E-16 — Risk Limit
A configured constraint on risk — the threshold a measured risk must stay within. The limit framework an institutional investor governs itself by: market-risk limits, credit and counterparty limits, concentration limits, liquidity limits.
Purpose
Risk management is not only measurement; it is measurement against a constraint. A Risk Limit is that constraint, made an explicit, governed, versioned record rather than a number in a spreadsheet or a policy document. Every investor runs a limit framework — a VaR ceiling on a portfolio, a maximum single-issuer exposure, a counterparty exposure cap, a minimum liquidity buffer — and the framework is configured data: a limit has a definition, a scope, a threshold and a warning level, it is owned and approved, and it changes over time under governance. The Risk Limit entity is universal — it is not specific to any asset class — which is why it is core.
It is the risk analogue of Fund Terms (PM-10): configured, versioned, evaluable data, not a scalar buried in prose.
Attribute schema
| Column | Type | Definition |
|---|---|---|
limit_id | varchar | Primary key. |
limit_type | varchar | The kind of risk constrained — market / credit / counterparty / concentration / liquidity / leverage / mandate. |
measure | varchar | What is measured against the limit — VaR, expected shortfall, single-issuer exposure %, sector exposure %, counterparty exposure, liquidity-coverage ratio, etc. |
scope_type | varchar | What the limit applies to — total_fund / portfolio / counterparty / issuer / asset_class. |
scope_id | varchar | The identifier of the thing in scope — a Portfolio (E-03), a Legal Entity (E-01), an Asset Class (E-09) — null for a total-fund limit. |
threshold | decimal | The hard limit value. |
warning_level | decimal | The level at which a warning is raised ahead of the hard threshold; null if none. |
enforcement | varchar | hard (a breach blocks or escalates) or soft (a breach is reported and monitored). |
effective_from | date | When this version of the limit became effective. |
effective_to | date | When it was superseded; null while current. |
owner | varchar | The risk owner accountable for the limit. |
approved_by | varchar | The governance body or role that approved it. |
Notes
- Versioned. A limit framework changes under governance. A change inserts a new row with a new
effective_fromand closes the prior row — the full history of “what the limit was, when” is preserved, which a breach investigation and an audit both need. - A limit is evaluated by a Service Domain against a Risk Measurement (E-19); a Limit Breach (E-18) records the event where a measurement crosses a limit.
- Investment-mandate guideline limits — what a portfolio may and may not hold — are closely related; OpenIM models the mandate’s coded restrictions through SD-10 Investment Compliance & Guideline Monitoring, and
limit_type = mandateis the bridge where a mandate constraint is expressed as a risk limit.
Out of scope
- The measured risk number a limit is evaluated against — that is E-19 Risk Measurement; E-16 is the configured constraint, E-19 is the result.
- The event where a measurement crosses a limit — that is E-18 Limit Breach; E-16 defines the threshold, E-18 records the crossing.
- The coded investment-guideline restriction library a mandate imposes — that is SD-10 Investment Compliance & Guideline Monitoring;
limit_type = mandateis the bridge, but the rule library is the service domain’s. - The portfolio, counterparty or issuer a limit is scoped to — those are E-03, E-01 and E-09, which E-16 references through
scope_id.
Owned and consumed by
- Owned by: SD-07.7 Investment Risk Reporting & Limits Governance.
- Consumed by: SD-07.1 Market Risk Management, SD-07.2 Credit & Counterparty Risk Management, SD-07.3 Liquidity Risk Management, SD-07.4 Concentration & Exposure Risk, SD-10.1 Investment Guideline Monitoring.
Open extensions
- The relationship between a Risk Limit of
limit_type = mandateand the coded investment-restriction library in SD-10. - Limit hierarchies — a total-fund limit decomposed into portfolio-level sub-limits.