Risk Management and Financial Institutions

Innbundet / 2018 / Engelsk

Produktdetaljer

ISBN13
9781119448112
Publisert
2018
Utgiver
Vendor
John Wiley & Sons Inc
Aldersnivå
06, P
Språk
Product language
Engelsk
Format
Product format
Innbundet
Sider
832
Vekt
1656 gr
Høyde
260 mm
Bredde
183 mm
Tykkelse
47 mm
Se alle
Forfatter

Risk Management and Financial Institutions

Innbundet / 2018 / Engelsk
The most complete, up-to-date guide to risk management in finance Risk Management and Financial Institutions, Fifth Edition explains all aspects of financial risk and financial institution regulation, helping you better understand the financial markets--and their potential dangers. Inside, you'll learn the different types of risk, how and where they appear in different types of institutions, and how the regulatory structure of each institution affects risk management practices. Comprehensive ancillary materials include software, practice questions, and all necessary teaching supplements, facilitating more complete understanding and providing an ultimate learning resource. All financial professionals need to understand and quantify the risks associated with their decisions. This book provides a complete guide to risk management with the most up to date information. - Understand how risk affects different types of financial institutions - Learn the different types of risk and how they are managed - Study the most current regulatory issues that deal with risk - Get the help you need, whether you're a student or a professional Risk management has become increasingly important in recent years and a deep understanding is essential for anyone working in the finance industry; today, risk management is part of everyone's job. For complete information and comprehensive coverage of the latest industry issues and practices, Risk Management and Financial Institutions, Fifth Edition is an informative, authoritative guide.
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Business Snapshots xxiii Preface xxv Chapter 1 Introduction 1 1.1 Risk vs. Return for Investors 2 1.2 The Efficient Frontier 6 1.3 The Capital Asset Pricing Model 8 1.4 Arbitrage Pricing Theory 14 1.5 Risk vs. Return for Companies 14 1.6 Risk Management by Financial Institutions 18 1.7 Credit Ratings 19 Summary 20 Further Reading 20 Practice Questions and Problems (Answers at End of Book) 21 Further Questions 22 Part 1: Financial Institutions and Their Trading 23 Chapter 2 Banks 25 2.1 Commercial Banking 26 2.2 The Capital Requirements of a Small Commercial Bank 28 2.3 Deposit Insurance 30 2.4 Investment Banking 31 2.5 Securities Trading 36 2.6 Potential Conflicts of Interest in Banking 38 2.7 Today's Large Banks 39 2.8 The Risks Facing Banks 42 Summary 43 Further Reading 43 Practice Questions and Problems (Answers at End of Book) 44 Further Questions 44 Chapter 3 Insurance Companies and Pension Plans 47 3.1 Life Insurance 48 3.2 Annuity Contracts 51 3.3 Mortality Tables 52 3.4 Longevity and Mortality Risk 56 3.5 Property-Casualty Insurance 57 3.6 Health Insurance 60 3.7 Moral Hazard and Adverse Selection 61 3.8 Reinsurance 62 3.9 Capital Requirements 63 3.10 The Risks Facing Insurance Companies 64 3.11 Regulation 64 3.12 Pension Plans 66 Summary 70 Further Reading 71 Practice Questions and Problems (Answers at End of Book) 71 Further Questions 72 Chapter 4 Mutual Funds, ETFs, and Hedge Funds 75 4.1 Mutual Funds 75 4.2 Exchange-Traded Funds 79 4.3 Active vs. Passive Management 80 4.4 Regulation 82 4.5 Hedge Funds 83 4.6 Hedge Fund Strategies 88 4.7 Hedge Fund Performance 93 Summary 94 Further Reading 95 Practice Questions and Problems (Answers at End of Book) 95 Further