Book description
Introduces a powerful new approach to financial risk modeling with proven strategies for its real-world applications
The 2008 credit crisis did much to debunk the much touted powers of Value at Risk (VaR) as a risk metric. Unlike most authors on VaR who focus on what it can do, in this book the author looks at what it cannot. In clear, accessible prose, finance practitioners, Max Wong, describes the VaR measure and what it was meant to do, then explores its various failures in the real world of crisis risk management. More importantly, he lays out a revolutionary new method of measuring risks, Bubble Value at Risk, that is countercyclical and offers a well-tested buffer against market crashes.
Describes Bubble VaR, a more macro-prudential risk measure proven to avoid the limitations of VaR and by providing a more accurate risk exposure estimation over market cycles
Makes a strong case that analysts and risk managers need to unlearn our existing "science" of risk measurement and discover more robust approaches to calculating risk capital
Illustrates every key concept or formula with an abundance of practical, numerical examples, most of them provided in interactive Excel spreadsheets
Features numerous real-world applications, throughout, based on the author's firsthand experience as a veteran financial risk analyst
Table of contents
- Cover
- Contents
- Title
- Copyright
- Dedication
- About the Author
- Foreword
- Preface
- Acknowledgments
-
Part One: Background
- Chapter 1: Introduction
-
Chapter 2: Essential Mathematics
- 2.1 Frequentist Statistics
- 2.2 Just Assumptions
- 2.3 Quantiles, VaR, and Tails
- 2.4 Correlation and Autocorrelation
- 2.5 Regression Models and Residual Errors
- 2.6 Significance Tests
- 2.7 Measuring Volatility
- 2.8 Markowitz Portfolio Theory
- 2.9 Maximum Likelihood Method
- 2.10 Cointegration
- 2.11 Monte Carlo Method
- 2.12 The Classical Decomposition
- 2.13 Quantile Regression Model
- 2.14 Spreadsheet Exercises
- Notes
-
Part Two: Value at Risk Methodology
- Chapter 3: Preprocessing
- Chapter 4: Conventional VaR Methods
- Chapter 5: Advanced VaR Methods
- Chapter 6: VaR Reporting
-
Chapter 7: The Physics of Risk and Pseudoscience
- 7.1 Entropy, Leverage Effect, and Skewness
- 7.2 Volatility Clustering and the Folly of i.i.d.
- 7.3 “Volatility of Volatility” and Fat Tails
- 7.4 Extremistan and the Fourth Quadrant
- 7.5 Regime Change, Lagging Riskometer, and Procyclicality
- 7.6 Coherence and Expected Shortfall
- 7.7 Spreadsheet Exercises
- Notes
- Chapter 8: Model Testing
- Chapter 9: Practical Limitations of VaR
- Chapter 10: Other Major Risk Classes
- Part Three: The Great Regulatory Reform
-
Part Four: Introduction to Bubble Value-at-Risk (BuVaR)
-
Chapter 13: Market BuVaR
- 13.1 Why an Alternative to VaR?
- 13.2 Classical Decomposition, New Interpretation
- 13.3 Measuring the Bubble
- 13.4 Calibration
- 13.5 Implementing the Inflator
- 13.6 Choosing the Best Tail-Risk Measure
- 13.7 Effect on Joint Distribution
- 13.8 The Scope of BuVaR
- 13.9 How Good Is the BuVaR Buffer?
- 13.10 The Brave New World
- 13.11 Spreadsheet Exercises
- Notes
- Chapter 14: Credit BuVaR
- Chapter 15: Acceptance Tests
- Chapter 16: Other Topics
- Chapter 17: Epilogue: Suggestions for Future Research
-
Chapter 13: Market BuVaR
- About the Website
- Bibliography
- Index
Product information
- Title: Bubble Value at Risk: A Countercyclical Risk Management Approach, Revised Edition
- Author(s):
- Release date: April 2013
- Publisher(s): Wiley
- ISBN: 9781118550342
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