Explain why paper should aim to introduce risk management according to Basel III rules and how it relates to banking. The essay should be presented as a “what I learned” type paper. Should focus on the following in the first couple of pages:
1- What it risk
2- types of risk (liquidity, market, interest, credit and operational)
3- risk measurement with mentioning the tools and techniques
4- Risk models
5- stess testing in practice according to basel III
6- Risk reporting according to Basel III
The second half should be a deep dive into the type of risk as defined by basel III and how they are mitigated:
1- Interest Rate Risk: (measurement: Interest rate assets/liabilities, economic value of equity and economic value at risk) (Management: funds transfer pricing, matching vs mismatching strategies, hedging)
2- Liquidity Risk: (measurement: cash flow forecasting, LCR, NSFR) (Management: forward planing, liquidity buffers, collaterals, stress testing, contingency planing, increase in funding by increasing deposits or borrowing)
3- Market Risk: (measurement: Value at Risk VaR, Ratio Greeks: Beta/Delta/Gamma/Rho/Theta, modified duration) (Management: setting risk appetite, expected shortfall, standarized approach vs internal model approach)
