1、Quantitative Risk Management - Introduction,Ming-Heng Zhang,the Story : Orange County,Orange County (November 1994): Orange County, California has an investment pool that supports various pension liabilities. The pool lost USD 1700 MM from structured notes and leveraged repopositions. In December 19
2、94, Orange County stunned the markets by announcing that its investment pool had suffered a loss of $1.6 billion. This was the largest loss ever recorded by a local government investment pool, and led to the bankruptcy of the county shortly thereafter.,The Story Orgen Country,万国证券327国债事件,时间：1995年2月2
3、3日事件：327品种是对1992年发行的3年期国债期货合约的代称。原因：由于其于1995年6月即将交收，现货1992年3年期国债保值贴补率明显低于银行利率，故一向是颇为活跃的炒作题材。交锋：中央财政可能要加息；而另一些人则认为不可能，因为一旦加息需要国家多支出10多亿元的资金，在客观形势吃紧的情况下，显然绝非易事。于是，围绕着对这一问题的争议，期货市场形成了327品种的多方与空方，该品种价格行情的最大振幅曾达4元多。,万国证券327国债事件,消息：2月23日，财政部发出公告，关于1992年期国库券保值贴补的消息终于得到证实。多头得理不饶人，咄咄逼人地乘胜追击，而空方却不甘束手就擒。双方围绕32
4、7高地展开了激烈的争夺战。 反击：空方的总指挥是万国证券公司，二号主力辽宁国发(集团)公司。在148.50元附近，空方集结了大量的兵力。但多方力量势不可挡，一开盘，价位就跳空高开，数百万的空单被轻而易举地吃掉，价格大幅飙升，迅速推高到151.98元。16时22分，离收盘还有8分钟。正当许多人都以为大局已定时，风云突变，730万口(约合人民币1460亿元)的抛单突然出现在屏幕上，多方顿时兵败如山倒。最后双方在147.50元的位置鸣金收兵。当日上海国债期货总成交8539.93亿元，其中80%即6800亿元左右集中在 327 品种上。若按收市价147.50元结算，意味着一大批多头将一贫如洗，甚至陷于
5、无法自拔的资不抵债的泥坑。 结局：交易刚结束，上海证券交易所、证管办就接到了指有会员严重违规操作的控告。根据后来的处理结果，327事件被定性为一起严重的违规事件。它是在国债期货市场发展过快、交易所监管不严和风险管理滞后的情况下，由上海万国证券公司、辽宁国发(集团)股份有限公司等少数大户蓄意违规、操纵市场、扭曲价格、严重扰乱市场秩序所引起的国债期货风波。 结论：建国以来罕见的金融地震，个中缘故值得深思和追究。,The Story of Barings Bank,The collapse of Britains Barings Bank in February 1995 is perhaps th
6、e quintessential tale of financial risk management gone wrong. The failure was completely unexpected. Over a course of days, the bank went from apparent strength to bankruptcy. What really grabbed the worlds attention was the fact that the failure was caused by the actions of a single trader based a
7、t a small office in S,The story of “中航油”,在新加坡上市的航空燃料供货商中国航油(新加坡)股份有限公司(China Aviation Oil Ltd.,C47.SG,以下简称中航油)本周二晚间表示该公司正在寻求法院保护自己免受债权人起诉?此前公司出现了5.5亿美元的衍生工具交易亏损。 公司公告显示，中航油石油期货交易出现巨额亏损的时候正值纽约原油期货价格在10月25日飙升至每桶55.67美元的纪录高点。母公司中国航空油料集团公司(以下简称中航油集团)向中航油提供的1亿美元贷款也未能帮助中航油免予被交易所强制平仓。自10月26日至11月29日，中航油已经平仓
8、的石油期货合约累计亏损约3.9亿美元，而将要平仓的剩余石油期货合约亏损约1.6亿美元。,The story of “中航油”,陈久霖出生于1961年，毕业于北京大学。1997年，亚洲金融危机之际，陈被派接手管理中国航油(新加坡)股份有限公司。在陈的管理下，公司一举扭亏为盈，并于2001年在新加坡交易所主板挂牌上市。中国航油的净资产由1997年的16.8万美元猛增至2003年的1.28亿美元，增幅高达761倍。公司也曾获颁新加坡上市公司“最具透明度”企业。2002年，在新加坡挂牌的中资企业当中，陈久霖以490万新元(约合人民币1600万元)的薪酬高居榜首，当时被新加坡人誉为“打工皇帝”。2003
9、年10月，陈久霖被世界经济论坛评选为“亚洲经济新领袖”。中航油董事会今年11月30日发布公告，中止陈久霖新加坡公司总裁和执行董事的职务。（深圳特区报） story of住友商社滨中泰男,Sumitomo Corp. (June 1996): Sumitomos head copper trader, Yasuo Hamanaka, disguised losses totaling USD 1800MM over a ten year period. During that time, Hamanaka performed as much as USD 20 billion of unauth
10、orized trades a year. He was able to hide his activities because he headed his section and had trade confirmations sent directly to himself, bypassing the back office.滨中男泰是住友集团首席金属交易员，利用公司名义以私人帐户进行期铜交易，造成住友商社18亿美元损失。在丑闻逐渐公开之际，住友商社宣布亏损19亿美元并解除滨中泰男。造成恐慌，铜价由2165美元每吨跌至1860美元，狂跌之后，住友亏损额扩大至40亿美元。,The Stor
11、y of Yasuo Hamanaka,the nickname “Mr. 5%”, or “Mr.Copper” reflective of the share of the world copper market that he supposedly controlled on behalf of his employer, Sumitomo Corporation. He also had the nickname “The Hammer,” a play on his name and on his ability to hammer the market. Sumitomo was
12、proud of his stature in the markets and even featured his photo on the cover of one of its annual reports.PERILS OF PROFIT - The Sumitomo debacle underscores the need for risk managementfic.wharton.upenn.edu/fic/papers/99/9942.pdf,Risk and Opportunity,Risk is not necessarily a bad thing. In fact, ri
13、sk can hold tremendous opportunities for those who know how to manage it.（绝境生辉）Avoiding risk / 规避风险Higher return for higher risk/高风险高收益,What s Risk,Risk has two components:Uncertainty/不确定性, and Exposure/暴露/揭露/陷阱/地雷 If either is not present, there is no risk. How to Measure,Control, Manage and make a
14、 profit?,西藏喜马拉雅山脉的希夏邦马峰，夏季时常被印度洋涌上的季风乌云所笼罩,Types Risks,Type of riskCredit risk is risk due to uncertainty in a counter-party s (also called an obligors or credits) ability to meet its obligations. Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpr
15、etation of contracts, laws or regulations.,Type of Risks,Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counter-parties to avoid trading with or le
16、nding to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity.,Type of Risks,Market risk is exposure to the uncertain market value of a portfolio. A trader holds a portfolio of commodity forwards. She knows what its market value is
17、 today, but she is uncertain as to its market value a week from today. She faces market risk. Market risk is managed with a short-term focus. Long-term losses are avoided by avoiding losses from one day to the next. Business risk is exposure to uncertainty in economic value that cannot be marked-to-
18、market. Business risk is managed with a long-term focus. Techniques include the careful development of business plans and appropriate management oversight.,Type of Risks,The operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or
19、 from external events. The committee indicates that this definition excludes systemic risk, legal risk and reputational risk (The Basel Committee (2004) ).,What is Risk Management,Risk management, as it is understood today, largely emerged during the early 1990s, but the term “risk management” was u
20、sed long before this. Risk management:risk reduction through safety, quality control and hazard education;alternative risk financing, including self-insurance and captive insurance, andthe purchase of traditional insurance products, as suitable.More recently, derivative dealers have promoted “risk m
21、anagement” as the use of derivatives to hedge or customize market-risk exposures.,Whats Risk Management,Risk management, as in other fields, often comes down to who knows what, and when they know it. says Steve Thieke, head of the Corporate Risk Management Group (CRMG) at J.P. Morgan. Risk managemen
22、t an ongoing process of making risks transparent; to search out hidden risks, measure and manage them; Cycle of Learning and Decision making.,Components of Risk Management, of Risk Management,MeasurementHow much can i loss / What is my exposure?What is the probability of loss?How much return am I ex
23、pecting for taking on this risk?Identify and UnderstandWhat can go wrong?What are the consequences of things going wrong?ManagementBoils down to making choices : change risk profile or do nothing?How to change risk profile ?(note that the risk management is not just reducing risk a risk management d
24、ecision might be to take on more risk),The Process of Risk Management,At all three levels (micro, macro, and strategic), the seven fundamental attributes and principles of a strong risk management process are essentially the same.TransparencyRigorous MeasurementTimely Quality InformationDiversificat
25、ionIndependent OversightDisciplined JudgmentPolicy,Identifying risk,The identification of risk is the foundation on which the other phases of the risk management cycle are built. Define risk Distinguish between absolute and relative risk Define market risk and its component risks Define credit risk
26、Identify the risks associated with sudden shocks Identify the risks that are systemic in origin,Absolute risk and Risk Relative to a benchmark,Absolute returnThe simplest and most common objectives focus on absolute return. From this perspective, risk may be defined as uncertainty of future earnings
27、. For example, a company might be concerned with how much money it could lose in an investment. There is an important difference, however, in how earnings are accounted for in financial vs. non-financial businesses.Relative returnReturn objectives may be defined relative to a benchmark. From this pe
28、rspective, risk may be defined as uncertainty of under-performing a benchmark. Important differencecompared to a neutral external performance benchmark (for example, U.S. equity managers compared to S&P 500 Index).,Overview of Risks Corporations Face,To be successful, a company must understand and m
