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Implementing Quantitative Risk Management and VaR in a Chinese Investment Bank

REF ID : UST034
HBP Product : ST34
Case Author : Dr Allen KUO and Ellen ORR
PublicAction Date : 19.07.2016

Abstract

The protagonist, Jasper Wang, was originally from China, but had extensive risk management experience in overseas banks. With rapid Chinese economic growth, he was eager to return to China for the right opportunity, and was persuaded by the CEO of a domestic Chinese investment bank to head their Risk Management function. His remit was to introduce “international standards” in risk measurement and management to the firm.
After the initial “honeymoon” period, he began to encounter more and more resistance from his colleagues at the trading desk, expressing skepticism for the new “Value at Risk” based market risk control framework he wants to set up. He must decide how he will push a more quantitative risk and control framework within the organization in the face of domain issues, dismissal of risk management measures used outside of China, and basic cultural differences about how things may get done within a domestic firm.

Learning Objectives

This case introduces the VaR framework and the technique of backtesting, and provides a realistic example of the different goals of (and occasional tension between) front office and middle office staff, in courses on technical financial risk management and managing financial institutions. It also serves to illustrate different investment bank organizational structures and management priorities, particularly between the West and emerging markets such as China.

Company/Organization A Chinese Investment Bank (Fictitious)
Industry investment banking, finance, risk management
Major Discipline Finance
Subject(s) Quantitative Risk Management , Backtesting, Brokerage and proprietary, Chinese Investment Bank, International banking regulators (Basel rules), Value at Risk (VaR), volatile market, trading, securities, profit and loss
Geography Shanghai, China, USA
Case Nature Fictional
Page count of the Case 13
Teaching Notes 12
Supplementary Materials Datasheet
Publisher HKUST