Questions 96 Chapter 5 Trading in Financial Markets 97 5.1 The Markets 97 5.2 Clearing Houses 98 5.3 Long and Short Positions in Assets 99 5.4 Derivatives Markets 101 5.5 Plain Vanilla Derivatives 102 5.6 Non-Traditional Derivatives 114 5.7 Exotic Options and Structured Products 117 5.8 Risk Management Challenges 118 Summary 120 Further Reading 122 Practice Questions and Problems (Answers at End of Book) 122 Further Questions 125 Chapter 6 The Credit Crisis of 2007-2008 127 6.1 The U.S. Housing Market 128 6.2 Securitization 131 6.3 The Losses 137 6.4 What Went Wrong? 138 6.5 Lessons from the Crisis 140 Summary 141 Further Reading 142 Practice Questions and Problems (Answers at End of Book) 142 Further Questions 143 Chapter 7 Valuation and Scenario Analysis: The Risk-Neutral and Real Worlds 145 7.1 Volatility and Asset Prices 146 7.2 Risk-Neutral Valuation 147 7.3 Scenario Analysis 152 7.4 When Both Worlds Have to Be Used 153 7.5 The Calculations in Practice 154 7.6 Estimating Real-World Processes 155 Summary 156 Further Reading 157 Practice Questions and Problems (Answers at End of Book) 157 Further Questions 158 Part 2: Market Risk 159 Chapter 8 How Traders Manage Their Risks 161 8.1 Delta 161 8.2 Gamma 169 8.3 Vega 171 8.4 Theta 173 8.5 Rho 174 8.6 Calculating Greek Letters 174 8.7 Taylor Series Expansions 175 8.8 The Realities of Hedging 177 8.9 Hedging Exotic Options 178 8.10 Scenario Analysis 180 Summary 181 Further Reading 181 Practice Questions and Problems (Answers at End of Book) 181 Further Questions 182 Chapter 9 Interest Rate Risk 185 9.1 The Management of Net Interest Income 186 9.2 Types of Rates 188 9.3 Duration 193 9.4 Convexity 196 9.5 Generalization 198 9.6 Nonparallel Yield Curve Shifts 200 9.7 Principal Components Analysis 204 9.8 Gamma and Vega 207 Summary 208 Further Reading 209 Practice Questions and Problems (Answers at End of Book) 209 Further Questions 210 Chapter 10 Volatility 213 10.1 Definition of Volatility 213 10.2 Implied Volatilities 215 10.3 Are Daily Percentage Changes in Financial Variables Normal? 217 10.4 The Power Law 220 10.5 Monitoring Daily Volatility 222 10.6 The Exponentially Weighted Moving Average Model 225 10.7 The GARCH(1,1) Model 227 10.8 Choosing Between the Models 229 10.9 Maximum Likelihood Methods 229 10.10 Using GARCH(1,1) to Forecast Future Volatility 235 Summary 239 Further Reading 239 Practice Questions and Problems (Answers at End of Book) 240 Further Questions 241 Chapter 11 Correlations and Copulas 243 11.1 Definition of Correlation 243 11.2 Monitoring Correlation 245 11.3 Correlation and Covariance Matrices 248 11.4 Multivariate Normal Distributions 250 11.5 Copulas 252 11.6 Application to Loan Portfolios: Vasicek's Model 258 Summary 264 Further Reading 264 Practice Questions and Problems (Answers at End of Book) 265 Further Questions 266 Chapter 12 Value at Risk and Expected Shortfall 269 12.1 Definition of VaR 271 12.2 Examples of the Calculation of VaR 272 12.3 A Drawback of VaR 273 12.4 Expected Shortfall 274 12.5 Coherent Risk Measures 274 12.6 Choice of Parameters for VaR and ES 278 12.7 Marginal, Incremental, and Component Measures 283 12.8 Euler's Theorem 284 12.9 Aggregating VaRs and ESs 285 12.10 Back-Testing 285 Summary 289 Further Reading 289 Practice Questions and Problems (Answers at End of Book) 290 Further Questions 291 Chapter 13 Historical Simulation and Extreme Value Theory 293 13.1 The Methodology 293 13.2 Accuracy of VaR 299 13.3 Extensions 301 13.4 Computational Issues 306 13.5 Extreme Value Theory 307 13.6 Applications of EVT 310 Summary 313 Further Reading 313 Practice Questions and Problems (Answers at End of Book) 314 Further