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Analysis on J.P. Morgan Chase Bank’s Risk Management

Author: WangBo
Tutor: GuanLong
School: Harbin Institute of Technology
Course: International Trade
Keywords: risk managementm market risk credit risk operational risk liquidity risk
CLC: F837.12
Type: Master's thesis
Year: 2009
Downloads: 312
Quote: 1
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Abstract


JP Morgan Chase Bank has developed and applied scientific organizational structure and systematic technology to quantify and manage risk and it has gained the world’s leading place in the field of investment bank’s risk management.Through the analysis on JP Morgan’s organized system, we can see that JP Morgan conducts scientific corporate governance in order to achieve successful risk management, including: efficient risk management framework and some specific requirements of board structure and ownership structure which were brought forward to establish a good risk management mechanism. In addition, JP Morgan has also established a number of institutional arrangements to enable effective implementation of risk management.JP Morgan Chase Bank uses Riskmetrics model as the main method of market risk management. RiskMetrics uses VaR as an index to measure market risk and determine the amount of capital adequacy on the basis of it. Through the analysis on JP Morgan’s Riskmetrics model by using mathematical analysis, we can see that this method applies Exponentially Weighted Moving Average model to fit the variance of yield under normal distribution and helps financial market participants apply the "value at risk framework" to estimate portfolio’s market risk exposure. It has greatly enhanced the efficiency of JP Morgan’s market risk management. As for credit risk management, in portfolio management, under its restrictive structure and infrastructure, JP Morgan applies a wide range of credit distribution and loan structures to manage industry concentration and wholesale business that are under single titles. Through the analysis on JP Morgan’s Creditmetrics quantitative assessment model by using mathematical analysis, we can see that Creditmetrics model, which is in accordance with portfolio theory and VaR theory, and based on credit ratings, can not only identify the credit risk of loans, bonds and other traditional investment instruments, but also can be used in risk identification of exchange and other modern financial derivatives. This has ensured a comprehensive risk management. In order to supervise and control the operational risks of the bank, JP Morgan has designed and maintained an effective, well-controlled operating environment. Its management objective is to maintain its operational risk under an appropriate level. J.P. Morgan’s three basic means to measure liquidity risk are the control of the company’s short-term liquidity position, capital surplus and basic remaining capital. In accordance with the measuring results of the above-mentioned three indicators, considering the company’s financing channels and financing costs, JP Morgan is able to make sure that liquidity management objectives can be achieved.

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