Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk

657 Pages·2012·5.96 MB·English

by  Steve L. Allen

Contents
Cover
Series
Title Page
Copyright
Dedication
Foreword
Preface
Acknowledgments
About the Author
Chapter 1: Introduction
1.1 LESSONS FROM A CRISIS
1.2 FINANCIAL RISK AND ACTUARIAL RISK
1.3 SIMULATION AND SUBJECTIVE JUDGMENT
Chapter 2: Institutional Background
2.1 MORAL HAZARD—INSIDERS AND OUTSIDERS
2.2 PONZI SCHEMES
2.3 ADVERSE SELECTION
2.4 THE WINNER'S CURSE
2.5 MARKET MAKING VERSUS POSITION TAKING
Chapter 3: Operational Risk
3.1 OPERATIONS RISK
3.2 LEGAL RISK
3.3 REPUTATIONAL RISK
3.4 ACCOUNTING RISK
3.5 FUNDING LIQUIDITY RISK
3.6 ENTERPRISE RISK
3.7 IDENTIFICATION OF RISKS
3.8 OPERATIONAL RISK CAPITAL
Chapter 4: Financial Disasters
4.1 DISASTERS DUE TO MISLEADING REPORTING
4.2 DISASTERS DUE TO LARGE MARKET MOVES
4.3 DISASTERS DUE TO THE CONDUCT OF CUSTOMER
BUSINESS
Chapter 5: The Systemic Disaster of 2007–2008
5.1 OVERVIEW
5.2 THE CRISIS IN CDOS OF SUBPRIME MORTGAGES
5.3 THE SPREAD OF THE CRISIS
5.4 LESSONS FROM THE CRISIS FOR RISK MANAGERS
5.5 LESSONS FROM THE CRISIS FOR REGULATORS
5.6 BROADER LESSONS FROM THE CRISIS
Chapter 6: Managing Financial Risk
6.1 RISK MEASUREMENT
6.2 RISK CONTROL
Chapter 7: VaR and Stress Testing
7.1 VAR METHODOLOGY
7.2 STRESS TESTING
7.3 USES OF OVERALL MEASURES OF FIRM POSITION
RISK
Chapter 8: Model Risk
8.1 HOW IMPORTANT IS MODEL RISK?
8.2 MODEL RISK EVALUATION AND CONTROL
8.3 LIQUID INSTRUMENTS
8.4 ILLIQUID INSTRUMENTS
8.5 TRADING MODELS
Chapter 9: Managing Spot Risk
9.1 OVERVIEW
9.2 FOREIGN EXCHANGE SPOT RISK
9.3 EQUITY SPOT RISK
9.4 PHYSICAL COMMODITIES SPOT RISK
Chapter 10: Managing Forward Risk
10.1 INSTRUMENTS
10.2 MATHEMATICAL MODELS OF FORWARD RISKS
10.3 FACTORS IMPACTING BORROWING COSTS
10.4 RISK MANAGEMENT REPORTING AND LIMITS FOR
FORWARD RISK
Chapter 11: Managing Vanilla Options Risk
11.1 OVERVIEW OF OPTIONS RISK MANAGEMENT
11.2 THE PATH DEPENDENCE OF DYNAMIC HEDGING
11.3 A SIMULATION OF DYNAMIC HEDGING
11.4 RISK REPORTING AND LIMITS
11.5 DELTA HEDGING
11.6 BUILDING A VOLATILITY SURFACE
11.7 SUMMARY
Chapter 12: Managing Exotic Options Risk
12.1 SINGLE-PAYOUT OPTIONS
12.2 TIME-DEPENDENT OPTIONS
12.3 PATH-DEPENDENT OPTIONS
12.4 CORRELATION-DEPENDENT OPTIONS
12.5 CORRELATION-DEPENDENT INTEREST RATE
OPTIONS
Chapter 13: Credit Risk
13.1 SHORT-TERM EXPOSURE TO CHANGES IN MARKET
PRICES
13.2 MODELING SINGLE-NAME CREDIT RISK
13.3 PORTFOLIO CREDIT RISK
13.4 RISK MANAGEMENT OF MULTINAME CREDIT
DERIVATIVES
Chapter 14: Counterparty Credit Risk
14.1 OVERVIEW
14.2 EXCHANGE-TRADED DERIVATIVES
14.3 OVER-THE-COUNTER DERIVATIVES
References
About the Companion Website
Index
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Cover image: John Wiley & Sons, Inc.
Cover design: © Tom Fewster iStockphoto, © samxmeg iStockphoto
Copyright © 2013 by Steven Allen. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Allen, Steven, 1945–
Financial risk management [electronic resource]: a practitioner's guide to
managing market and
credit risk / Steven Allen. — 2nd ed.
1 online resource.
Includes bibliographical references and index.
Description based on print version record and CIP data provided by publisher;
resource not viewed.
ISBN 978-1-118-17545-3 (cloth); 978-1-118-22652-0 (ebk.); ISBN 978-1-118-
23164-7 (ebk.); ISBN 978-1-118-26473-7 (ebk.)
1. Financial risk management. 2. Finance. I. Title.
HD61
658.15'5—dc23
2012029614
To Caroline
For all the ways she has helped bring
this project to fruition
And for much, much more