What you will learn
- Compare marginal risk contributions
- Stress correlation convergence
- Reserve liquidity for adverse scenarios
- Document allocation decisions and their uncertainty
Compare marginal risk contributions
Compare marginal contributions under the documented model and under alternative plausible conditions. A decision committee should understand which exposures dominate the result and which estimates are uncertain.
Stress correlation convergence
Stress correlation convergence and shared liquidity problems. Diversification based only on normal-period estimates may fail when positions need to be reduced together. Identify common exit bottlenecks.
Reserve liquidity for adverse scenarios
Reserve liquidity according to a defined planning process that considers obligations and adverse scenarios. The curriculum does not prescribe a universal cash percentage. Document the reason and the circumstances that would trigger review.
Document allocation decisions and their uncertainty
Record allocation decisions, assumptions, dissenting evidence and review dates. A later outcome should be evaluated against what was known at the time, while still allowing the policy to change when its assumptions fail.
Worked example
A portfolio appears diversified by asset but all positions depend on one provider and one funding account. A provider outage can affect every exit simultaneously despite different market exposures.
Try it yourself
Write a committee note separating market diversification from operational concentration and propose a testable mitigation review.
Show the worked solution
Identify shared dependencies, describe the outage scenario and assess feasible contingency arrangements. Record what has actually been tested; a second login or an untested provider relationship is not proof of recoverability.
Apply this to your course project
Produce a scenario-based portfolio risk dossier.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.