Financial Enterprise Risk Management

By Paul Sweeting · Cambridge University Press · 2017

A guide to enterprise risk management for financial institutions that contains the tools needed to build and maintain an ERM framework. It discusses the internal and external contexts within which risk management must be carried out and covers a range of qualitative and quantitative techniques used to identify, model and measure risks. The second edition (2017) adds new content on Bayesian networks, expanded coverage of Basel III and a revised treatment of operational risk.

On the syllabus

Exam CFE-101 — Financial Enterprise Risk Management, Sweeting, Paul, 2nd Edition, 2017: Ch. 14 Quantifying Particular Risks (1.3a); Ch. 8 Risk Identification (1.3a, 2.1a, 2.1b); Ch. 16 Responses to Risk (3.1b, 3.2a, 3.2c).

Exam CP-351 — Financial Enterprise Risk Management, Sweeting, P., 2nd Edition, 2017: Ch. 20 Case Studies (sections 1, 2, 4 & 6) (1b); Ch. 8 Risk Identification (1c).

Preface

1 An Introduction to Enterprise Risk Management

1.1 Definitions and Concepts of Risk
1.2 Why Manage Risk?
1.3 Enterprise Risk Management Frameworks
1.4 Corporate Governance
1.5 Models of Risk Management
1.6 The Risk Management Time Horizon
1.7 Further Reading

2 Types of Financial Institution

2.1 Introduction
2.2 Banks
2.3 Insurance Companies
2.4 Pension Schemes
2.5 Foundations and Endowments
2.6 Further Reading

3 Stakeholders

3.1 Introduction
3.2 Principals
3.3 Agents
3.4 Controlling
3.5 Advisory
3.6 Incidental
3.7 Further Reading

4 The Internal Environment

4.1 Introduction
4.2 Internal Stakeholders
4.3 Culture
4.4 Structure
4.5 Capabilities
4.6 Further Reading

5 The External Environment

5.1 Introduction
5.2 External Stakeholders
5.3 Political Environment
5.4 Economic Environment
5.5 Social and Cultural Environment
5.6 Competitive Environment
5.7 Regulatory Environment
5.8 Professional Environment
5.9 Industry Environment
5.10 Further Reading

6 Process Overview

7 Definitions of Risk

7.1 Introduction
7.2 Market and Economic Risk
7.3 Interest Rate Risk
7.4 Foreign Exchange Risk
7.5 Credit Risk
7.6 Liquidity Risk
7.7 Systemic Risk
7.8 Demographic Risk
7.9 Non-life Insurance Risk
7.10 Environmental Risk
7.11 Operational Risks
7.12 Different Definitions of Operational Risk
7.13 Residual Risks
7.14 Basis Risk
7.15 Further Reading

8 Risk Identification

8.1 Introduction
8.2 Risk Identification Tools
8.3 Risk Identification Techniques
8.4 Assessment of Risk Nature
8.5 Risk Register
8.6 Further Reading

9 Some Useful Statistics

9.1 Location
9.2 Spread
9.3 Skew
9.4 Kurtosis
9.5 Correlation
9.6 Further Reading

10 Statistical Distributions

10.1 Univariate Discrete Distributions
10.2 Univariate Continuous Distributions
10.3 Multivariate Distributions
10.4 Copulas
10.5 Further Reading

11 Modelling Techniques

11.1 Introduction
11.2 Fitting Data to a Distribution
11.3 Fitting Data to a Model
11.4 Smoothing Data
11.5 Using Models to Classify Data
11.6 Uncertainty
11.7 Credibility
11.8 Bayesian Networks
11.9 Model Validation
11.10 Further Reading

12 Extreme Value Theory

12.1 Introduction
12.2 The Generalised Extreme Value Distribution
12.3 Generalised Pareto Distribution
12.4 Further Reading

13 Modelling Time Series

13.1 Introduction
13.2 Deterministic Modelling
13.3 Stochastic Modelling
13.4 Time Series Processes
13.5 Data Frequency
13.6 Discounting
13.7 Further Reading

14 Quantifying Particular Risks

14.1 Introduction
14.2 Market and Economic Risk
14.3 Interest Rate Risk
14.4 Foreign Exchange Risk
14.5 Credit Risk
14.6 Liquidity Risk
14.7 Systemic Risks
14.8 Demographic Risk
14.9 Non-life Insurance Risk
14.10 Environmental Risk
14.11 Operational Risks
14.12 Further Reading

15 Risk Assessment

15.1 Introduction
15.2 Risk Appetite
15.3 Upside and Downside Risk
15.4 Risk Measures
15.5 Unquantifiable Risks
15.6 Return Measures
15.7 Optimisation
15.8 Further Reading

16 Responses to Risk

16.1 Introduction
16.2 Market and Economic Risk
16.3 Interest Rate Risk
16.4 Foreign Exchange Risk
16.5 Credit Risk
16.6 Liquidity Risk
16.7 Systemic Risk
16.8 Demographic Risk
16.9 Non-life Insurance Risk
16.10 Environmental Risk
16.11 Operational Risks
16.12 Different Definitions of Operational Risk
16.13 Further Reading

17 Continuous Considerations

17.1 Introduction
17.2 Documentation
17.3 Communication
17.4 Audit
17.5 Further Reading

18 Economic Capital

18.1 Introduction
18.2 Definition of Economic Capital
18.3 Economic Capital Models
18.4 Designing an Economic Capital Model
18.5 Running an Economic Capital Model
18.6 Calculating Economic Capital
18.7 Economic Capital and Risk Optimisation
18.8 Capital Allocation
18.9 Further Reading

19 Risk Frameworks

19.1 Mandatory Risk Frameworks
19.2 Advisory Risk Frameworks
19.3 Proprietary Risk Frameworks
19.4 Further Reading

20 Case Studies

20.1 Introduction
20.2 The 2008 Global Financial Crisis
20.3 Barings Bank
20.4 Equitable Life
20.5 Korean Air
20.6 Long Term Capital Management
20.7 Bernard Madoff
20.8 Robert Maxwell
20.9 Space Shuttle Challenger
20.10 Heartland Payment Systems
20.11 Kim Philby
20.12 Conclusion
20.13 Further Reading

21 Solutions to Questions

References

Index

Sources

Financial Enterprise Risk Management, 2nd edition (Cambridge University Press, 2017), table of contents — the chapter and section headings and their numbering, as the publisher prints them
Financial Enterprise Risk Management, 2nd edition (Cambridge University Press, 2017), front matter — the title page, imprint (second edition 2017, ISBN 978-1-107-18461-9) and the publisher's description used for the lead
CFE 101 Syllabus, Nov 2026/Mar 2027/Jul 2027 (SOA) — the citation, the chapters assigned and the learning outcomes for CFE 101
CP-351 Syllabus, Nov 2026/Mar 2027/Jul 2027 (SOA) — the citation, the chapters and sections assigned and the learning outcomes for CP-351