29、anage the influence of various risk types.,Market risk and its component,Analysis of market risk,Credit Risk and its component risks,Credit risk is defined as potential loss due to change in credit quality or default of a counter-party.Although credit risk is not as easily observable as market risk,
30、 it has perhaps become the greatest risk management challenge of the late 1990s as institutions globally are taking on an increasing amount of credit risk.,Event risk,Event risk involves a severe and sudden shock that can arise from any general type of risk, including human error, operational risk,
31、natural disasters, currency devaluations, and stock market crashes. （政策出台冲击市场正常交易、 飓风/战争引起的石油危机 流言蜚语造成的资金流断裂、 SARS） Crisis management/危机管理CharactersDifficult to predict/不可预测性Liquidity/流动性Contagion/传染性,Systemic risk,Systemic risks, as opposed to unique or firm-specific risks, are the most troublesome
32、 because they have the potential to affect anyone. Systemic risks may arise from common factors (e.f., market and economic factors, weather, natural disasters, computer viruses, war) and can influence the whole markets well-being. Unlike firm-specific risk, systemic risk cannot be diversified away i
33、n fact, systemic risk is the residual risk when we have diversified away all specific risk.,Residual risk,In addition to market risk, the price of financial instruments may be influenced by the following residual risks: spread risk, basis risk, specific risk, and volatility risk.Spread risk is the p
34、otential loss due to changes in spreads between two instruments. For example, there is a credit spread risk between corporate and government bonds.Basis risk is the potential loss due to pricing differences between equivalent instruments, such as futures, bonds and swaps.12 Hedged portfolios are oft
35、en exposed to basis risk.Specific risk refers to issuer specific risk, e.g., the risk of holding Yahoo! stock vs. an S&P 500 futures contract. How to best manage specific risk is a topic of debate. Note that according to the Capital Asset Pricing Model (CAPM), specific risk is entirely diversifiable
36、.Volatility risk is defined as potential loss due to fluctuations in implied option volatilities and is often referred to as “vega risk.” Short option positions generally lose money when volatility spikes upward.,Levels of Risks,LevelsMicro MacroStrategic,Basic dimensions of market risk,Risk takerBu
37、siness unit, desk or portfolioRisk typeEquity, interest rate, FX, and commodityCountry or regionEurope, Americas, Asia PacificMaturity or durationOne week, 1 month, 3 months, 6 monthsInstrument type or instrumentOptions, forwards, futures, cashCounterpartyCitibank, Japanese Banks, Thai Corporations,
38、Framework of Market Risks,Measuring risks,to quantify identifying potential risks for the determination of their significance. basic statistical concepts underlying VaR calculations;three approaches for estimating VaR: parametric, Monte Carlo simulation, and historical simulation; use portfolio VaR
39、reports to identify risk concentrations ;Stress testing to measure risk in abnormal markets ,The 9 Rules of Risk Management,The 9 rules of Risk Management by RiskMetricsTM GroupTHERE IS NO RETURN WITHOUT RISKBE TRANSPARENTSEEK EXPERIENCEKNOW WHAT YOU DONT KNOWCOMMUNICATEDIVERSIFYSHOW DISCIPLINEUSE C
40、OMMON SENSERETURN IS ONLY HALF THE EQUATION,Techniques to managing financial risk,Hedging - Eliminates an exposure by entering into an offsetting position. For example, a gold mine can hedge exposure to falling prices by selling gold futures. When hedging, we look for highly correlated substitute se
41、curities. Diversification - Reduces risk by holding a large collection of independent assetsInsurance - Purchasing insurance involves paying a premium for protection against unfavorable events.,Identifying risk,The identification of risk is the foundation on which the other phases of the risk management cycle are built. Define risk Distinguish between absolute and relative risk Define market risk and its component risks Define credit risk Identify the risks associated with sudden shocks Identify the risks that are systemic in origin,Refs.,,End of ,
