Risk identification begins with identifying risk factors in the portfolio as a first step. Positions are mapped to a small set of risk factors which is called as risk factor mapping. It depends on the number and type of instruments within the portfolio.
Risk Factors help pinpoint specific risk areas in the portfolio. Risk factors are uniquely driven by changes in specific macroeconomic factors like central bank policy actions which will impact interest rate risk factors.
This is also called as modeling risk by risk factors. Large number of deals are mapped to a smaller set of risk factors reducing the computing time for risk simulations. As an example in the illustration, Interest Rate, Currency and Equites risk factors are mapped for all the rates positions. If a portfolio contains 1000 Rates deals all of them can be mapped to the above 3 risk factors.
Comparable assets can also be used as proxy assets for modeling in cases where enough historical data is not available for positions or some OTC instrument that has no previous history.
See more details on  MARKET RISK.

This site has been on my mind for past couple of years. Finally, finally I was able to make it live. I always think that the most important thing is to just start, just do something. Unfortunately waiting for perfection just delayed the whole process and was even beginning to jeopardize my idea.

This is an outlet for me to share my understanding of various concepts, provide a birds-eye view of the concept which can be used as a stepping stone into forest full of weeds, to understand the finer bits. There is a ton of material available on the internet but what is really missing is proper synthesizing of this information and the emphasis of this site will be to convey larger concepts with as few words as possible.

It has taken me long to perfect my processes of understanding a concept, how to effectively research, how to capture and hope I can put out some beautiful visuals at a faster pace in finance, risk, management, strategy...there are so many things to explore, am excited to learn and share!