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Measuring and managing market, credit and Op risk [3]

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Bullet points include: Typically we are seeking to model the behaviour of the value of a portfolio of assets (and/or liabilities), and to understand how we might change this behaviour ‘for the better’ by altering the composition of the portfolio We may assume markets only move in small increments Brownian motion, Ito calculus etc. And/or in sudden jumps (perhaps of only certain specified sizes) C.f. continuous versus discrete probability distributions ‘Market’ risk analysis (equity-land) often focuses on Brownian motion, whilst credit (and operational) risk analysis often focuses on jumps (e.g. a credit default or operational risk loss occurs)

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