Synopses & Reviews
Financial risk management as a field of study and practice continues to rapidly evolve. But despite the long list of books written about this subject, most focus mainly on statistical risk measurement techniques. Financial Risk Management: A Practitioners Guide to Managing Market and Credit Risk breaks this mold by providing a comprehensive overview of the entire field of risk management.
Steve Allen, Managing Director in charge of risk methodology at JPMorgan Chase, offers an insiders view of financial risk management and covers the strategies, principles, and measurement techniques necessary to manage and measure financial risk. Focusing on the management of those risks that can be successfully quantified, 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.
Financial Risk Management is divided into three equally informative parts, each filled with in-depth insights and valuable advice gleaned from years of risk management experience. Part one provides a general background to financial risk management and illustrates how risk arises in financial firms. Youll discover key concepts used to manage risk and learnthrough some of the most prominent financial disasters of the past twenty-five yearshow to avoid failures in risk management. Part two examines the methodology of market risk management and discusses its application to forward risk, spot risk, vanilla options risk, and exotic options risk. As each type is discussed, a detailed analysis is given of models used to price these risks as well as how these models can be used to measure and control risk. After these issues are thoroughly explored, part three of Financial Risk Management rounds out the discussion with lessons on the management of portfolio risk. Here, you will gain a firm understanding of value-at-risk (VaR), stress testing, and management of portfolio credit risk.
With the communication skills of an academic instructor and the hands-on experience of a market practitioner, Steve Allen has made understanding the field of risk management both informative and engaging. To assist the learning process, Allen has also designed some original Excel® spreadsheets (contained on the companion CD-ROM) to help you develop an intuitive and detailed feel for risk measurement and reporting. Financial Risk Management is the definitive source for practical guidance on managing market and credit risk. With this book at your side, you can take your risk management skills to the next level.
Synopsis
Praise for Financial Risk Management
"Key material on how risks can be isolated, quantified, and managed from a top risk management practitioner."
John Hull, Maple Financial Chair in Derivatives and Risk Management, and Director, Bonham Centre for Finance, University of Toronto
"Steve Allens book is an excellent read for both seasoned risk professionals and students. He has done a wonderful job of making a complex topic understandable and provided the necessary tools to help others develop and sharpen their own intuition about risk exposure and how to manage it. Theory about risk management is always interesting, but even more refreshing is to see how risk management is performed by those, like Allen, with years of experience in the trenches."
Leslie Rahl, President, Capital Market Risk Advisors
"A very practical and deep approach to the problems of financial risk management."
Nassim Nicholas Taleb, Empirica LLC, author of Fooled by Randomness and Dynamic Hedging
"Allens book is a treasure-trove of material and an invaluable resource for any professional seeking to understand modern risk management. It begins with basic concepts and builds carefully to the practical and theoretical ideas necessary for dealing with the complexities of the most sophisticated and relevant financial instruments today."
Neil Chriss, Managing Director of Quantitative Strategies, SAC Capital, and author of Black-Scholes and Beyond
Synopsis
Steve Allen (New York, NY) is Managing Director of Market Risk Management at J.P. Morgan Chase. He has been a key architect of Chase's Value-at-Risk and Stress Testing systems. Allen also serves as Co-Chairman of the Market and Credit Risk Committee of the Bond Market Association and is coauthor of Valuing Fixed Income Investments and Derivative Securities.
Synopsis
Financial Risk Management covers the strategies, principles, and measurement techniques necessary to measure and manage financial risk. With a focus on management perspective, this book explores real-world issues such as model validation, risk measurement, valuation methodologies, and much more. Self-contained Excel spreadsheets are included on the companion CD-ROM.
About the Author
STEVE ALLEN is Managing Director in charge of risk methodology at JPMorgan Chase. He is responsible for model validation, risk capital allocation, and the development of new measures of valuation, reserves, and risk for both market and credit risk. Previously, he was in charge of market risk for derivative products at Chase. He has been a key architect of Chases value-at-risk and stress testing systems. Prior to his work in risk management, Allen was the head of analysis and model building for all Chase trading activities for over ten years. He also serves as co-chairman of the Credit and Risk Committee of the Bond Market Association and is coauthor of Valuing Fixed-Income Investments and Derivative Securities. Allen is Deputy Director of the Mathematics in Finance Masters program at New York Universitys Courant Institute of Mathematical Sciences. He has taught the risk management course in this program for the last five years.
Table of Contents
Foreword.
Preface.
Acnowledgments.
Introduction.
The Contents of This Book.
The Use of Mathematics in This Book.
Overview.
Institutional Background.
Moral Hazard—Insiders and Outsiders.
Ponzi Schemes.
Adverse Selection.
The Winner’s Curse.
Market Making versus Position Taking.
Operational Risk.
Operations Risk.
Legal Risk.
Reputational Risk.
Accounting Risk.
Funding Liquidity Risk.
Enterprise Risk.
The Identification of Risks.
Operational Risk Capital.
Financial Disasters.
Disasters Due to Misleading Reporting.
Disasters Due to Large Market Moves.
Disasters Due to Conduct of Customer Business.
Managing Market Risk.
Risk Measurement.
Risk Control.
Model Risk.
The Role of Models in Man aging Risk.
Model Control.
Mark to Market vs Mark to Model.
Managing Spot Risk.
Managing Forward Risk.
Instruments.
Mathematical Models of Forward Risk.
Factors Impacting Borrowing and Lending Costs.
Risk Management Reporting and Limits for Forward Risk.
Managing Vanilla Options Risk.
Overview of Options Risk Management.
The Path Dependency of Dynamic Hedging.
A Simulation of Dynamic Hedging.
Risk Reporting and Limits.
Delta Hedging.
Building a Volatility Surface.
Summary.
Managing Exotic Options Risk.
Single-Payout Options.
Time-Dependent Options.
Path-Dependent Options.
Correlation-Dependent Options.
Correlation-Dependent Interest Rate Options.
Value-at-Risk and Stress Testing.
VaR Methodology.
Stress Testing.
Uses of Overall Measures of Firm Position Risk.
Credit Risk.
Short-Term Exposures to Changes in Market Prices.
Long-Term Risk of Default.
Lines of Credit.
Counterparty Credit Risk
Appendix: Spreadsheet Calculators.
Bibliography.
About the CD-ROM.
Index.