Financial Risk Management

Analyze and manage financial risk

Financial risk management is the practice of identifying, assessing, prioritizing, and developing actions to address financial risk. Financial services firms often manage financial risk using financial instruments. An investment in a financial instrument for the purpose of managing risk is commonly referred to as hedging.

Financial risk management organizations classify financial risk into four main types:

• Credit or default risk
• Market risk
• Operational risk
• Investment risk

MATLAB is used by leading financial institutions to build models and simulations for financial risk management. With Statistics Toolbox and Financial Toolbox, you can build customized risk models, perform Monte Carlo simulations, and analyze scenarios to asses risk exposure from financial engineering and other financial activities.

Examples and How To

• Credit Risk Modeling with MATLAB (Webinar)
• Energy Trading and Risk Management (Webinar)
• MathWorks Tools Used to Predict Financial Crisis in Emerging Markets (Digest Article)
• Basel II Compliance and Financial Risk Management Analysis (Digest Article)
• Developing Scenario Analysis Models for Operational Risk at Intesa Sanpaolo (Digest Article)
• Credit Rating by Bagging Decision Trees Example (Example)
• Estimation of Transition Probabilities (Example)

User Stories

• Banche Popolari Unite Analyzes Credit Risk Using MATLAB (User Story)
• A2A Develops Comprehensive Financial Risk Management Solution (User Story)
• Nykredit Develops Financial Risk Management Solution for Operational Risk (User Story)
• Horizon Wind Energy Develops Financial Risk Management Tools for Wind Farms (User Story)
• Capgemini Helps Clients Achieve Basel II Compliance with MATLAB (User Story)

Software Reference

• Credit Risk Analysis (Documentation)
• Estimate Transition Probabilities from Credit Ratings (Function)
• Estimate Transition Probabilities from Preprocessed Credit Ratings Data (Function)
• Bagged Decision Trees (Function)

See also: risk management, Monte Carlo Simulation, energy trading and risk management, financial engineering, Black-Litterman Model