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Risk management
Risk is the fundamental element that influences financial behavior. In its absence, the financial system necessary for efficient allocations of resources would be vastly simplified. In that world, only a few institutions and financial instruments would be needed, and the practice of finance would require relatively elementary analytical tools. But, of course, in the real world, risk is ubiquitous. Much of the structure of the financial system we see serves the function of the efficient distribution of risk. Much of the financial decision making by households, business firms, governments, and especially financial institutions is focused on the management of risk. Measuring the influence of risk, and analyzing ways of controlling and allocating it, require a wide range of sophisticated mathematical and computational tools. Indeed, mathematical models of modern finance practice contain some of the most complex applications of probability, optimization, and estimation theories. Those applications challenge the most powerful of computational technologies. Risk Management provides a comprehensive introduction to the subject. Presented within the framework of a financial institution, it covers the design and operation of a risk-management system, the technical modeling within that system, and the interplay between the internal oversight and the external regulatory components of the system. That its authors, Michel Crouhy, Dan Galai, and Robert Mark, are significant contributors to the science of finance, active practitioners of finance, and experienced teachers of finance is apparent from both its substance and form. The range of topics is broad but evidently carefully chosen for its applicability to practice. The mathematical models and methodology of risk management are presented rigorously, and they are seamlessly integrated with the empirical and clinical evidence on their applications. The book also patiently provides readers without an advanced mathematical background the essential analytical foundations of risk management. The opening four chapters provide a fine introduction to the function of the risk management system within the institution and Page xiv on the management of the system itself. Recent regulatory trends are presented to illustrate the expanded role that the internal system plays in informing and meeting the requirements of the external overseers of the institution. With this as background, the book turns to the core substance of a risk management system with the analysis and modeling of risk measurement and control. Market risk is the first topic explored, including the ubiquitous VaR models and stress testing for identifying and measuring risk exposures to stock market, interest rate, currency, and commodity prices. The analysis shows how to incorporate option, derivative and other ''nonlinear" security exposures into those models. Nearly a third of the book is devoted to the management of credit risk, and for good reason. Banks are in the business of making loans and they also issue guarantees of financial performance for their customers. They enter into bilateral contractual agreements such as swaps, forward contracts, and options on enormous scales that expose them to the risk that their counterparts to those contracts will not fulfill their obligations. Similarly, insurance companies hold corporate bonds that may default and some guarantee the performance of bonds issued by municipal governments. The credit derivatives business is one of the fastest growing areas for financial products. However, credit risk analysis has even greater importance to risk management in its application to the soundness of the institution itself. Indeed, for financial institutions with principal businesses, which involve issuing contingentpayment contracts such as deposits, annuities, and insurance to their customers, creditworthiness is the central financial issue. The mere prospect of a future default by an institution on its customer obligations can effectively destroy those businesses. Unlike investors in an institution, its customers do not want to bear its credit risk, even for a price. The book presents the major competing models for measuring and valuing credit risk and evaluates them, both theoretically and empirically. In addition to market and credit risk exposures, a comprehensive approach to risk measurement and risk management must also include operational risks, which is the subject of Chapter 13. Furthermore, no risk management system can be effective without well-designed performance measurement and testing. This is Page xv needed both to estimate the risk exposures ex ante and to provide an ex post assessment of those estimates relative to predictions, as a feedback on the performance of the system. As laid out in Chapter 14, the system's risk estimates provide the basis for capital attribution among the activities and the accuracy of those estimates determine the amount of equity capital "cushion" needed as a whole. Mathematical models of valuation and risk assessment are at the core of modern risk management systems. Every major financial institution in the world, including sovereign central banks, depends on these models and none could function without them. Although mainstream and indispensable, these models are by necessity abstractions of the complex real world. Although there is continuing improvement in those models, their accuracy as useful approximations to that world varies significantly across time and situation. Thus, a dimension of risk management that by definition is outside the formal risk management model is model risk. Chapter 15 explores that issue. It drives home the point that there is no "safe harbor" in model error, whether complex mathematical models or traditional measures with rules of thumb. For example, in the case of financial institutions, the traditional accounting leverage ratio measured by total assets/equity can be cut in half by using a "borrow-versus-pledge" method to finance security inventory versus using a "repo-reverse repo" method even though the economic risk of the two methods is identical. Furthermore, the institution can use derivative securities to greatly alter its measured leverage ratio without changing its economic risk. The risk-measurement approaches emphasized in the book are ones that give consistent readings among these different institutional ways of taking on the same risk exposure. The pace of financial innovation has been extraordinary over the past quarter century and there is no sign of abatement in either product and service innovation or changes in the institutional structures of the providers. As discussed in Chapter 16, a major growth area will be in providing integrated risk management to nonfinancial firms. More generally, from individual households to government users, the trend in financial services lies with integrated products that are smarter, more comprehensive, simpler to understand, and more reliable for those users. The future of risk management, as articulated in Chapter 17, rests in helping the pro- Page xvi ducer handle the greater complexity of creating and maintaining those products. The prescriptions contained herein will age well
Ketersediaan
| Call Number | Location | Available |
|---|---|---|
| Tan 658.155 Cro r | PSB lt.dasar - Pascasarjana | 2 |
| Penerbit | New York: McGraw Hill 2001 |
|---|---|
| Edisi | - |
| Subjek | Risk management |
| ISBN/ISSN | 9780071357319 |
| Klasifikasi | NONE |
| Deskripsi Fisik | xix, 717 p. : ill. ; 26 cm. |
| Info Detail Spesifik | - |
| Other Version/Related | Tidak tersedia versi lain |
| Lampiran Berkas | Tidak Ada Data |