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Financial Risk Management: Applications in Market, Credit, Asset and Liability Management and Firmwide Risk

Book Description

A global banking risk management guide geared toward the practitioner

Financial Risk Management presents an in-depth look at banking risk on a global scale, including comprehensive examination of the U.S. Comprehensive Capital Analysis and Review, and the European Banking Authority stress tests. Written by the leaders of global banking risk products and management at SAS, this book provides the most up-to-date information and expert insight into real risk management. The discussion begins with an overview of methods for computing and managing a variety of risk, then moves into a review of the economic foundation of modern risk management and the growing importance of model risk management. Market risk, portfolio credit risk, counterparty credit risk, liquidity risk, profitability analysis, stress testing, and others are dissected and examined, arming you with the strategies you need to construct a robust risk management system. The book takes readers through a journey from basic market risk analysis to major recent advances in all financial risk disciplines seen in the banking industry. The quantitative methodologies are developed with ample business case discussions and examples illustrating how they are used in practice. Chapters devoted to firmwide risk and stress testing cross reference the different methodologies developed for the specific risk areas and explain how they work together at firmwide level. Since risk regulations have driven a lot of the recent practices, the book also relates to the current global regulations in the financial risk areas.

Risk management is one of the fastest growing segments of the banking industry, fueled by banks' fundamental intermediary role in the global economy and the industry's profit-driven increase in risk-seeking behavior. This book is the product of the authors' experience in developing and implementing risk analytics in banks around the globe, giving you a comprehensive, quantitative-oriented risk management guide specifically for the practitioner.

  • Compute and manage market, credit, asset, and liability risk

  • Perform macroeconomic stress testing and act on the results

  • Get up to date on regulatory practices and model risk management

  • Examine the structure and construction of financial risk systems

  • Delve into funds transfer pricing, profitability analysis, and more

  • Quantitative capability is increasing with lightning speed, both methodologically and technologically. Risk professionals must keep pace with the changes, and exploit every tool at their disposal. Financial Risk Management is the practitioner's guide to anticipating, mitigating, and preventing risk in the modern banking industry.

    Table of Contents

    1. Series page
    2. Title Page
    3. Copyright
    4. Preface
      1. About this book
      2. Whom is this book for?
      3. Outline of the book
    5. Acknowledgments
      1. Chapter 1: Introduction
        1. Banks and Risk Management
        2. Evolution of Bank Capital Regulation
        3. Creating Value from Risk Management
        4. Financial Risk Systems
        5. Model Risk Management
    6. Part One: Market Risk
      1. Chapter 2: Market Risk with the Normal Distribution
        1. Linear Portfolios
        2. Quadratic Portfolios
        3. Simulation-Based Valuation
      2. Chapter 3: Advanced Market Risk Analysis
        1. Risk Measures, Risk Contributions, and Risk Information
        2. Modeling the Stylized Facts of Financial Time Series
        3. Time Scaling VaR and VaR with Trading
        4. Market Liquidity Risk
        5. Scenario Analysis and Stress Testing
        6. Portfolio Optimization
        7. Developments in the Market Risk Internal Models Capital Regulation
    7. Part Two: Credit Risk
      1. Chapter 4: Portfolio Credit Risk
        1. Issuer Credit Risk in Wholesale Exposures and Trading Book
        2. Credit Models for the Banking Book
        3. Firmwide Portfolio Credit Risk and Credit Risk Dependence
        4. Credit Risk Stress Testing
        5. Features of New Generation Portfolio Credit Risk Models
        6. Hedging Credit Risk
        7. Regulatory Capital for Credit Risk
        8. Appendix
      2. Chapter 5: Counterparty Credit Risk
        1. Counterparty Pricing and Exposure
        2. CVA Risks
        3. Portfolios of Derivatives
        4. Recent Counterparty Credit Risk Developments
        5. Counterparty Credit Risk Regulation
    8. Part Three: Asset and Liability Management
      1. Chapter 6: Liquidity Risk Management with Cash Flow Models
        1. Measurement of Liquidity Risk
        2. Liquidity Exposure
        3. Hedging the Liquidity Exposure
        4. Structural Liquidity Planning
        5. Components of the Liquidity Hedging Program
        6. Cash Liquidity Risk and Liquidity Risk Measures
        7. Regulation for Liquidity Risk
      2. Chapter 7: Funds Transfer Pricing and Profitability of Cash Flows
        1. Basic Funds Transfer Pricing Concept
        2. Risk-Based Funds Transfer Pricing
        3. Funds Transfer Rate and Risk Adjusted Returns
        4. Profitability Measures and Decompositions
        5. Banking Book Fair Value with Funds Transfer Rates
        6. A Note on the Scope of Funds Transfer Pricing
        7. Regulation and Profitability Analysis
    9. Part Four: Firmwide Risk
      1. Chapter 8: Firmwide Risk Aggregation
        1. Correlated Aggregation and Firmwide Risk Levels
        2. Mixed Copula Aggregation
        3. Capital Allocation in Risk Aggregation
        4. Risk Aggregation and Regulation
      2. Chapter 9: Firmwide Scenario Analysis and Stress Testing
        1. Firmwide Scenario Model Approaches
        2. Firmwide Risk Capital Measures
        3. Regulatory Stress Scenario Approach
        4. The Future of Firmwide Stress Testing
    10. References
      1. Index
    11. End User License Agreement