exchange risk
 Commodity risk
  Credit risk is the risk from the borrower of a
loan or counterparty of a contract.
 Default risk
 Bankruptcy risk
CREDIT  Downgrade risk
 Settlement risk
RISK  Recovery rate/ Loss Given Default
 Loan portfolio: concentration and correlation
risk
LIQUIDITY  Funding liquidity risk: lack of cash
RISK  Trading liquidity risk: lack of counterparty
  Operational risk refers to financial loss
resulting from a host of potential operational
breakdowns
 From non-financial problems: inadequate or
OPERATION failed internal processes, people, and
systems, or from external events (e.g.,
AL RISK frauds, a mistake in operations, or a natural
disaster)
 New types: cyber risk, data privacy risk
  Lawsuit
LEGAL AND  Change in tax
REGULATO  Change in law
RY RISK
  Revenues: demand, price, competition
BUSINESS  Costs: cost overruns, unexpected costs
RISK
  Risk of failure of strategies
STRATEGIC  Investment strategies
RISK  Business strategies
  Trustworthiness
REPUTATIO  Able and willing to meet obligations
N RISK  Financial health
 Fair dealing and ethical manner
 RISK VS UNCERTAINTY

RISK IS MEASURABLE UNCERTAINTY IS NOT VARIABILITY MORE IMPORTANT

MEASURABLE THAN SIZE OF POTENTIAL LOSSES
RISK VS REWARD

1 2 3
Trade off: high risk high Except for operational Portion of the
return risk variability:
• Measurable is expected loss
• Not measurable unexpected
loss (uncertainty)
FILTER RISKS INTO
DEGREES
Expected loss

Unexpected loss

Known unknown

Unknown unknown
 • In the normal course of business, the
average loss scenario
EXPECTED • Predictable/ measurable
LOSS • EL = PD x EAD x LGD
• Treated as costs of doing business to
increase the price
 • Could lose in excess (beyond) of average loss
UNEXPTECT scenarios
ED LOSS • More difficult to predict/measure
• E.g., Correlation risk
KNOWN • Knightian uncertainty
• Incalculable
UNKNOWN • E.g., nuclear war = known threat but
unknown probability
UNKNOWN
UNKNOWN • Rumsfed: don’t know what and how much
RISK FACTOR
INTERACTION
• Risk correlation: can be dangerous
• Risk aggregation is challenging: VaR
• Disadvantage: many versions, simplified assumptions, tail
risk
• Advantage: enterprise level across business units, related to
risk capital
• RAROC: RISK-ADJUSTED RETURN ON CAPITAL
• Numerator: net return after tax and risk-adjusted (minis
expected losses)
• Denominator: capital
• RAROC should be higher than the cost of equity
CONFLICT OF INTEREST

Corporate
governance, rogue Method
traders
• Risk recognition
• Strong RM system
• Periodically Audits
DISTINGUISH
• Risk management
• Defensive technique
• Reduce/eliminate losses
• Risk taking
• Opportunistic actions
• Increase risk of increasing gain
 • Risk management process
• Identify risks: known and unknown
BUILDING • Expected loss, unexpected loss, and tail

BLOCKS OF loss
• Risk factor breakdown
RISK • Structural change: from tail risk to

MANAGEMENT systematic crisis

• Human agency and conflict of interest
• Typology of risks and risk interactions
• Risk aggregation
• Balancing risk and reward
• Enterprise risk management
RISK MANAGEMENT PROCESS

INDENTIFY

ANALYZE

ASSESS
IMPACT

MANAGE
 RISK
• Identify risks incorrectly
MANAGEME • Can’t find efficient method of transferring
NT • Risk is too concentrated among too few market
CHALLENGE participants
• Failed to prevent accounting fraud and market disruption
S • Derivatives may overstate income/equity and understate
risk
• RM is a zero-sum game  not effective on an overall
economic basis
RM STRATEGY (TRAM)

1. Transfer: buy insurance or derivatives but costly and counterparty risk

2. Retain: (accept, assume) when small impact, costly if managed, desired by owners

3. Avoid: when not natural part of normal operation eg. GE sold financial business

4. Mitigate:

• Banks offering loans at higher i/r, or increase collateral to mitigate credit risk
• Upgrade planes, trucks to mitigate fuel price risk
RISK Type and level of risk a
firm is willing to retain

APPETITE
(what and how much)
Risk willingness

2 subcomponents:

Risk ability

Leave a margin for

error

Role of BoD: Define

and communicate risk
appetite
RM ROAD MAP (5 MILESTONES)
Risk appetite

Map risks, make choices

• Map risks
• Assemble risks at cash flow level
• Risk map: magnitude, timing, location, calc method, potential for netting, consider correlation
• Conducted for all known risks or at least top 10 risks
• Input is more detailed, mapping is more robust
• Assess impact, perform risk/reward analysis, cost/benefit of tactics, choose strategy/tactics, detailed risks appetite statement

Operational risk appetite: risk policies, risk limits, right size RM team

Implement: choose tactics/instruments, oversight, day to day decisions

Monitor and adjust risk appetite changes, remapping, new tools/tactics

 RISK MANAGEMENT TOOLS
Risk limits Derivatives

• Forward, futures, swap, option

Risk specific
Stop loss limits Notional limits
limits • Exchange traded
• Rightsizing a RM program
Maturity limits
Concentration
Greek limits
• Hedging is one-off or broader
limits need
• If broader, complex system and
Stress testing
VaR and scenario experienced traders
analysis