Financial Risk Management, 2e + Website – A Practitioner′s Guide to Managing Market and Credit Risk

<p>Foreword xvii</p>
<p>Preface xix</p>
<p>Acknowledgments xxiii</p>
<p>About the Author xxvii</p>
<p>CHAPTER 1 Introduction 1</p>
<p>1.1 Lessons from a Crisis 1</p>
<p>1.2 Financial Risk and Actuarial Risk 2</p>
<p>1.3 Simulation and Subjective Judgment 4</p>
<p>CHAPTER 2 Institutional Background 7</p>
<p>2.1 Moral Hazard Insiders and Outsiders 7</p>
<p>2.2 Ponzi Schemes 17</p>
<p>2.3 Adverse Selection 19</p>
<p>2.4 The Winner s Curse 21</p>
<p>2.5 Market Making versus Position Taking 24</p>
<p>CHAPTER 3 Operational Risk 29</p>
<p>3.1 Operations Risk 31</p>
<p>3.2 Legal Risk 37</p>
<p>3.3 Reputational Risk 41</p>
<p>3.4 Accounting Risk 42</p>
<p>3.5 Funding Liquidity Risk 42</p>
<p>3.6 Enterprise Risk 44</p>
<p>3.7 Identification of Risks 44</p>
<p>3.8 Operational Risk Capital 45</p>
<p>CHAPTER 4 Financial Disasters 49</p>
<p>4.1 Disasters Due to Misleading Reporting 49</p>
<p>4.2 Disasters Due to Large Market Moves 68</p>
<p>4.3 Disasters Due to the Conduct of Customer Business 77</p>
<p>CHAPTER 5 The Systemic Disaster of 2007 2008 83</p>
<p>5.1 Overview 83</p>
<p>5.2 The Crisis in CDOs of Subprime Mortgages 85</p>
<p>5.3 The Spread of the Crisis 108</p>
<p>5.4 Lessons from the Crisis for Risk Managers 111</p>
<p>5.5 Lessons from the Crisis for Regulators 115</p>
<p>5.6 Broader Lessons from the Crisis 132</p>
<p>CHAPTER 6 Managing Financial Risk 133</p>
<p>6.1 Risk Measurement 133</p>
<p>6.2 Risk Control 161</p>
<p>CHAPTER 7 VaR and Stress Testing 169</p>
<p>7.1 VaR Methodology 170</p>
<p>7.2 Stress Testing 192</p>
<p>7.3 Uses of Overall Measures of Firm Position Risk 201</p>
<p>CHAPTER 8 Model Risk 209</p>
<p>8.1 How Important Is Model Risk? 210</p>
<p>8.2 Model Risk Evaluation and Control 212</p>
<p>8.3 Liquid Instruments 237</p>
<p>8.4 Illiquid Instruments 241</p>
<p>8.5 Trading Models 250</p>
<p>CHAPTER 9 Managing Spot Risk 253</p>
<p>9.1 Overview 253</p>
<p>9.2 Foreign Exchange Spot Risk 257</p>
<p>9.3 Equity Spot Risk 258</p>
<p>9.4 Physical Commodities Spot Risk 259</p>
<p>CHAPTER 10 Managing Forward Risk 263</p>
<p>10.1 Instruments 270</p>
<p>10.2 Mathematical Models of Forward Risks 282</p>
<p>10.3 Factors Impacting Borrowing Costs 299</p>
<p>10.4 Risk Management Reporting and Limits for</p>
<p>Forward Risk 304</p>
<p>CHAPTER 11 Managing Vanilla Options Risk 311</p>
<p>11.1 Overview of Options Risk Management 313</p>
<p>11.2 The Path Dependence of Dynamic Hedging 318</p>
<p>11.3 A Simulation of Dynamic Hedging 321</p>
<p>11.4 Risk Reporting and Limits 329</p>
<p>11.5 Delta Hedging 344</p>
<p>11.6 Building a Volatility Surface 346</p>
<p>11.7 Summary 355</p>
<p>CHAPTER 12 Managing Exotic Options Risk 359</p>
<p>12.1 Single Payout Options 364</p>
<p>12.2 Time Dependent Options 378</p>
<p>12.3 Path Dependent Options 381</p>
<p>12.4 Correlation Dependent Options 404</p>
<p>12.5 Correlation Dependent Interest Rate Options 425</p>
<p>CHAPTER 13 Credit Risk 445</p>
<p>13.1 Short Term Exposure to Changes in Market Prices 446</p>
<p>13.2 Modeling Single Name Credit Risk 457</p>
<p>13.3 Portfolio Credit Risk 479</p>
<p>13.4 Risk Management of Multiname Credit Derivatives 493</p>
<p>CHAPTER 14 Counterparty Credit Risk 505</p>
<p>14.1 Overview 505</p>
<p>14.2 Exchange Traded Derivatives 506</p>
<p>14.3 Over the Counter Derivatives 512</p>
<p>References 533</p>
<p>About the Companion Website 547</p>
<p>Index 553</p>