The most complete, up to date guide to risk management in finance Risk Management and Financial Institutions explains all aspects of financial risk and financial institution regulation, helping readers better understand the financial markets and potential dangers. This new fourth edition has been updated to reflect the major developments in the industry, including the finalization of Basel III, the fundamental review of the trading book, SEFs, CCPs, and the new rules affecting derivatives markets. There are new chapters on enterprise risk management and scenario analysis. Readers learn the different types of risk, how and where they appear in different types of institutions, and how the regulatory structure of each institution affects risk management practices. Comprehensive ancillary materials include software, practice questions, and all necessary teaching supplements, facilitating more complete understanding and providing an ultimate learning resource.All financial professionals need a thorough background in risk and the interlacing connections between financial institutions to better understand the market, defend against systemic dangers, and perform their jobs. This book provides a complete picture of the risk management industry and practice, with the most up to date information.Understand how risk affects different types of financial institutionsLearn the different types of risk and how they are managedStudy the most current regulatory issues that deal with riskRisk management is paramount with the dangers inherent in the financial system, and a deep understanding is essential for anyone working in the finance industry; today, risk management is part of everyone?s job. For complete information and comprehensive coverage of the latest industry issues and practices, Risk Management and Financial Institutions is an informative, authoritative guide. INDICE: Business SnapshotsPreface1. Introduction1.1 Risk vs return for investors1.2 The efficient frontier1.3 The capital asset pricing model1.4 Arbitrage pricing theory1.5 Risk vs. return for companies1.6 Risk management by financial institutions1.7 Credit ratingsSummaryFurther readingPractice questions and problemsFurther questionsPART ONE: FINANCIAL INSTITUTIONS AND THEIR TRADING2. Banks2.1 Commercial banking2.2 The capital requirements of a small commercial bank2.3 Deposit insurance2.4 Investment banking2.5 Securities trading2.6 Potential conflicts of interest in banking2.7 Today s large banks2.8 The risks facing banksSummaryFurther readingPractice questions and problemsFurther questions3. Insurance Companies and Pension Plans3.1 Life insurance3.2 Annuity contracts3.3 Mortality tables3.4 Longevity and mortality risk3.5 Property casualty insurance3.6 Health insurance3.7 Moral hazard and adverse selection3.8 Reinsurance3.9 Capital requirements3.10 The risks facing insurance companies3.11 Regulation3.12 Pension plansSummaryFurther readingPractice questions and problemsFurther questions4. Mutual Funds and Hedge Funds4.1 Mutual funds4.2 Hedge funds4.3 Hedge fund strategies4.4 Hedge fund performanceSummaryFurther readingPractice questions and problemsFurther questions5. Trading in Financial Markets5.1 The markets5.2 Long and short positions in assets5.3 Derivatives markets5.4 Plain vanilla derivatives5.5 Clearing houses5.6 Nontraditional derivatives5.7 Exotic options and structured products5.8 Risk management challengesSummaryFurther readingPractice questions and problemsFurther questions6. The Credit Crisis of 20076.1 The U.S. housing market6.2 Securitization6.3 The crisis6.4 What went wrong6.5 Lessons from the CrisisSummaryFurther readingPractice questions and problemsFurther questions7. Valuation and Scenario Analysis: The Risk–Neutral and Real Worlds7.1 Volatility and asset prices7.2 Risk–neutral valuation7.3 Scenario analysis7.4 When both worlds have to be used7.5 The calculations in practice7.6 Estimating real world processes7.7 Default probabilities7.8 Risk–neutral valuation revisitedSummaryFurther readingPractice questions and problemsFurther questionsPART TWO: MARKET RISK8. How Traders Manage Their Risks8.1 Delta8.2 Gamma8.3 Vega8.4 Theta8.5 Rho8.6 Calculating Greek letters8.7 Taylor series expansions8.8 The realities of hedging8.9 Hedging exotic options8.10 Scenario analysisSummaryFurther readingPractice questions and problemsFurther questions9. Interest Rate Risk9.1 The management of net interest income9.2 Types of rates9.3 Duration9.4 Convexity9.5 Generalization9.6 Nonparallel yield curve shifts9.7 Interest rate deltas in practice9.8 Principal components analysis9.9 Gamma and vegaSummaryFurther readingPractice questions and problemsFurther questions10. Volatility10.1 Definition of volatility10.2 Implied volatilities10.3 Are daily percentage changes in financial variables normal?10.4 The Power Law10.5 Monitoring daily volatility10.6 The exponentially weighted moving average model10.7 The GARCH(1,1) model10.8 Choosing between the models10.9 Maximum–likelihood methods10.10 Using GARCH(1,1) to forecast future volatilitySummaryFurther readingPractice questions and problemsFurther questions11. Correlations and Copulas11.1 Definition of correlation11.2 Monitoring correlation11.3 Multivariate normal distributions11.4 Copulas11.5 Application to loan portfolios: Vasicek s modelSummaryFurther readingQuestions and problemsAssignment questions12. Value at Risk and Expected Shortfall12.1 Definition of VaR12.2 Examples of the calculation of VaR12.3 A drawback of VaR12.4 Expected