Year 3 · Applied Finance · Risk Management
Risk Management
Learn how financial institutions and investment teams identify, measure, limit, stress and communicate market, credit, liquidity, operational and model risk.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Distinguish market, credit, liquidity, operational and model risk.
02
Understand exposure, sensitivity, volatility, VaR and expected shortfall at an applied level.
03
Explain counterparty risk, concentration risk and wrong-way risk.
04
Understand liquidity stress, funding risk and margin-call dynamics.
05
Use scenario analysis and stress testing to challenge normal-market models.
06
Explain limits, hedging, escalation and governance in a professional risk framework.
CONCEPT MAPFrom exposure to controlled risk
Good risk management begins by naming the risk correctly
CORE FACTS · SAME IN EVERY MODE
Market risk comes from changes in prices, rates, spreads, FX and volatility.
Credit risk comes from deterioration or default of borrowers and counterparties.
Liquidity risk includes difficulty exiting positions and difficulty funding obligations.
Operational and model risk can create losses even when the market view itself is correct.
BeginnerTeaching style changes, knowledge does not.
Risk is not one thing. A portfolio can lose because prices move, a borrower defaults, a position cannot be sold, a system fails or a model gives the wrong answer.
PROFESSIONAL VOCABULARYMarket risk / risque de marché Operational risk / risque opérationnel Model risk / risque de modèle
Risk of loss from adverse changes in market variables.
Risk of loss from failures in processes, people, systems or external events.
Risk that a model is wrong, misused or inappropriate for the decision.