, 7.1.8 Conflicts of interest................................................................................................23
7.1.9 Staff training and skills..........................................................................................24
7.1.10 Financial institution and vendor relationships......................................................24
7.1.11 Monitoring exposures..........................................................................................24
7.1.12 Communication and reporting.............................................................................24
7.1.13 Forecasts and reconciliations..............................................................................24
7.1.14 Risk oversight......................................................................................................24
7.1.15 Marking to market................................................................................................24
7.1.16 Policies................................................................................................................ 25
7.1.17 System considerations........................................................................................25
7.1.18 Professional assistance.......................................................................................25
7.2 Special issues in managing operational risk................................................................25
7.3 Industry recommendations...........................................................................................25
7.3.1 Group of 31: core principles..................................................................................25
8 Chapter: Risk Management framework: policy and hedging...............................................26
8.1 Risk profile of an organization......................................................................................26
8.1.1 Evaluating financial exposures..............................................................................26
8.1.2 To hedge or not to hedge......................................................................................26
8.1.3 Tolerance for risk (op EX).....................................................................................27
8.1.4 Acceptable risk exposure......................................................................................27
8.1.5 Competitive landscape..........................................................................................27
8.1.6 Board and management: role, requirements and challenges................................28
8.2 Risk management policy..............................................................................................28
9 Chapter: measuring risk.....................................................................................................28
9.1 Measures of exposure.................................................................................................28
9.1.1 How much can I lose?...........................................................................................28
9.1.2 Gap analysis (mismatch analysis).........................................................................28
9.1.3 Leverage and direction..........................................................................................28
9.1.4 Instrument sensitivity.............................................................................................28
9.1.5 Scenario analysis (what-if analysis)......................................................................29
9.1.6 Stress testing........................................................................................................ 29
9.1.7 Financial crises.....................................................................................................29
9.2 Value-at-risk................................................................................................................30
9.2.1 Methods to calculate value-at-risk.........................................................................30
9.2.2 Assumptions and limitations..................................................................................30
9.2.3 Value-at-risk using historical simulation.................................................................30
9.2.4 Value-at-risk using Monte Carlo simulation...........................................................31
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