Questions 314 Chapter 14 Model-Building Approach 317 14.1 The Basic Methodology 318 14.2 Generalization 321 14.3 The Four-Index Example Revisited 323 14.4 Handling Term Structures 326 14.5 Extensions of the Basic Procedure 331 14.6 Risk Weights and Weighted Sensitivities 332 14.7 Handling Non-Linearity 333 14.8 Model-Building vs.Historical Simulation 339 Summary 340 Further Reading 340 Practice Questions and Problems (Answers at End of Book) 341 Further Questions 342 Part 3: Regulation 345 Chapter 15 Basel I, Basel II, and Solvency II 347 15.1 The Reasons for Regulating Banks 347 15.2 Bank Regulation Pre-1988 348 15.3 The 1988 BIS Accord 350 15.4 The G-30 Policy Recommendations 353 15.5 Netting 354 15.6 The 1996 Amendment 356 15.7 Basel II 359 15.8 Credit Risk Capital Under Basel II 360 15.9 Operational Risk Capital Under Basel II 369 15.10 Pillar 2: Supervisory Review 370 15.11 Pillar 3: Market Discipline 370 15.12 Solvency II 371 Summary 372 Further Reading 373 Practice Questions and Problems (Answers at End of Book) 373 Further Questions 375 Chapter 16 Basel II.5, Basel III, and Other Post-Crisis Changes 377 16.1 Basel II.5 378 16.2 Basel III 381 16.3 Contingent Convertible Bonds 390 16.4 Use of Standardized Approaches and SA-CCR 390 16.5 Dodd-Frank Act 392 16.6 Legislation in Other Countries 394 Summary 396 Further Reading 397 Practice Questions and Problems (Answers at End of Book) 397 Further Questions 398 Chapter 17 Regulation of the OTC Derivatives Market 399 17.1 Clearing in OTC Markets 400 17.2 Post-Crisis Regulatory Changes 404 17.3 Impact of the Changes 408 17.4 CCPs and Bankruptcy 412 Summary 412 Further Reading 413 Practice Questions and Problems (Answers at End of Book) 413 Further Questions 414 Chapter 18 Fundamental Review of the Trading Book 415 18.1 Background 416 18.2 Standardized Approach 417 18.3 Internal Models Approach 421 18.4 Trading Book vs. Banking Book 425 Summary 426 Further Reading 426 Practice Questions and Problems (Answers at End of Book) 426 Further Question 427 Part 4: Credit Risk 429 Chapter 19 Estimating Default Probabilities 431 19.1 Credit Ratings 431 19.2 Historical Default Probabilities 434 19.3 Recovery Rates 436 19.4 Credit Default Swaps 437 19.5 Credit Spreads 442 19.6 Estimating Default Probabilities from Credit Spreads 444 19.7 Comparison of Default Probability Estimates 447 19.8 Using Equity Prices to Estimate Default Probabilities 452 Summary 454 Further Reading 455 Practice Questions and Problems (Answers at End of Book) 455 Further Questions 457 Chapter 20 CVA and DVA 459 20.1 Credit Exposure on Derivatives 460 20.2 CVA 461 20.3 The Impact of a New Transaction 465 20.4 CVA Risk 467 20.5 Wrong-Way Risk 468 20.6 DVA 469 20.7 Some Simple Examples 470 Summary 474 Further Reading 475 Practice Questions and Problems (Answers at End of Book) 475 Further Questions 476 Chapter 21 Credit Value at Risk 479 21.1 Ratings Transition Matrices 480 21.2 Vasicek's Model 482 21.3 Credit Risk Plus 483 21.4 Creditmetrics 486 21.5 Credit Spread Risk 488 Summary 492 Further Reading 492 Practice Questions and Problems (Answers at End of Book) 492 Further Questions 493 Part 5: Other Topics 495 Chapter 22 Scenario Analysis and Stress Testing 497 22.1 Generating the Scenarios 497 22.2 Regulation 504 22.3 What to Do with the Results 507 Summary 511 Further Reading 511 Practice Questions and Problems (Answers at End of Book) 512 Further Questions 513 Chapter 23 Operational Risk 515 23.1 Defining Operational Risk 517 23.2 Categorization of Operational Risks 518 23.3 Regulatory Capital Under Basel II 519 23.4 The Standardized Measurement Approach 525 23.5 Preventing Operational Risk Losses 