CF-5 Bank Hapoalim Jul-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Computational Finance.
FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.
-
date post
22-Dec-2015 -
Category
Documents
-
view
218 -
download
0
Transcript of FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.
![Page 1: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/1.jpg)
FRM BoI-2001
Zvi Wiener
02-588-3049http://pluto.mscc.huji.ac.il/~mswiener/zvi.html
Financial Risk Management 2
![Page 2: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/2.jpg)
Zvi Wiener FRM-2 slide 2
Regulation of Financial Intermediaries
• take deposits, give loans
• very small equity capital, big leverage
• FDIC, CDIC, Israel - implicit
• domino effect
• Minimal capital requirements (8-9%)
![Page 3: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/3.jpg)
Zvi Wiener FRM-2 slide 3
Banks
• major increase of off-balance sheet in 80s
• 1988 Basle accord (88 BIS Accord) -
international minimum capital guidelines
(credit risk).
• 1996 Amendment - market risk + VaR.
• Amendment = BIS 98
![Page 4: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/4.jpg)
Zvi Wiener FRM-2 slide 4
Accord + Amendment
• assets to capital 20
• eligible capital/risk weighted assets 8%
• minimal capital charge for market risk
• concentration risk:
positions of 10% must be reported
positions of 25% need special permission
![Page 5: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/5.jpg)
Zvi Wiener FRM-2 slide 5
Accord + Amendment
• regulators encourage banks to develop
models.
• Banks must implement a RM infrastructure
in their daily RM - limits, monitoring, etc.
• G-30 report, 1993.
![Page 6: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/6.jpg)
Zvi Wiener FRM-2 slide 6
G-30 policy recommendations
• The Role of senior management
• Marking to market
• Market valuation methods
• Identifying revenue sources
• Measuring market risk (VaR)
• Stress simulation
• Investing and funding forecasts
![Page 7: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/7.jpg)
Zvi Wiener FRM-2 slide 7
G-30 policy recommendations
• Independent risk management
• Practices by end-user
• Measuring credit exposure
• Master agreements
• Credit enhancements
• Promoting enforceability
• Professional expertise
![Page 8: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/8.jpg)
Zvi Wiener FRM-2 slide 8
G-30 policy recommendations• Systems
• Authority
• Accounting practices
• Disclosures
• Recognizing netting
• Legal and regulatory uncertainty
• Tax treatment
• Accounting standards
![Page 9: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/9.jpg)
Zvi Wiener FRM-2 slide 9
1988 BIS Accord
• Developed by Basle committee
• Accepted by G-10: Belgium, Canada,
France, Germany, Italy, Japan,
Netherlands, Sweden, UK, USA.
• minimum asset to capital multiple
• risk based capital ratio
![Page 10: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/10.jpg)
Zvi Wiener FRM-2 slide 10
1988 BIS Accordrisk based capital ratio - solvency ratio (Cooke ratio).
Capital divided by risk weighted on-balance-sheet assets plus off-balance-sheet exposures.
Weights are based on credit risk.
No netting or portfolio effects!
No market risk.
![Page 11: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/11.jpg)
Zvi Wiener FRM-2 slide 11
1988 BIS AccordThe Assets-to-capital multiple 20
Bank’s total assets divided by its total capital.
Some off-balance-sheet items, like letters of credit are accounted at nominal.
![Page 12: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/12.jpg)
Zvi Wiener FRM-2 slide 12
Weights in Cooke ratioOn-balance-sheet items:
0% Cash, gold, OECD government
claims, insured mortgages.
20% OECD banks, OECD public sector
entities.
50% Uninsured residential mortgages.
100% All other claims.
![Page 13: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/13.jpg)
Zvi Wiener FRM-2 slide 13
Cooke ratio
Off-balance-sheet credit equivalent.
1. Nonderivative exposure - conversion factor is set by regulators between 0 and 1.
2. Derivative exposure = Current replacement cost + Add-on amount
Risk weighted amount =
Assets*W+Credit equivalent*W
![Page 14: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/14.jpg)
Zvi Wiener FRM-2 slide 14
Cooke ratio
• Banks are required to maintain capital equal to at least 8% of their total risk weighted assets. (In Israel 9%.)
![Page 15: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/15.jpg)
Zvi Wiener FRM-2 slide 15
Capital• Tier 1. Stock equity, preferred stock, minority equity interest in consolidated subsidiaries, less goodwill and other deductions.
• Tier 2. Cumulative perpetual preferred shares, 99 year debentures, some subordinated debt (5y).
