Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management, Second Edition
- 15h 49m
- Donald R. van Deventer, Kenji Imai, Mark Mesler
- John Wiley & Sons (US)
- 2013
Practical tools and advice for managing financial risk, updated for a post-crisis world
Advanced Financial Risk Management bridges the gap between the idealized assumptions used for risk valuation and the realities that must be reflected in management actions. It explains, in detailed yet easy-to-understand terms, the analytics of these issues from A to Z, and lays out a comprehensive strategy for risk management measurement, objectives, and hedging techniques that apply to all types of institutions. Written by experienced risk managers, the book covers everything from the basics of present value, forward rates, and interest rate compounding to the wide variety of alternative term structure models.
Revised and updated with lessons from the 2007-2010 financial crisis, Advanced Financial Risk Management outlines a framework for fully integrated risk management. Credit risk, market risk, asset and liability management, and performance measurement have historically been thought of as separate disciplines, but recent developments in financial theory and computer science now allow these views of risk to be analyzed on a more integrated basis. The book presents a performance measurement approach that goes far beyond traditional capital allocation techniques to measure risk-adjusted shareholder value creation, and supplements this strategic view of integrated risk with step-by-step tools and techniques for constructing a risk management system that achieves these objectives.
- Practical tools for managing risk in the financial world
- Updated to include the most recent events that have influenced risk management
- Topics covered include the basics of present value, forward rates, and interest rate compounding; American vs. European fixed income options; default probability models; prepayment models; mortality models; and alternatives to the Vasicek model
Comprehensive and in-depth, Advanced Financial Risk Management is an essential resource for anyone working in the financial field.
About the Authors
DONALD R. VAN DEVENTER founded the Kamakura Corporation in April 1990 and is currently Chairman and CEO. In 2003, he was voted into the Risk Hall of Fame for having made a profound contribution to the field of risk management. He has been involved in financial advisory assignments involving both risk management and mergers and acquisitions. Prior to founding Kamakura Corporation, he was senior vice president of the investment banking department of Lehman Brothers. From 1982 to 1987, he was the treasurer for First Interstate Bancorp in Los Angeles. He holds a PhD in business economics, a joint degree of the Harvard University Department of Economics and the Harvard Graduate School of Business Administration.
Kenji Imai has headed Software Development for Kamakura for sixteen years. Mr. Imai is member of the Managing Committee of Kamakura. Prior to Kamakura, Mr. Imai worked in the derivatives structuring/trading and risk management groups at the Sanwa Bank and S.G. Warburg. He graduated from the University of Tokyo with a BS in civil engineering and from the Sloan School of the Massachusetts Institute of Technology with a MS in management, concentrating on finance.
Mark Mesler is Managing Director and heads Kamakura Risk Information Services, Kamakura's innovative Basel II and III compliant default probability service. Mr. Mesler is in charge of the daily production of the KRIS Merton model, Jarrow reduced form model, and hybrid model default probabilities. Mr. Mesler has twenty-seven years' experience in the financial services information and systems field and is a veteran of State Street Bank, KPMG, Oracle, and the Bank of America. Prior to joining Kamakura Corporation, Mr. Mesler was vice president at Askari Risk Management Solutions, at that time a subsidiary of State Street Bank in Boston.
In this Book
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Introduction—Wall Street Lessons from Bubbles
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A Risk Management Synthesis—Market Risk, Credit Risk, Liquidity Risk, and Asset and Liability Management
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Risk, Return, Performance Measurement, and Capital Regulation
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Interest Rate Risk Introduction and Overview
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Fixed Income Mathematics—The Basic Tools
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Yield Curve Smoothing
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Introduction to Heath, Jarrow, and Morton Interest Rate Modeling
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HJM Interest Rate Modeling with Rate and Maturity-Dependent Volatility
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HJM Interest Rate Modeling with Two Risk Factors
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HJM Interest Rate Modeling with Three Risk Factors
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Valuation, Liquidity, and Net Income
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Interest Rate Mismatching and Hedging
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Legacy Approaches to Interest Rate Risk Management
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Special Cases of Heath, Jarrow, and Morton Interest Rate Modeling
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Estimating the Parameters of Interest Rate Models
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An Introduction to Credit Risk—Using Market Signals in Loan Pricing and Performance Measurement
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Reduced Form Credit Models and Credit Model Testing
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Credit Spread Fitting and Modeling
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Legacy Approaches to Credit Risk
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Valuing Credit Risky Bonds
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Credit Derivatives and Collateralized Debt Obligations
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European Options on Bonds
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Forward and Futures Contracts
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European Options on Forward and Futures Contracts
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Caps and Floors
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Interest Rate Swaps and Swaptions
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Exotic Swap and Options Structures
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American Fixed Income Options
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Irrational Exercise of Fixed Income Options
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Mortgage-Backed Securities and Asset-Backed Securities
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Nonmaturity Deposits
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Foreign Exchange Markets
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Impact of Collateral on Valuation Models—The Example of Home Prices in the Credit Crisis
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Pricing and Valuing Revolving Credit and other Facilities
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Modeling Common Stock and Convertible Bonds on a Default-Adjusted Basis
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Valuing Insurance Policies and Pension Obligations
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Value-at-Risk and Risk Management Objectives Revisited at the Portfolio and Company Level
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Liquidity Analysis and Management—Examples from the Credit Crisis
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Performance Measurement—Plus Alpha vs. Transfer Pricing
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Managing Institutional Default Risk and Safety and Soundness
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Information Technology Considerations
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Shareholder Value Creation and Destruction
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Bibliography
