Risk Management of a Commercial Bank’s Project Portfolio through Simulation

Abstract

The authors build a simulation model focused on the risk management of a commercial bank's project portfolio with a detailed description of the relevant methodology. The paper explores the logic of the simulation algorithm which is the logical structure of the system functioning model. It obtains insights into the structure and interrelations of submodels in the simulation model of a commercial bank's project portfolio. The authors analyze the identified stochastic factors. The research selects probability distributions for each of the chosen random factors and explores the core processes of the simulation model for the project portfolio of a commercial bank. It describes the components forming the submodels using various presentation methods. The results of the research work are: determined relationships between banking project risk types (input parameters) and the cumulative risk of a commercial bank's project portfolio (resultant indicator), calculation of the cumulative risk in a commercial bank's project portfolio through simulation, completed experiments with the model based on the factorial design.