shortfall12.5 Coherent risk measures12.6 Choice of parameters for VaR and ES12.7 Marginal, incremental, and component measures12.8 Euler s theorem12.9 Aggregating VaRs12.10. Back–testingSummaryFurther readingPractice questions and problemsFurther questions13. Historical Simulation and Extreme Value Theory13.1 The methodology13.2 Accuracy of VaR13.3 Extensions13.4 Computational issues13.5 Extreme value theory13.6 Applications of EVTSummaryFurther readingPractice questions and problemsFurther questions14. Model–Building Approach14.1 The basic methodology14.2 Generalization14.3 Correlation and covariance matrices14.4 Handling interest rates14.5 Applications of the linear model14.6 Linear model and options14.7 Quadratic model14.8 Monte Carlo simulation14.9 Nonnormal distributions14.10 Model building vs historical simulationSummaryFurther readingPractice questions and problemsFurther questionsPART THREE: REGULATION15. Basel I, Basel II, and Solvency II15.1 Reasons for regulating banks15.2 Bank regulation pre–198815.3 The 1988 Basel accord15.4 The G–30 policy recommendations15.5 Netting15.6 1996 amendment15.7 Basel II15.8 Credit risk capital under Basel II15.9 Operational risk capital under Basel II15.10 Pillar 2: supervisory review15.11 Pillar 3: market discipline15.12 Solvency IISummaryFurther readingPractice questions and problemsFurther questions16. Basel II.5, Basel III, and Other Post–Crisis Changes16.1 Basel II.516.2 Basel III16.3 Contingent convertible bonds16.4 Dodd Frank Act16.5 Legislation in other countriesSummaryFurther readingPractice questions and problemsFurther questions17. Fundamental Review of the Trading Book17.1 New market risk measures17.2 Trading book vs. banking book17.3 Credit tradesSummaryFurther readingPractice questions and problemsFurther questionsPART FOUR: CREDIT RISK18. Margin, Collateral, and CCPs18.1 Margin and exchanges18.2 OTC markets18.3 Consequences on new OTC regulations18.4 ISDA master agreements and bankruptcy18.5 CCPs and bankruptcySummaryFurther readingPractice questions and problemsFurther questions19. Estimating default probabilities19.1 Credit ratings19.2 Historical default probabilities19.3 Recovery rates19.4 Credit default swaps19.5 Credit spreads19.6 Estimating default probabilities from credit spreads19.7 Comparison of default probability estimates19.8 Using equity prices to estimate default probabilitiesSummaryFurther readingPractice questions and problemsFurther questions20. CVA and DVA20.1 Credit exposure on derivatives20.2 CVA20.3 The impact of a new transaction20.4 CVA risk20.5 Wrong way risk20.6 DVA20.7 Some simple examplesSummaryFurther readingPractice questions and problemsFurther questions21. Credit Value at Risk21.1 Ratings transition matrices21.2 Vasicek s model21.3 Credit risk plus21.4 CreditMetrics21.5 Credit–sensitive instruments in the trading bookSummaryFurther readingPractice questions and problemsFurther questionsPART FIVE: OTHER TOPICS22. Scenario Analysis and Stress Testing22.1 Generating the scenarios22.2 Regulation22.3 What to do with the resultsSummaryFurther readingPractice questions and problemsFurther questions23. Operational Risk23.1 Defining operational risk23.2 Determination of regulatory capital23.3 Categorization of operational risks23.4 Loss severity and loss frequency23.5 Implementation of AMA23.6 Proactive approaches23.7 Allocation of operational risk capital23.8 Use of the power law23.9 Insurance23.10 Sarbanes OxleySummaryFurther readingPractice questions and problemsFurther questions24. Liquidity Risk24.1 Liquidity trading risk24.2 Liquidity funding risk24.3 Liquidity black holesSummaryFurther readingPractice questions and problemsFurther questions25. Model Risk25.1 Marking to market25.2 Models for linear products25.3 Physics vs. finance25.4 How models are used for pricing standard products25.5 Hedging25.6 Models for nonstandard products25.7 Dangers in model building25.8 Detecting model problemsSummaryFurther readingPractice questions and problemsFurther questions26. Economic Capital and RAROC26.1 Definition of economic capital26.2 Components of economic capital26.3 Shapes of the loss distributions26.4 Relative importance of risks26.5 Aggregating economic capital26.6 Allocation of economic capital26.7 Deutsche Bank s economic capital26.8 RAROCSummaryFurther readingQuestions and problemsAssignment questions27. Enterprise Risk Management27.1 Risk appetite27.2 Risk culture27.3 Identifying major risksSummaryFurther readingQuestions and problemsAssignment questions28. Risk Management Mistakes to Avoid28.1 Risk limits28.2 Managing the trading room28.3 Liquidity risk28.4 Lessons for nonfinancial corporations28.5 A final pointSummaryFurther readingPART SIX: APPENDICESAppendix A: Compounding Frequencies and Interest RatesAppendix B: Zero Rates, Forward rates, and Zero–Coupon Yield CurvesAppendix C: Valuing Forward and Futures ContractsAppendix D: Valuing SwapsAppendix E: Valuing European OptionsAppendix F: Valuing American OptionsAppendix G: Taylor Series ExpansionsAppendix H: Eigenvectors and EigenvaluesAppendix I: Principal Components AnalysisAppendix J: Manipulation of Credit Transition MatricesAppendix K: Valuation of Credit Default SwapsAppendix L: Synthetic CDOs and their ValuationAnswers to questions and problemsGlossary of termsDerivaGem softwareTable for N(x) when x 0Table for N(x) when x 0
- ISBN: 978-1-118-95594-9
- Editorial: John Wiley & Sons
- Encuadernacion: Rústica
- Páginas: 784
- Fecha Publicación: 25/03/2015
- Nº Volúmenes: 1
- Idioma: Inglés