Risk Appetite in Practice: Vulgaris Mathematica

The IUP Journal of Financial Risk Management, Vol. XII, No. 1, March 2015, pp. 7-22

Posted: 12 Oct 2015

See all articles by Bertrand Hassani

Bertrand Hassani

Université Paris I Panthéon-Sorbonne

Date Written: October 12, 2015

Abstract

The ultimate goal of risk management is generation of efficient income. The aim is to generate the maximum return for a unit of risk taken or to minimize the risk taken to generate the return expected, i.e., it is the optimization of a financial institution’s strategy. Therefore, by measuring its exposure against its appetite, a financial institution is assessing its coupled risk-return. But this task may be difficult as banks face various types of risks, for instance, operational, market, credit, and liquidity, and these cannot be evaluated on a standalone basis; interaction and contagion effects should be taken into account. In this paper, methodologies to evaluate banks’ exposures are presented along with their management implications, as the purpose of the risk appetite evaluation process is the transformation of risk metrics into effective management decisions.

Suggested Citation

Hassani, Bertrand, Risk Appetite in Practice: Vulgaris Mathematica (October 12, 2015). The IUP Journal of Financial Risk Management, Vol. XII, No. 1, March 2015, pp. 7-22. Available at SSRN: https://ssrn.com/abstract=2672757

Bertrand Hassani (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

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