• Tier 3. Can be used to cover market risk only. Short term subordinated debt (2y).
• Tier 1 + Tier 2 8%, and Tier 1 must be at least 50% of this amount.
![Page 16: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/16.jpg)
Zvi Wiener FRM-2 slide 16
Models
• Standard model.
• Internal models (based on VaR).
(3*marketVaR10d +4*creditVaR10d)*trigger/8
trigger = 8 in North America and between 8 and 25 in the UK
![Page 17: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/17.jpg)
Zvi Wiener FRM-2 slide 17
Problems with the current approach
• No distinction between a loan of $100 and 100 loans of $1 each one.
• Turkish bank has lower capital requirements than General Electric.
• A loan to AA rated firm is treated as a loan to a B rated firm.
• Some similar contracts are treated differently.
![Page 18: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/18.jpg)
Zvi Wiener FRM-2 slide 18
New proposals
• BIS 2000
• VaR based approach to credit risk. CreditMetrics
CreditRisk+
KMV
Merton.
![Page 19: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/19.jpg)
Zvi Wiener FRM-2 slide 19
New Approach
Three pillars
A. Minimum Capital Requirement
B. Supervisory Review Process
C. Market Discipline Requirements
![Page 20: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/20.jpg)
FRM BoI-2001
Zvi Wiener
02-588-3049http://pluto.mscc.huji.ac.il/~mswiener/zvi.html
RM functions
![Page 21: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/21.jpg)
Zvi Wiener FRM-2 slide 21
Structuring RM functions
• Set firm-wide policies
• Develop methodology
• Set RM structure
• Risk communication
![Page 22: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/22.jpg)
Zvi Wiener FRM-2 slide 22
Integrated
Risk M
anagemen
t
Identify and avoid
MonitorLimit Management
StressMarket, Credit VaR
Risk Analysis
Allocate capital RAROC
Active RiskManagement
![Page 23: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/23.jpg)
Zvi Wiener FRM-2 slide 23
RAROC
• Risk Adjusted Rate of Return
• Performance measurement
• Marginal impact of any new transaction
• Consistent pricing
![Page 24: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/24.jpg)
Zvi Wiener FRM-2 slide 24
New Approach
Three pillars
A. Minimum Capital Requirement
B. Supervisory Review Process
C. Market Discipline Requirements
![Page 25: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/25.jpg)
Zvi Wiener FRM-2 slide 25
Goals and Instruments
• Risk Tolerance - “worst loss”
• Stop losses
• Capital allocation
• Credit risk policy
• Operational risk policy
![Page 26: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/26.jpg)
Zvi Wiener FRM-2 slide 26
Risk Measurement
• Consistent market based method
• Old limits duration, ALM
• VaR + Stress
• Backtesting
![Page 27: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/27.jpg)
Zvi Wiener FRM-2 slide 27
Systems
• Data bases market position rules
• Risk measuring tool
• Reports and decision support
![Page 28: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/28.jpg)
Zvi Wiener FRM-2 slide 28
IT - Information Technology
• Unifying information from various units
• Unifying information from various markets
• Unifying information for various ownership
• Back office and execution control
![Page 29: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/29.jpg)
Zvi Wiener FRM-2 slide 29
Organizational structure
• Front office
• Middle office
• Back office
![Page 30: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/30.jpg)
Zvi Wiener FRM-2 slide 30
Front office
• execution
• risk taking
• marketing
![Page 31: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/31.jpg)
Zvi Wiener FRM-2 slide 31
Middle office
• risk management
• pricing
• economic forecasts
![Page 32: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/32.jpg)
Zvi Wiener FRM-2 slide 32
Back office
• verification
• booking
• reporting
• collection
• settlement
![Page 33: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/33.jpg)
Zvi Wiener FRM-2 slide 33
ALCO
• Assets Liability management committee
• responsible for establishing documenting enforcing all policies involving market risk
• FX
• liquidity
• interest rate
![Page 34: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/34.jpg)
Zvi Wiener FRM-2 slide 34
Interdependence of RM
Senior Management
Risk Management Operations
Trading Room
Finance
![Page 35: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/35.jpg)
Zvi Wiener FRM-2 slide 35
Senior management
• Approves business plan and targets
• Sets risk tolerance
• Establishes policy
• Ensures performance
![Page 36: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/36.jpg)
Zvi Wiener FRM-2 slide 36
Trading Room Management
• Establishes and manages risk exposure
• Ensures timely and accurate deal capture
• Signs off on official P&L
![Page 37: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/37.jpg)
Zvi Wiener FRM-2 slide 37
Operations
• Books and settles the trades
• Reconciles front and back office positions
• Prepares and decomposes daily P&L
• Provides independent MTM
• Supports business needs
![Page 38: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/38.jpg)
Zvi Wiener FRM-2 slide 38
Finance
• Develops valuation and finance policy
• Ensures integrity of P&L
• Manages business planning process
• Supports business needs
![Page 39: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/39.jpg)
Zvi Wiener FRM-2 slide 39
Risk Management
• Develops risk policies
• Monitors compliance to limits
• Manages ALCO process
• Vets models and spreadsheets
• Provides independent view on risk
• Supports business needs
![Page 40: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/40.jpg)
Zvi Wiener FRM-2 slide 40
Risk Limits
• Global risk limit
• Risk limits for trading desks/units
• Dynamic monitoring and adjustment
![Page 41: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/41.jpg)
Zvi Wiener FRM-2 slide 41
Risk Approaches
• Accounting - reported P&L
• Economic - value
• Liquidity needs
![Page 42: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/42.jpg)
Zvi Wiener FRM-2 slide 42
Liquidity Rank
• Based on forecasts and potential availability
of funds.
