Learning Objective 4: Risk Management Tools and Techniques


Learning Objectives:
The candidate will understand the approaches for managing risks and how an entity makes decisions about appropriate techniques.

Learning Outcomes:
The candidate will be able to:

a) Demonstrate and analyze applicability of risk optimization techniques and the impact of an ERM strategy on an organization’s value. Analyze the risk and return trade-offs that result from changes in the organization’s risk profile.

b) Demonstrate means for transferring risk to a third party, and estimate the costs and benefits of doing so.

c) Demonstrate means for reducing risk without transferring it.

d) Demonstrate how derivatives, synthetic securities, and financial contracting may be used to reduce risk or to assign it to the party most able to bear it.

e) Develop an appropriate choice of a risk mitigation strategy for a given situation (e.g., reinsurance, derivatives, financial contracting), which balances benefits with inherent costs, including exposure to credit risk, basis risk, moral hazard and other risks.

f) Analyze the practicalities of market risk hedging, including dynamic hedging.

g) Demonstrate the use of tools and techniques for analyzing and managing credit and counterparty risk.

h) Analyze funding and portfolio management strategies to control equity and interest rate risk, including key rate risks. Contrast the various risk measures and be able to apply these risk measures to various entities. Explain the concepts of immunization including modern refinements and practical limitations.

i) Analyze the application of Asset Liability Management and Liability Driven Investment principles to Investment Policy and Asset Allocation.

j) Demonstrate risk management strategies for other key risks (for example, operational, strategic, legal, and insurance risks).

k) Apply best practices in risk measurement, modeling and management of various financial and non- financial risks faced by an entity.

*Updated for Spring 2018 Sitting