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Risk Appetite in Practice: Vulgaris Mathematica

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  • Bertrand K. Hassani

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

The ultimate goal of risk management is the generation of efficient incomes. The objective is to generate the maximum return for a unit of risk taken or to minimise the risk taken to generate the return expected i.e. it is the optimisation of a financial institution strategy. Therefore, by measuring its exposure against its appetite, a financial institution is assessing its couple risk-return. But this taskk may be difficult as banks face various types of risks, for instance, Operational, Market, Credit, Liquidity, etx. and these cannot be evaluated on a stand alone basis, interaction and contagion effects should be taken into account. In this paper, methodologies to evaluate banks' exposures are presented along their management implications, as the purpose of the risk appetite evaluation process is the transformation of risk metrics into effective management decisions.

Suggested Citation

  • Bertrand K. Hassani, 2014. "Risk Appetite in Practice: Vulgaris Mathematica," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01020293, HAL.
  • Handle: RePEc:hal:cesptp:halshs-01020293
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01020293
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    1. Christophe Chorro & Dominique Guegan & Florian Ielpo, 2015. "A time series approach to option pricing: Models, Methods and Empirical Performances," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01015308, HAL.
    2. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    3. Dominique Guegan & Pierre-André Maugis, 2008. "New prospects on vines," Documents de travail du Centre d'Economie de la Sorbonne b08095, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2010.
    4. Dominique Guegan & Bertrand K. Hassani, 2011. "Operational risk: A Basel II++ step before Basel III," Documents de travail du Centre d'Economie de la Sorbonne 11053r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2012.
    5. Dominique Guegan & Bertrand K Hassani, 2014. "Stress Testing Engineering: the real risk measurement?," Documents de travail du Centre d'Economie de la Sorbonne 14006, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    6. Kjersti Aas & Daniel Berg, 2009. "Models for construction of multivariate dependence - a comparison study," The European Journal of Finance, Taylor & Francis Journals, vol. 15(7-8), pages 639-659.
    7. Dominique Guegan & Bertrand Hassani, 2014. "Distortion Risk Measures or the Transformation of Unimodal Distributions into Multimodal Functions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00969242, HAL.
    8. Dominique Guegan & Bertrand K. Hassani & Xin Zhao, 2013. "Emerging Countries Sovereign Rating Adjustment using Market Information: Impact on Financial Institution Investment Decisions," Documents de travail du Centre d'Economie de la Sorbonne 13034, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    9. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
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    12. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    13. Dominique Guegan & Bertrand Hassani, 2009. "A modified Panjer algorithm for operational risk capital calculations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00443846, HAL.
    14. Niall Whelan, 2004. "Sampling from Archimedean copulas," Quantitative Finance, Taylor & Francis Journals, vol. 4(3), pages 339-352.
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    More about this item

    Keywords

    interdependencies; risk appetite; Risk management; risk measures; interdépendance; appétit pour le risque; mesures de risques; Gestion des risques;

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