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• Contents
• Foreword
• Introduction
• Preface
• Chapter 1 The Need for Risk Management Systems
• 1. Introduction
• 2. Historical Evolution
• 3. The Regulatory Environment
• 4. The Academic Background and Technological Changes
• 5. Accounting Systems versus Risk Management Systems
• 6. Lessons from Recent Financial Disasters
• 7. Typology of Risk Exposures
• 8. Extending Risk Management Systems to Nonfinancial Corporations
• Notes
• Chapter 2 The New Regulatory and Corporate Environment
• 1. Introduction
• 2. The Group of 30 (G-30) Policy Recommendations
• 3. The 1988 BIS Accord: The “Accord”
• 4. The “1996 Amendment” or “BIS 98”
• 5. The BIS 2000[sup(+)] Accord
• Notes
• Chapter 3 Structuring and Managing the Risk Management Function in a Bank
• 1. Introduction
• 2. Organizing the Risk Management Function: Three-Pillar Framework
• 3. Data and Technological Infrastructure
• 4. Risk Authorities and Risk Control
• 5. Establishing Risk Limits for Gap and Liquidity Management
• 6. Conclusion: Steps to Success
• Notes
• Chapter 4 The New BIS Capital Requirements for Financial Risks
• 1. Introduction
• 2. The Standardized Approach
• 3. The Internal Models Approach
• 4. Pros and Cons of the Standardized and Internal Models Approaches: A New Proposal—the “Precomm
• 5. Comparisons of the Capital Charges for Various Portfolios According to the Standardized and the I
• 6. Conclusions
• Notes
• Chapter 5 Measuring Market Risk: The VaR Approach
• 1. Introduction
• 2. Measuring Risk: A Historical Perspective
• 3. Defining Value at Risk
• 4. Calculating Value at Risk
• 5. Conclusion: Pros and Cons of the Different Approaches
• Appendix 1: Duration and Convexity of a Bond
• Notes
• Chapter 6 Measuring Market Risk: Extensions of the VaR Approach and Testing the Models
• 1. Introduction
• 2. Incremental-VaR (IVAR), DeltaVar (DVAR), and Most Significant Risks
• 3. Introduction to Internal Risk Rating
• 4. Dynamic-VaR
• 5. Measurement Errors and Back-testing of VaR Models
• 6. Improved Variance-Covariance VaR Model
• 7. Limitations of VaR As a Risk Measure
• Appendix: Proof of the Deltavar Property
• Notes
• Chapter 7 Credit Rating Systems
• 1. Introduction
• 2. Rating Agencies
• 3. Introduction to Internal Risk Rating
• 4. Debt Rating and Migration
• 5. Financial Assessment (Step 1)
• 6. First Group of Adjustment Factors for Obligor Credit Rating
• 7. Second Group of Adjustment Factors for Facility Rating
• 8. Conclusion
• Appendix 1: Definitions of Key Ratios
• Appendix 2: Key Financial Analysis Measures
• Appendix 3A: Prototype Industry Assessment: Telecommunications in Canada
• Appendix 3B: Prototype Industry Assessment: Footwear and Clothing in Canada
• Appendix 4: Prototype Country Analysis Report (Condensed Version): Brazil
• Notes
• Chapter 8 Credit Migration Approach to Measuring Credit Risk
• 1. Introduction
• 2. CreditMetrics Framework
• 3. Credit VaR for a Bond (Building Block 1)
• 4. Credit VaR for a Loan or Bond Portfolio (Building Block 2)
• 5. Analysis of Credit Diversification (Building Block 2, Continuation)
• 6. Credit VaR and the Calculation of the Capital Charge
• 7. CreditMetrics As a Loan/Bond Portfolio Management Tool: Marginal Risk Measures (Building Block 2,
• 8. Estimation of Asset Correlations (Building Block 3)
• 9. Exposures (Building Block 4)
• 10. Conditional Transition Probabilities: CreditPortfolioView
• 11. Appendix 1: Elements of Merton’s Model
• Appendix 2: Default Prediction—The Econometric Model
• Appendix 3: Transition Matrix over a Period of Less than One Year
