I have been asked to do a detailed write-up on what does and does not constitute risk management.
There is a lot of confusion within the scholarly cum practitioner domain, as many topics are unjustly added or deleted from academic curriculums and workshop topical course outlines
Risk Management has a wide scope both within the financial services and non-financial services industry.
Especially, Risk as a subject has greatly benefited from the transfer of applicable and vocational knowledge outside the Insurance Field, over the years.
Risk as a profession, which was and continues to be dominated by Applied Statisticians, and Mathematicians, generally fitted well into the #Actuarial Domain, but, only until recently, when scholars from other non-related professions jumped into the market, offering afresh ideas.
These so-called "others category" that contributed to Risk Management, came from a wide list of practitioner professions and scholarly domains, primarily, due to the paucity of Actuarial Talent Supply, in the labour markets across the globe.
Quants, Financial Engineers, etc
How has the entrance of Non-Actuaries has helped or hurt the profession of traditional risk management, is a subject of another needed debate, which I believe will be discussed, as we move along!
But surely, the role of Non-Actuaries to fill gaps within RM is here to stay!
For e.g. in the asset management industry, there was no such thing as risk management during the 1970s.
Most of the work related to financial and strategic risks was managed by Accountants, Internal Control Experts, Auditors and Economists.
There was no distinct desk for RM!
The Evolution of Risk Management as a separate desk within the high powered money industry, on the Wall Street, can largely be attributed to the JP Morgan Executives which made use of the Summary Portfolio #VaR (Value-at-Risk) Metric.
Well, some might say that #BSOP Black Scholes Option Pricing Model played an instrumental role in developing #FRM Financial Risk Management as a specialized branch of skilled trades whose acumen was required by controllers in the financial business.
That is not entirely correct!
BSOP Model was used as an Option Pricing Model, which helped the Pit Arbitrageurs on the floor to speculate and trade contingency based claim prices as brokers and market makers on behalf of their clients.
Pricing and hedging are not the same concepts in MBA Vintage Pedagogy!
Infact Using BSOP model to hedge only became fashionable during the 1980s when quants were hired in large numbers by Fis in the City & on the Wall Street.
Name 1 book used in the 70s Finance class that taught delta-gamma-theta hedging using BSOP model.
I haven't come across any
BSOP became a contemporaneous part of the Risk Management Academic Toolkit, as more and more quantitative portfolio managers, traders, and brokers, began to refer to the VaR Model Metrics, as computed by Risk Desks, to earmark hedging done using the stop-loss levels.
Similarly, @BIS_org Basel1 Accord gave rise to a new paradigm outside of Insurance, whereby Risk, as a profession was propelled to compete with the other existing specialities, which had overlapping roles such as credit, audit, compliance, and internal control, etc at a bank.
well, whatever served as a catalyst to supplant the actuarial hand from the traditional risk management as it was done in the world of business, remains a controversial debate.
Was it VaR?
Was it @BIS_org guidelines?
Was it Option and other Derivative Securities Pricing?
But, I think we have strayed a bit, from the original hypothesis presented, that what should and should not be included within the domain of Risk Management as a subject at both the vocational and scholarly levels?
I think this needs further elaboration.
Risk as an academic discipline if approached from the realm of hard or physical science, must include three layers of pedagogy which shall lay down the basics of using a Common Body of knowledge
These include
1.Probability Theory
2. Mathematical Statistics
3. Stochastic Processes
Risk, if treated and taught as a professional and managerial vocational discipline, using transferable skill sets and knowledge to deal with the practical problems of the workplace, must include a CBOK which is based upon ->
1. Accounting
2. Auditing and Controls
3. ERM Standards
Anything besides, can always provide ancillary value addition to both the practitioner and the scholar in the field of Risk Management.
Some of these include Computing, Data Analytics, Informatics, Bayesian Statistics, Financial Engineering, Operations Research, Econometrics, etc
Kindly note ->
We are strictly discussing Risk Management Assignments and Practioner cum Scholarly Requirements, in a Non-Actuarial and/or Insurance Risk Management Context in this thread.

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More from @SAH16928046

Jul 24
Will data science overcome quantitative finance in terms of employment and salary?
@CQFInstitute @datafitter
Well, I think you are asking a relevant question.
It can be explained using a Social Darwinian Perspective.
First, the Simple answer =>
YES, => Quantitative Finance, will get absorbed into Data Sciences and Machine Learning Areas as a sub-field.
Because many subjects develop independently, they get assimilated into the much larger disciplines or subjects which offer more attractive career remuneration, research opportunities, social status, social mobility and scholarly following and readership.
Read 16 tweets
Jul 24
Some of the best universities/ business schools to do a #PhD in #Finance =>
1. @LBS
2. @Wharton
4. @ChicagoBooth
5. @MIT
6. @LSEfinance
7. @BerkeleyMFE (Quantitative Pathway)
8. @StanfordGSB
9. @NYUSternRisk
10. Columbia Business School (Financial Engineering)
This is not an exhaustive list.
I am just sipping coffee and writing this tweet.
There are many other institutions which might be damn good.
@Harvard Business School is the best for Business econs / #DBA.
Other Ivy League universities not aforementioned have superb PhD programs.
@Columbia offers MSc Financial Maths and MBA.
Financial Maths Degree was a conjoint project undertaken by Industrial Engineering and Operations Research Departments (plz check the website now)
Great if you want to do a Quantitative Finance PhD sharing expertise of different depts
Read 6 tweets
Jul 23
MSMEs do not have the technical acumen or the human resource expertise to produce documents which are required by financing institutions.
The most difficulty comes to producing and presenting cash flow statements.
Some potential borrowers cannot compute cash projections
Especially Micro and Small Firms, which are managed informally by households, usually do not maintain proper book-keeping and accounting systems.
Banks have to use their own historical loss databases to compute credit metrics such as PD, LGD, EAD,etc.
And most of them have errors
Demographic and Geographic indicators can play a role in assessing and evaluating credit risk management, especially during the loan examination phase.
Sectoral Loan Risk Data can be aggregated to compute Risk Measures.
#Saunders FI-Risk management has a chapter dedicated to it
Read 5 tweets
Jul 12
I remember starting my career as a junior derivatives dealer.
The first stupid question I asked was why currency dealers use par-curve yield curve rates to compute FX Swap points?
No "#boostrapping"?
The Chief Dealer/ Head of FX Linear and Cross Currency Rates was not pleased.
Actually asking stupid questions early on in our career helps.
Provided you have a tolerable boss who can entertain stupidity.
But, if you ask questions which threaten your reporting line, then you are cooked!
Find your next job asap.
My CRO - Chief Risk Officer, was a banker who didn't know maths and statistics.
The man was a nightmare proposition for the academically tuned young graduates
Poor chap begged me to not bring my work to him because he could not check it.
Read 6 tweets
Jul 12
Should you pair #Finance with #Economics or #Accounting?
If you want to work in a general finance department, Accounting and Finance combination is beneficial, you can presumably learn a bit of financial auditing in this way.
If you want to work in Financial Markets, then Economics and Finance blend well.
But do note: that Economics is more mathematical.
Students who are weak at Maths, generally opt for Accounting or some other subject.
But having said that, if you don't like Maths at all, it might even be more difficult for you to do Quantitative Finance Modules at a higher level. So your aptitude and interests in Mathematics shall determine the outcome.
Read 5 tweets

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