Abstract
This chapter introduces the background knowledge for risk management in finance and outlines the contents of Part I.
Section 1.1 briefly introduces the main financial markets, including the capital markets, the money markets and the foreign exchange market, and investments in financial markets. We then explain the purpose of risk management from the view point of investors.
Section 1.2 explains the three main risks in financial markets. Investments in financial markets are risky because of uncertainties in the markets; credit risk is caused by uncertainty regarding the issuers of securities, market risk is due to uncertainty in markets, and operational risk is caused by uncertainty in trading systems. Part I will focus on market risk.
Section 1.3 summarizes the risk countermeasures available for use. Risk countermeasures are developed in order to cope with risks in financial markets, they are used for hedging and/or reducing risk. Derivatives are developed from hedging anticipated risks, while diversification of an investment is to reduce risk. Part I will address the issue of risk management through diversification.
Section 1.4 presents the framework for addressing risk management through diversification. Modern portfolio theory (MPT) is the main stream theory for financial investments, we follow the framework MPT to address risk management by diversification.
Section 1.5 outlines the contents and structure of Part I.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsReferences
Birindelli, G., & Ferretti, P. (2017). Operational risk management in banks. London, UK: Palgrave Macmillan.
Duffie, D., & Singleton, K. J. (2003). Credit risk: Pricing, measurement, and management. Princeton: Princeton University Press, USA.
Durbin, M. (2010). All about derivatives (2nd ed.). McGraw Hill Professional, USA.
Elton, E. J., Gruber, M. J., Brown, S. J., & Goetzmann, W. N. (2009). Modern portfolio theory and investment analysis. Hoboken: Wiley.
Hull, J. C., & Basu, S. (2016). Options, futures, and other derivatives. Pearson Education India, India.
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91.
Pilbeam, K. (2010). Finance and financial markets. Palgrave Macmillan, UK.
Renault, O., & De Servigny, A. (2004). The standard & Poor’s guide to measuring and managing credit risk. McGraw-Hill, USA.
Valdez, S., & Molyneux, P. (2015). An introduction to global financial markets. Palgrave Macmillan, UK.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2018 Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Xu, C., Shiina, T. (2018). Financial Investment, Financial Risk and Risk Management. In: Risk Management in Finance and Logistics. Translational Systems Sciences, vol 14. Springer, Singapore. https://doi.org/10.1007/978-981-13-0317-3_1
Download citation
DOI: https://doi.org/10.1007/978-981-13-0317-3_1
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-13-0316-6
Online ISBN: 978-981-13-0317-3
eBook Packages: Economics and FinanceEconomics and Finance (R0)