Companies and financial institutions are constantly facing various risk that come in all shapes
and sizes. It is essential not only to understand them, but also to be able to manage the risk.
Knowing different financial instruments is imperative, especially with such a broad spectrum of
existing instruments, including simple and more complex derivatives. There are many models
for evaluating investments and measuring risks, such as CAPM model, Black-Scholes model and
RiskMetrics, all of which are covered in this paper. Risk measures are used for evaluating risks
and calculating the amount of capital required to cover potential losses. In order for the market
to function seemlessly, different regulatory systems are in place, enforced by competent
regulatory authorities. Negligent risk assessment and management, along with inefficient
regulations can lead to catastrophic consequences, such as global financial crisis.
|