• Hot funds - can be withdrawn quickly.
• Stable funds - typically to maturity.
![Page 43: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/43.jpg)
Zvi Wiener FRM-2 slide 43
Israel 339
• Definitions of risk types
• Relates to all banking institutions
• Management structure
• Exposure document
• Directors and policy
• Risk manager
• Internal audit
![Page 44: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/44.jpg)
Zvi Wiener FRM-2 slide 44
Israel 339
• IR risk
• Market risk
• Risk audit unit
![Page 45: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/45.jpg)
Zvi Wiener FRM-2 slide 45
Israel 341
• Capital requirements against market risk
• Risk measurement
• Trading portfolio
• Reporting
• Examples of standard approach and VaR
![Page 46: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/46.jpg)
Zvi Wiener FRM-2 slide 46
Israel 341
• Capital requirements against market risk
• Risk measurement
• Trading portfolio
• Reporting
• Examples of standard approach and VaR
![Page 47: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/47.jpg)
Zvi Wiener FRM-2 slide 47
Qualitative Requirements
• An independent risk management unit• Board of directors involvement• Internal model as an integral part• Internal controller and risk model• Backtesting• Stress test
![Page 48: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/48.jpg)
Zvi Wiener FRM-2 slide 48
Quantitative Requirements
• 99% confidence interval• 10 business days horizon• At least one year of historic data• Data base revised at least every quarter• All types of risk exposure• Derivatives
![Page 49: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/49.jpg)
Zvi Wiener FRM-2 slide 49
Types of Assets and Risks
• Real projects - cashflow versus financing
• Fixed Income
• Optionality
• Credit exposure
• Legal, operational, authorities
![Page 50: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/50.jpg)
Zvi Wiener FRM-2 slide 50
Risk Factors
There are many bonds, stocks and currencies.
The idea is to choose a small set of relevant economic
factors and to map everything on these factors.
• Exchange rates
• Interest rates (for each maturity and indexation)
• Spreads
• Stock indices
![Page 51: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/51.jpg)
Zvi Wiener FRM-2 slide 51
![Page 52: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/52.jpg)
Zvi Wiener FRM-2 slide 52
![Page 53: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/53.jpg)
Zvi Wiener FRM-2 slide 53
![Page 54: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/54.jpg)
Zvi Wiener FRM-2 slide 54
Board of Directors(Basle, September 1998)
• periodic discussions with management concerning the effectiveness of the internal control system• a timely review of evaluations of internal controls made by management, internal and external auditors• periodic efforts to ensure that management has promptly followed up on recommendations and concerns expressed by auditors and supervisory authorities on internal control weaknesses• a periodic review of the appropriateness of the bank’s strategy and risk limits.
![Page 55: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/55.jpg)
Zvi Wiener FRM-2 slide 55
Risk Management Issues
• Why only half of the bond was called?
• Why only 800,000 shares were protected?
• How to choose the protection level?
• When does it make sense to hedge?
![Page 56: FRM BoI-2001 Zvi Wiener 02-588-3049 mswiener/zvi.html Financial Risk Management 2.](https://reader030.fdocuments.net/reader030/viewer/2022032523/56649d775503460f94a58b78/html5/thumbnails/56.jpg)
Zvi Wiener FRM-2 slide 56
New proposals
• BIS 2000
• VaR based approach to credit risk. CreditMetrics
CreditRisk+
KMV
Merton.