Risk management. Regulations, accidents & measurements

Abstract

This paper is based on risk management and the factors that go into it. We must begin with an analysis of the new Basel II Accord that should already be in the implementation stage in banks in participating markets. A full description of how a company can assess their risk profiles is provided, and following the Basel II will be an outline of Value at Risk (VaR). VaR is used in assessing company’s risk profile and the amount at which the company is quoted to loss on a given investment. In order to fully understand the way in which a company will manage their risk technical calculations must be completed, as well as a series of theoretical/managerial decisions. Such calculations like VaR can be very helpful in assessing most investment strategies, however an alternative investing strategy will also be discussed- hedge funds. Hedge funds is the highlight of this paper as it brings out a more creative way in which a company can one make large profits and two avoid the same regulations and rules that other investors must face. However, there is a downside to the lack of regulations and required calculations. To show the downside a case on the Long-Term Capital Management fiasco has been prepared. This is a brief case to aid in displaying why regulations are needed and how the financial markets are dependent upon each other.