Risk

Advances in technology and risk modeling have boosted derivative markets.The resulting increase in arbitrage activities has narrowed profit margins in all financial markets. Consistent risk methodology is now an essential tool for overcoming competitive pricing and for anticipating the consequences of market turbulence.

It is now possible to calculate the potential impact of every major deal on the overall risk profit of the firm. Market risk and credit risk can be quantified and considered against the expected contribution to share-holder value or return on capital. These measurements create a theoretical framework for harmonizing activity at financial firms.

In practice, today's markets and technologies evolve so rapidly that the requirements and the capabilities shift before any reengineering cycle can be completed. A quagmire of data seriously confounds the task of extracting reliable information for risk management. The data problem becomes acute when you move to global risk management, because a flaw anywhere affects the whole process and is much harder to trace.

Timely, accurate information about all positions is a prerequisite for effective management in this new global marketplace. You can't run flexible "what if" stress tests or determine global VaR (value at risk) accurately without a central transaction file. When the next contagion hits, the winners will be the ones who have correctly measured the stress on their whole portfolio and adjusted their holdings to achieve some immunization.

This book shows you how to make your firm one of those winners.

• Introduction
• How This Book Is Organized
• Risk Management Transparency
• The Spectrum of Risks Chart
• Section I: The Risks and Their Contours
1. Global Risk Management Emergence
• Technology and Communications
• Quantitative Models
• Dealers in Flux, Too
• Major Messages in This Book
• Wrap-Up
2. The Full Spectrum of Risks
• Operational Risk
• Other Nonfinancial Risks
• Wrap-Up
3. The Contours of Financial Risk
• Funding Risk —The Primal Arc
• Markets and Risk
• Basis Risk
• Alternative Views and Insights
• New Measurement Tools and Management Techniques
• Credit Risk
• The Contours of Credit Risk
• Portfolio Risk
• Our Journey
• Wrap-Up
• Section II: Market Risk Management
4. Market Risk: Tools and Uses
• Hedge Example
• Arbitrage
• Speculation
• Wrap-Up
5. Commodity Market Risk Management
• Case Study: Big Auto Co.
• Case Study: Innovative Enron
• Commodity Market Features
• Wrap-Up
6. Currency Market Risk Management
• Market Dynamics
• Valuation and Risk Mechanics
• Risk Illustrations
• End Users
• Intermediaries
• Wrap-Up
7. Fixed-Income Market Risk Management
• Market Dynamics
• Time Matters
• Valuation
• Risk Mechanics
• Risk Illustrations
• Corporate Users
• Dealers
• The Investors
• Wrap-Up
8. Equity Market Risk Management
• Valuation and Risk Mechanics
• Risk Illustration
• Equity Derivatives
• Dealers and End Users
• Wrap-Up
• Market Risk Summary
• Section III: Credit Risk Management
9. The Schism in Risk Management
• Credit Risk Management Difficulties
• Wrap-Up
10. Credit Risk Management for Trading
• The Variable Exposure Problem
• Pre-Settlement and Settlement Risk
• Monte Carlo Simulations
• Credit Risk versus Exposure
• Credit Limit Problems
• Charging for Credit
• Systemic Concerns
• Wrap-Up
11. Credit Risk Management for Traditional Lending
• The Traditional Credit Process: Commercial Loans
• Competition and Change to the Process
• Summary of Changes to the Process
• The Prior Models for Credit Risk
• The New Models for Credit Risk
• Case Study: Bank of Montreal
• Credit Market Trends
• Wrap-Up
• Section IV: Risk in Portfolios
12. Market Risk in Portfolios
• Portfolio Risk Measures: Their Evolution
• Forecasting for VaR
• VaR Summary
• Stress Testing
• The Lessons of 1998
• Wrap-Up
13. Simulation
• Case Study: Global Oil Co.
• Wrap-Up
• Section V: Developing a Global Risk Management Process
14. Risk Management: The Vision and the Reality
• The Vision for Risk Management: Go Global
• The Reality at Global Financial Institutions
• Wrap-Up
15. The Global Risk Management Development Model
• Management Direction
• Risk Management Development Projects
• Wrap-p
16. Developing GRM: What Works, What Doesn't?
• The Chase Example
• Features of Success
• Pitfalls to Avoid
• Wrap-Up
• Conclusion
• The Ten Commandments for Going Global with Risk
• Appendix: Financial Risk Definitions

An excellent book about financial risk. I only wish he would address operational risk more, as it exists in his model, but only there.

Also, he was one of the praisers of Enron, which makes his conclusions a bit circumspect, but I guess anyone can be fooled…