QUESTION 1 (25)

Uncertainty is a key concept in risk conceptualization and risk assessments. How to understand and deal with the uncertainties has been intensively discussed in the literature, from the early stages of risk assessment in the 1970s and 1980s, until today. Still the topic is central one.

Adapted: Aven, T. (2016), Risk Assessment and Risk Management: Review of Recent Advances on their Foundation.

1.1 In the context of the above statement, discuss the term risk mapping and process alignment as used in any organization of your choice. (15)

1.2 Discuss the minimum additional work that the implementation of a formal risk assessment process requires. (10)

QUESTION 2 (25)

Credit risk is the risk of decline in the credit quality of counterparty in financial transactions and trades, and the core source of credit risk is the default risk that the counterparty may not fulfill its contractual obligations. There are two main streams of modelling credit risk; i. structural approach and ii. reduced form approach.

In developing the credit risk scoring models, the best practice approach is proposed to allow for the combination of financial factors, non-financial factors and behavioural factors. The approach is determined for the reasons of easy to interpret and maintain and flexible in incorporating subjective overlay by credit experts.

Adapted: Kim, J. and Kim, E. (2014), An Empirical Analysis on Credit Risk Model and its Application.

2.1 In that context, explain fully what you understand by the term credit risk and credit risk modelling. (10)

2.2 Comprehensively, discuss, the benefits of risk modelling to any organization of your choice. (15)

QUESTION 3 (25)

With the aid of examples from different organisations, discuss what you understand by the term full risk models and the criticisms of full models.

QUESTION 4 (25)

4.1 With the aid of practical examples, compare and contrast simulation and risk modelling. (10)

4.2 Discuss ANY THREE (3) key challenges an organisation encounters in the implementation of full risk modelling activities.