Course: RSM432: Risk Management for Financial Managers

In this project, we explored how credit risk, regulatory capital, and liquidity constraints shape financial decision-making. Working across several modules — from Merton’s model to Basel III, hazard rates, NSFR, and capital optimization — we used Excel to simulate how banks, lenders, and regulators assess and mitigate downside risk. One thing that stood out was seeing how theoretical models like Merton’s interact with practical tools like regulatory capital floors. Building out everything from scratch — including probability of default, RWA calculations, and Expected Shortfall estimates — gave me a much deeper appreciation for how risk is measured and managed when uncertainty becomes the norm.

Key Concepts:

• Merton model and asset-value based credit risk

• Probability of default (PD), hazard rates, and bondholder recovery

• Basel I, II, III capital floors and RWA formulas

• NSFR optimization for asset-liability portfolios

• Expected Shortfall (ES) and tail-event risk

• Capital conservation buffer and leverage ratio constraints

• Capital allocation under regulatory ceilings

• Excel-based simulation of firm capital stress scenarios