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Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk, 2nd Edition

Book Description

A top risk management practitioner addresses the essential aspects of modern financial risk management

In the Second Edition of Financial Risk Management + Website, market risk expert Steve Allen offers an insider's view of this discipline and covers the strategies, principles, and measurement techniques necessary to manage and measure financial risk. Fully revised to reflect today's dynamic environment and the lessons to be learned from the 2008 global financial crisis, this reliable resource provides a comprehensive overview of the entire field of risk management.

Allen explores real-world issues such as proper mark-to-market valuation of trading positions and determination of needed reserves against valuation uncertainty, the structuring of limits to control risk taking, and a review of mathematical models and how they can contribute to risk control. Along the way, he shares valuable lessons that will help to develop an intuitive feel for market risk measurement and reporting.

  • Presents key insights on how risks can be isolated, quantified, and managed from a top risk management practitioner

  • Offers up-to-date examples of managing market and credit risk

  • Provides an overview and comparison of the various derivative instruments and their use in risk hedging

  • Companion Website contains supplementary materials that allow you to continue to learn in a hands-on fashion long after closing the book

Focusing on the management of those risks that can be successfully quantified, the Second Edition of Financial Risk Management + Websiteis the definitive source for managing market and credit risk.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Foreword
  7. Preface
  8. Acknowledgments
  9. About the Author
  10. Chapter 1: Introduction
    1. 1.1 LESSONS FROM A CRISIS
    2. 1.2 FINANCIAL RISK AND ACTUARIAL RISK
    3. 1.3 SIMULATION AND SUBJECTIVE JUDGMENT
  11. Chapter 2: Institutional Background
    1. 2.1 MORAL HAZARD—INSIDERS AND OUTSIDERS
    2. 2.2 PONZI SCHEMES
    3. 2.3 ADVERSE SELECTION
    4. 2.4 THE WINNER'S CURSE
    5. 2.5 MARKET MAKING VERSUS POSITION TAKING
  12. Chapter 3: Operational Risk
    1. 3.1 OPERATIONS RISK
    2. 3.2 LEGAL RISK
    3. 3.3 REPUTATIONAL RISK
    4. 3.4 ACCOUNTING RISK
    5. 3.5 FUNDING LIQUIDITY RISK
    6. 3.6 ENTERPRISE RISK
    7. 3.7 IDENTIFICATION OF RISKS
    8. 3.8 OPERATIONAL RISK CAPITAL
  13. Chapter 4: Financial Disasters
    1. 4.1 DISASTERS DUE TO MISLEADING REPORTING
    2. 4.2 DISASTERS DUE TO LARGE MARKET MOVES
    3. 4.3 DISASTERS DUE TO THE CONDUCT OF CUSTOMER BUSINESS
  14. Chapter 5: The Systemic Disaster of 2007–2008
    1. 5.1 OVERVIEW
    2. 5.2 THE CRISIS IN CDOs OF SUBPRIME MORTGAGES
    3. 5.3 THE SPREAD OF THE CRISIS
    4. 5.4 LESSONS FROM THE CRISIS FOR RISK MANAGERS
    5. 5.5 LESSONS FROM THE CRISIS FOR REGULATORS
    6. 5.6 BROADER LESSONS FROM THE CRISIS
  15. Chapter 6: Managing Financial Risk
    1. 6.1 RISK MEASUREMENT
    2. 6.2 RISK CONTROL
  16. Chapter 7: VaR and Stress Testing
    1. 7.1 VAR METHODOLOGY
    2. 7.2 STRESS TESTING
    3. 7.3 USES OF OVERALL MEASURES OF FIRM POSITION RISK
  17. Chapter 8: Model Risk
    1. 8.1 HOW IMPORTANT IS MODEL RISK?
    2. 8.2 MODEL RISK EVALUATION AND CONTROL
    3. 8.3 LIQUID INSTRUMENTS
    4. 8.4 ILLIQUID INSTRUMENTS
    5. 8.5 TRADING MODELS
  18. Chapter 9: Managing Spot Risk
    1. 9.1 OVERVIEW
    2. 9.2 FOREIGN EXCHANGE SPOT RISK
    3. 9.3 EQUITY SPOT RISK
    4. 9.4 PHYSICAL COMMODITIES SPOT RISK
  19. Chapter 10: Managing Forward Risk
    1. 10.1 INSTRUMENTS
    2. 10.2 MATHEMATICAL MODELS OF FORWARD RISKS
    3. 10.3 FACTORS IMPACTING BORROWING COSTS
    4. 10.4 RISK MANAGEMENT REPORTING AND LIMITS FOR FORWARD RISK
  20. Chapter 11: Managing Vanilla Options Risk
    1. 11.1 OVERVIEW OF OPTIONS RISK MANAGEMENT
    2. 11.2 THE PATH DEPENDENCE OF DYNAMIC HEDGING
    3. 11.3 A SIMULATION OF DYNAMIC HEDGING
    4. 11.4 RISK REPORTING AND LIMITS
    5. 11.5 DELTA HEDGING
    6. 11.6 BUILDING A VOLATILITY SURFACE
    7. 11.7 SUMMARY
  21. Chapter 12: Managing Exotic Options Risk
    1. 12.1 SINGLE-PAYOUT OPTIONS
    2. 12.2 TIME-DEPENDENT OPTIONS
    3. 12.3 PATH-DEPENDENT OPTIONS
    4. 12.4 CORRELATION-DEPENDENT OPTIONS
    5. 12.5 CORRELATION-DEPENDENT INTEREST RATE OPTIONS
  22. Chapter 13: Credit Risk
    1. 13.1 SHORT-TERM EXPOSURE TO CHANGES IN MARKET PRICES
    2. 13.2 MODELING SINGLE-NAME CREDIT RISK
    3. 13.3 PORTFOLIO CREDIT RISK
    4. 13.4 RISK MANAGEMENT OF MULTINAME CREDIT DERIVATIVES
  23. Chapter 14: Counterparty Credit Risk
    1. 14.1 OVERVIEW
    2. 14.2 EXCHANGE-TRADED DERIVATIVES
    3. 14.3 OVER-THE-COUNTER DERIVATIVES
  24. References
  25. About the Companion Website
  26. Index