• Notes
• Chapter 9 The Contingent Claim Approach to Measuring Credit Risk
• 1. Introduction
• 2. A Structural Model of Default Risk: Merton’s (1974) Model
• 3. Probability of Default, Conditional Expected Recovery Value, and Default Spread
• 4. Estimating Credit Risk As a Function of Equity Value
• 5. KMV Approach
• 6. KMV’s Valuation Model for Cash Flows Subject to Default Risk
• 7. Asset Return Correlation Model
• Appendix 1: Integrating Yield Spread with Options Approach
• Appendix 2: Risk-Neutral Valuation Using “Risk-Neutral” EDFs
• Appendix 3: Limitations of the Merton Model and Some Extensions
• Notes
• Chapter 10 Other Approaches: The Actuarial and Reduced-Form Approaches to Measuring Credit Risk
• 1. Introduction
• 2. The Actuarial Approach: CreditRisk+
• 3. The Reduced-Form Approach or Intensity-Based Models
• Notes
• Chapter 11 Comparison of Industry-Sponsored Credit Models and Associated Back-Testing Issues
• 1. Introduction
• 2. Comparison of Industry-Sponsored Credit Risk Models
• 3. Stress Testing and Scenario Analysis
• 4. Implementation and Validation Issues
• Notes
• Chapter 12 Hedging Credit Risk
• 1. Introduction
• 2. Credit Risk Enhancement
• 3. Derivative Product Companies
• 4. Credit Derivatives
• 5. Types of Credit Derivatives
• 6. Credit Risk Securitization for Loans and High Yield Bonds
• 7. Regulatory Issues
• Notes
• Chapter 13 Managing Operational Risk
• 1. Introduction
• 2. Typology of Operational Risks
• 3. Who Should Manage Operational Risk?
• 4. The Key to Implementing Bank-Wide Operational Risk Management
• 5. A Four-Step Measurement Process for Operational Risk
• 6. Capital Attribution for Operational Risks
• 7. Self-Assessment versus Risk Management Assessment
• 8. Integrated Operational Risk
• 9. Conclusion
• Appendix 1: Group of Thirty Recommendations: Derivatives and Operational Risk
• Appendix 2: Types of Operational Risk Losses
• Appendix 3: Severity versus Likelihood
• Appendix 4: Training and Risk Education
• Appendix 5: Identifying and Quantifying Operational Risk
• Notes
• Chapter 14 Capital Allocation and Performance Measurement
• 1. Introduction
• 2. Guiding Principles of RAROC Implementation
• 3. Relationship of RAROC Capital to Market, Credit, and Operational Risks
• 4. Loan Equivalent Approach
• 5. Measuring Exposures and Losses for Derivatives
• 6. Measuring Risk Adjusted Performance: Second Generation of RAROC Model
• 7. Concluding Remarks
• Appendix 1: First Generation of RAROC Model—Assumptions in Calculating Exposures, Expected Default
• Notes
• Chapter 15 Model Risk
• 1. Introduction
• 2. Valuation Models and Sources of Model Risk
• 3. Typology of Model Risks
• 4. What Can Go Wrong?
• 5. What Can Market Risk Management Do to Mitigate Model Risk?
• 6. Conclusions
• Notes
• Chapter 16 Risk Management in Nonbank Corporations
• 1. Introduction
• 2. Why Manage Risks?
• 3. Procedure for Risk Management
• 4. Accounting Reports
• 5. Reporting Requirements by Securities Authorities
• Appendix 1: Examples of Reports on Risk Exposure by Nike, Merck, and Microsoft, 1988
• Notes
• Chapter 17 Risk Management in the Future
• 1. The Total Risk-Enabled Bank
• 2. External Client Profitability . . . A Partner Plus™ Approach
• 3. Process for Reviewing Risk in Extreme Markets Will Become Standardized
• 4. The Credit Analysis Process and the Need for Integrating Risks
• 5. An Idealized Bank of the Future
• Appendix: The Relationship Between Market Risk, Business Risk, and Credit Risk
• Notes
• References
• Index
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