| |
| |
| List of Tables | |
| |
| |
| List of Figures | |
| |
| |
| Preface | |
| |
| |
| |
| Understanding the Contribution of Science and of Models | |
| |
| |
| |
| Science and the Solution of Real-life Business Problems | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Thinking is the common ground between science and philosophy | |
| |
| |
| |
| Principles underlying scientific thought | |
| |
| |
| |
| What is meant by the scientific method? | |
| |
| |
| |
| Models and the internal rating-based solution | |
| |
| |
| |
| Natural death and oblivion of models, products, factories, companies and people | |
| |
| |
| |
| Is the Work of Financial Analysts Worth the Cost and the Effort? | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| The role of financial analysts | |
| |
| |
| |
| Metaknowledge is a basic concept of science and technology | |
| |
| |
| |
| Metaphors, real world problems and their solution | |
| |
| |
| |
| Characteristics of an internally consistent analysis | |
| |
| |
| |
| Financial studies and the methodology of physicists and inventors | |
| |
| |
| |
| Management based on research and analysis | |
| |
| |
| |
| The Contribution of Modelling and Experimentation in Modern Business | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| The multiple role of analysis in the financial industry | |
| |
| |
| |
| Can models help in improving business leadership? | |
| |
| |
| |
| Non-traditional financial analysis and qualitative criteria | |
| |
| |
| |
| Models become more important in conjunction to internal control | |
| |
| |
| |
| Human factors in organisation and modelling | |
| |
| |
| |
| Elements of the Internal Rating-based Method | |
| |
| |
| |
| Practical Applications: the Assessment of Creditworthiness | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Notions underpinning the control of credit risk | |
| |
| |
| |
| RAROC as a strategic tool | |
| |
| |
| |
| Standardised approach and IRB method of Basle II | |
| |
| |
| |
| Amount of leverage, loss threshold and counterparty risk | |
| |
| |
| |
| Risk factors help in better appreciation of exposure | |
| |
| |
| |
| Has the Westdeutsche Landesbank Girozentrale (West LB) an AA + or a D rating? | |
| |
| |
| |
| Debts and the Use of Models in Evaluating Credit Risk | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Contribution of information technology (IT) to the control of credit exposure | |
| |
| |
| |
| Credit risk, rating and exposure: examples with credit derivatives | |
| |
| |
| |
| Rules by Banque de France on securitisation of corporate debt | |
| |
| |
| |
| Credit derivatives with non-performing loans: Banca di Roma and Thai Farmers' Bank | |
| |
| |
| |
| Don't use market risk models for credit risk | |
| |
| |
| |
| Models for Actuarial Science and the Cost of Money | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Basic principles underpinning actuarial science | |
| |
| |
| |
| The stochastic nature of actuarial models | |
| |
| |
| |
| Interest rates, present value and discounting | |
| |
| |
| |
| Modelling a cash flow system | |
| |
| |
| |
| Actuarial reserves and collective models | |
| |
| |
| |
| Forecasting, Reporting, Evaluating and Exercising Market Discipline | |
| |
| |
| |
| Scenario Analysis and the Delphi Method | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Why expert opinion is not available matter-of-course | |
| |
| |
| |
| The delphi method helps management avoid tunnel vision | |
| |
| |
| |
| Scenarios and the pattern of expert advice | |
| |
| |
| |
| Extending the scope of analytics and the planning horizon | |
| |
| |
| |
| Making effective use of informed intuitive judgement | |
| |
| |
| |
| Financial Forecasting and Economic Predictions | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| The art of prognostication and its pitfalls | |
| |
| |
| |
| Predictive trends, evolutionary concepts and rocket scientists | |
| |
| |
| |
| A prediction theory based on the underlying simplicity of systems | |
| |
| |
| |
| Undocumented hypotheses are in the background of many model failures | |
| |
| |
| |
| Investment horizon and the arrow of time | |
| |
| |
| |
| Reliable Financial Reporting and Market Discipline | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Committee of Sponsoring Organisations (COSO) of the Treadway Commission and implementation of COSO | |
| |
| |
| |
| Qualitative and quantitative disclosures by financial institutions | |
| |
| |
| |
| Proactive regulation and the use of an accounting metalanguage | |
| |
| |
| |
| Defining the territory where new regulations must apply | |
| |
| |
| |
| Measurement practices, reporting guidelines and management intent | |
| |
| |
| |
| Why fair value in financial reporting is a superior method | |
| |
| |
| |
| What to do and not to do with Models | |
| |
| |
| |
| The Model's Contribution: Examples with Value at Risk and the Monte Carlo Method | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Concepts underpinning value at risk and its usage | |
| |
| |
| |
| What VAR is and what it is not | |
| |
| |
| |
| Historical correlation and simulation with VAR models | |
| |
| |
| |
| The bootstrapping method and backtesting | |
| |
| |
| |
| Levels of confidence with models and operating characteristics curves | |
| |
| |
| |
| Is Value at Risk an Alternative to Setting Limits? | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| Establishing a policy of prudential limits | |
| |
| |
| |
| Limits, VAR and market risk | |
| |
| |
| |
| The impact of level of confidence on the usability of VAR | |
| |
| |
| |
| Can we use eigenmodels for precommitment? | |
| |
| |
| |
| Using the warning signals given by value at risk | |
| |
| |
| |
| Facing the Challenge of Model Risk | |
| |
| |
| |
| Errors in Prognostication | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| 'For' and 'against' the use of models for forecasting | |
| |
| |
| |
| Faulty assumptions by famous people and their models | |
| |
| |
| |
| The detection of extreme events | |
| |
| |
| |
| Costly errors in option pricing and volatility smiles | |
| |
| |
| |
| Imperfections with modelling and simulation | |
| |
| |
| |
| Model Risk is Part of Operational Risk | |
| |
| |
| |
| Introduction | |
| |
| |
| |
| The risk you took is the risk you got | |
| |
| |
| |
| Model risk whose origin is in low technology | |
| |
| |
| |
| The downside may also be in overall operational risk | |
| |
| |
| |
| Operational risk in the evaluation of investment factors | |
| |
| |
| |
| How far can internal control reduce operational risk? | |
| |
| |
| |
| The contribution that is expected from auditing | |
| |
| |
| Notes | |
| |
| |
| Index | |