Financial Risk Management: A Practitioner''s Guide to Managing Market and Credit Risk

In the Second Edition of Financial Risk Management + Website, market risk expert Steve Allen offers an insider''s view of this discipline and covers the strategies, principles, and measurement techniques necessary to manage and measure financial risk. Fully revised to reflect today''s dynamic environment and the lessons to be learned from the 2008 global financial crisis, this reliable resource provides a comprehensive overview of the entire field of risk management. 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. Along the way, he shares valuable lessons that will help to develop an intuitive feel for market risk measurement and reporting. Presents key insights on how risks can be isolated, quantified, and managed from a top risk management practitioner Offers up-to-date examples of managing market and credit risk Provides an overview and comparison of the various derivative instruments and their use in risk hedging Companion Website contains supplementary materials that allow you to continue to learn in a hands-on fashion long after closing the book Focusing on the management of those risks that can be successfully quantified, the Second Edition of Financial Risk Management + Websiteis the definitive source for managing market and credit risk.

[...]... program at New York University’s Courant Institute of Mathematical Sciences In this program, he has served as Clinical Associate Professor and Deputy Director and has created and taught courses in risk management, derivatives mathematics, and interest rate and credit models He was a member of the Board of Directors of the International Association of Financial Engineers and continues to serve as co‐chair... have also reworked the organization of 1 2 FINANCIAL RISK MANAGEMENT the book to emphasize two core doctrines that I believe are the keys to the understanding and proper practice of financial risk management The first core principle is that financial risk management is not just risk management as practiced in financial institutions; it is risk management that makes active use of trading in liquid markets... since it is the type of risk that actuaries at insurance companies have been dealing with for centuries Even in cases that must be analyzed using the actuarial risk approach, financial risk management techniques can still be useful in isolating the actuarial risk and in identifying market data that can be used as input to actuarial risk calculations I will address this in greater detail in Section 1.2 The... that the quantification of risk management requires simulation guided by both historical data and subjective judgment This is a common feature of both financial risk and actuarial risk The time period simulated may vary greatly, from value at risk (VaR) simulations of daily market moves for very liquid positions to simulations spanning decades for actuarial risk But I will be emphasizing shared characteristics... opportunity to teach and for providing an outstanding institutional setting in which to do it, I want to thank the administration and faculty of Courant, particularly Peter Carr, Neil Chriss, Jonathan Goodman, Bob Kohn, and Petter Kolm, with whom I have participated in the management of the program, and Caroline Thompson, Gabrielle Tobin, and Melissa Vacca, the program administrators I have gained many insights... teve Allen is a risk management consultant, specializing in risk measurement and valuation with a particular emphasis on illiquid and hard‐ to value assets Until his retirement in 2004, he was Managing Director in charge of risk methodology at JPMorgan Chase, where he was responsible for model validation, risk capital allocation, and the development of new measures of valuation, reserves, and risk. .. completely overlap I will try to always make a clear distinction between information that is useful to a trading desk and information that is needed by corporate risk managers, and explain how they might intersect Books and articles on financial risk management have tended to focus on statistical techniques embodied in measures such as value at risk (VaR) As a result, risk management has been accused of... for all of these simulations: the desirability of taking advantage of as much historical data as is relevant, the need to account for nonnormality of statistical distributions, and the necessity of including subjective judgment More details on these requirements are in Section 1.3 1.2 FINANCIAL RISK AND ACTUARIAL RISK The management of financial risk and the management of actuarial risk do share many... place an analysis of risk management lessons from these losses on the website This book is divided into three parts: general background to financial risk management, the principles of financial risk management, and the details of financial risk management ■ ■ ■ The general background part (Chapters 1 through 5) gives an institutional framework for understanding how risk arises in financial firms and. .. 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 Chase’s 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 Since 1998, Allen has been associated with the Mathematics in Finance Masters’ . Lessons from a Crisis 1 1 .2 Financial Risk and Actuarial Risk 2 1.3 Simulation and Subjective Judgment 4 CHAPTER 2 Institutional Background 7 2. 1 Moral Hazard—Insiders and Outsiders 7 2. 2 Ponzi. Book topics range from portfolio management to e-commerce, risk management,  nancial engineering, valuation, and  nancial instrument analysis, as well as much more. For a list of available. Web site at www.WileyFinance.com. Financial Risk Management A Practitioner’s Guide to Managing Market and Credit Risk Second Edition STEVEN ALLEN John Wiley & Sons, Inc. Cover image: John