Elements of Financial Risk Management

ISBN-10: 0123744482
ISBN-13: 9780123744487
Edition: 2nd 2012
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Description: The Second Edition of this best-selling book expands its advanced approach to financial risk models by covering market, credit, and integrated risk. With new data that cover the recent financial crisis, it combines Excel-based empirical exercises at  More...

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Book details

Edition: 2nd
Copyright year: 2012
Publisher: Elsevier Science & Technology Books
Publication date: 11/22/2011
Binding: Hardcover
Pages: 344
Size: 6.00" wide x 9.00" long x 0.75" tall
Weight: 1.078

The Second Edition of this best-selling book expands its advanced approach to financial risk models by covering market, credit, and integrated risk. With new data that cover the recent financial crisis, it combines Excel-based empirical exercises at the end of each chapter with online exercises so readers can use their own data. Its unified GARCH modeling approach, empirically sophisticated and relevant yet easy to implement, sets this book apart from others. Four new chapters and updated end-of-chapter questions and exercises, as well as Excel-solutions manual and PowerPoint slides, support its step-by-step approach to choosing tools and solving problems.   Examines market risk, credit risk, and operational risk Provides exceptional coverage of GARCH models Features online Excel-based empirical exercises

Preface
Acknowledgments
Background
Risk Management and Financial Returns
Chapter Outline
Learning Objectives
Risk Management and the Firm
A Brief Taxonomy of Risks
Asset Returns Definitions
Stylized Facts of Asset Returns
A Generic Model of Asset Returns
From Asset Returns to Portfolio Returns
Introducing the Value-at-Risk (VaR) Risk Measure
Overview of the Book
Appendix: Return VaR and $VaR
Further Resources
References
Empirical Exercises
Historical Simulation, Value at Risk, and Expected Shortfall
Chapter Overview
Historical Simulation
Weighted Historical Simulation (WHS)
Evidence from the 2008-2009 Crisis
The True Probability of Breaching the HS VaR
VaR with Extreme Coverage Rates
Expected Shortfall
Summary
Further Resources
References
Empirical Exercises
A Primer on Financial Time Series Analysis
Chapter Overview
Probability Distributions and Moments
The Linear Model
Univariate Time Series Models
Multivariate Time Series Models
Summary
Further Resources
References
Empirical Exercises
Univariate Risk Models
Volatility Modeling Using Daily Data
Chapter Overview
Simple Variance Forecasting
The GARCH Variance Model
Maximum Likelihood Estimation
Extensions to the GARCH Model
Variance Model Evaluation
Summary
Component GARCH and GARCH(2,2)
The HYGARCH Long-Memory Model
Further Resources
References
Empirical Exercises
Volatility Modeling Using Intraday Data
Chapter Overview
Realized Variance: Four Stylized Facts
Forecasting Realized Variance
Realized Variance Construction
Data Issues
Range-based Volatility Modeling
GARCH Variance Forecast Evaluation Revisited
Summary
Further Resources
References
Empirical Exercises
Nonnormal Distributions
Chapter Overview
Learning Objectives
Visualizing Nonnormality Using QQ Plots
The Filtered Historical Simulation Approach
The Cornish-Fisher Approximation to VaR
The Standardized t Distribution
The Asymmetric t Distribution
Extreme Value Theory (EVT)
Summary
ES for the Symmetric and Asymmetric t Distributions
Cornish-Fisher ES
Extreme Value Theory ES
Further Resources
References
Empirical Exercises
Multivariate Risk Models
Covariance and Correlation Models
Chapter Overview
Portfolio Variance and Covariance
Dynamic Conditional Correlation (DCC)
Estimating Daily Covariance from Intraday Data
Summary
Further Resources
References
Empirical Exercises
Simulating the Term Structure of Risk
Chapter Overview
The Risk Term Structure in Univariate Models
The Risk Term Structure with Constant Correlations
The Risk Term Structure with Dynamic Correlations
Summary
Further Resources
References
Empirical Exercises
Distributions and Copulas for Integrated Risk Management
Chapter Overview
Threshold Correlations
Multivariate Distributions
The Copula Modeling Approach
Risk Management Using Copula Models
Summary
Further Resources
References
Empirical Exercises
Further Topics in Risk Management
Option Pricing
Chapter Overview
Basic Definitions
Option Pricing Using Binomial Trees
Option Pricing under the Normal Distribution
Allowing for Skewness and Kurtosis
Allowing for Dynamic Volatility
Implied Volatility Function (IVF) Models
Summary
Appendix: The CFG Option Pricing Formula
Further Resources
References
Empirical Exercises
Option Risk Management
Chapter Overview
The Option Delta
Portfolio Risk Using Delta
The Option Gamma
Portfolio Risk Using Gamma
Portfolio Risk Using Full Valuation
A Simple Example
Pitfall in the Delta and Gamma Approaches
Summary
Further Resources
References
Empirical Exercises
Credit Risk Management
Chapter Overview
A Brief History of Corporate Defaults
Modeling Corporate Default
Portfolio Credit Risk
Other Aspects of Credit Risk
Summary
Further Resources
References
Empirical Exercises
Backtesting and Stress Testing
Chapter Overview
Backtesting VaRs
Increasing the Information Set
Backtesting Expected Shortfall
Backtesting the Entire Distribution
Stress Testing
Summary
Further Resources
References
Empirical Exercises
Index

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