527 23.6 Allocation of Operational Risk Capital 530 23.7 Use of Power Law 530 23.8 Insurance 531 23.9 Sarbanes-Oxley 533 Summary 533 Further Reading 534 Practice Questions and Problems (Answers at End of Book) 535 Further Questions 536 Chapter 24 Liquidity Risk 537 24.1 Liquidity Trading Risk 538 24.2 Liquidity Funding Risk 545 24.3 Liquidity Black Holes 554 Summary 561 Further Reading 562 Practice Questions and Problems (Answers at End of Book) 562 Further Questions 563 Chapter 25 Model Risk Management 565 25.1 Regulatory Requirements 566 25.2 Models in Physics and Finance 572 25.3 Simple Models: Expensive Mistakes 572 25.4 Models for Pricing Actively Traded Products 575 25.5 Models for Less Actively Traded Products 578 25.6 Accounting 580 25.7 What Makes a Successful Pricing Model? 580 25.8 Model Building Missteps 581 Summary 582 Further Reading 583 Practice Questions and Problems (Answers at End of Book) 583 Further Questions 584 Chapter 26 Economic Capital and RAROC 585 26.1 Definition of Economic Capital 586 26.2 Components of Economic Capital 588 26.3 Shapes of the Loss Distributions 590 26.4 Relative Importance of Risks 591 26.5 Aggregating Economic Capital 592 26.6 Allocation of Economic Capital 596 26.7 Deutsche Bank's Economic Capital 597 26.8 RAROC 598 Summary 600 Further Reading 600 Practice Questions and Problems (Answers at End of Book) 600 Further Questions 601 Chapter 27 Enterprise Risk Management 603 27.1 Risk Appetite 604 27.2 Risk Culture 610 27.3 Identifying Major Risks 614 27.4 Strategic Risk Management 616 Summary 617 Further Reading 618 Practice Questions and Problems (Answers at End of Book) 618 Further Questions 619 Chapter 28 Financial Innovation 621 28.1 Technological Advances 622 28.2 Payment Systems 625 28.3 Lending 629 28.4 Wealth Management 632 28.5 Insurance 633 28.6 Regulation and Compliance 635 28.7 How Should Financial Institutions Respond? 638 Summary 640 Further Reading 641 Practice Questions and Problems (Answers at End of Book) 641 Further Questions 642 Chapter 29 Risk Management Mistakes to Avoid 643 29.1 Risk Limits 643 29.2 Managing the Trading Room 647 29.3 Liquidity Risk 649 29.4 Lessons for Nonfinancial Corporations 652 29.5 A Final Point 653 Further Reading 654 Part 6: Appendices 655 Appendix A Compounding Frequencies for Interest Rates 657 Appendix B Zero Rates, Forward Rates, and Zero-Coupon Yield Curves 661 Appendix C Valuing Forward and Futures Contracts 667 Appendix D Valuing Swaps 669 Appendix E Valuing European Options 673 Appendix F Valuing American Options 677 Appendix G Taylor Series Expansions 681 Appendix H Eigenvectors and Eigenvalues 685 Appendix I Principal Components Analysis 689 Appendix J Manipulation of Credit Transition Matrices 691 Appendix K Valuation of Credit Default Swaps 693 Appendix L Synthetic CDOs and Their Valuation 697 Answers to Questions and Problems 701 Glossary 745 RMFI Software 773 Table for N(x) When x 0 777 Table for N(x) When x 0 779 Index 781
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JOHN C. HULL is the Maple Financial Professor of Derivatives and Risk Management at the Joseph L. Rotman School of Management, University of Toronto, and codirector of Rotman's Master of Finance and Master of Financial Risk Management programs. He has been a consultant to many North American, Japanese, and European financial institutions.
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Produktdetaljer

ISBN13
9781119448112
Publisert
2018
Utgiver
Vendor
John Wiley & Sons Inc
Aldersnivå
06, P
Språk
Product language
Engelsk
Format
Product format
Innbundet
Sider
832
Vekt
1656 gr
Høyde
260 mm
Bredde
183 mm
Tykkelse
47 mm
Se alle
Forfatter