Financial Risk Management
ISBN: 9789390395637
404 pages
Description
Financial Risk Management is designed to provide the readers with a stronger foundation in measurement and management of financial risks. This book takes the readers through the subject in a step-wise manner with the aim of providing necessary knowledge and skills for evaluating and dealing with financial risks. This book is primarily meant for graduate students of Management, and it would also prove helpful to the students intending to appear in the FRM examination conducted by Global Association of Risk Professionals (GARP) as well as practicing risk managers.
Chapter 1 Introduction to Financial Risk Management
1.1 Introduction
1.2 Risk Management
1.3 Benefits of Risk Management
1.4 Types of Risks
1.5 Financial Markets
1.6 Types of Financial Risks
1.7 Market Risk
1.8 Credit/Counterparty Risk
1.9 Operational Risk
1.10 Model Risk
1.11 Risk and Risk Factors
1.12 Financial Risk Management
1.13 Steps in the Risk Management Process
Chapter 2 Market Risk: Sensitivity Measures
2.1 Introduction
2.2 Sensitivity Measures of Market Risk
Chapter 3 Volatility and Correlation
3.1 Introduction
3.2 Estimation of Volatility
3.3 Standard Approach
3.4 Weighting Schemes
3.5 The ARCH Model
3.6 The EWMA Model
3.7 GARCH (1,1) Model
3.8 Forecasting Future Volatility for Option Pricing
3.9 Component GARCH Model
3.10 Asymmetric Volatility
3.11 Implied Volatilities
3.12 Volatility Indices
3.13 Predicting Correlations
Chapter 4 Value at Risk and Expected Shortfall
4.1 Introduction
4.2 Value at Risk
4.3 Expected Shortfall (ES)
4.4 Choice of VaR Parameters
4.5 Aggregation of VaR and ES
4.6 Calculating VaR
4.7 Parametric and Nonparametric VaR
4.8 HS Approach
4.9 Monte Carlo Simulation Approach
4.10 Parametric VaR
4.11 VaR for Non-normal Distributions
4.12 Parametric Versus Nonparametric VaR
4.13 Marginal VaR
4.14 Component VaR
4.15 Back Testing
4.16 Stress Testing
4.17 Risk Metrics
Chapter 5 Management of Market Risk
5.1 Introduction
5.2 Portfolio Diversification
5.3 Hedging
5.4 Insurance-Type Contracts
5.5 Portfolio Insurance
5.6 Internal Hedges
5.7 Basel Guidelines
Chapter 6 Estimating Default and Migration Probabilities
6.1 Introduction
6.2 Credit Risk VaR
6.3 Measuring Probability of Default
6.4 Migration Probabilities
6.5 Basel Guidelines
Chapter 7 Credit Value at Risk
7.1 Introduction
7.2 Exposure at Default
7.3 Loss Given Default
7.4 Credit Risk Correlations
7.5 Expected and Unexpected Loss
7.6 Credit Risk Models
Chapter 8 Credit Risk Management
8.1 Introduction
8.2 Marking-to-Market
8.3 Netting
8.4 Collateralization
8.5 Downgrade Triggers
8.6 Loan Syndication
8.7 Guarantees and Letters of Credit
8.8 Credit Rationing
8.9 Debt Covenants
8.10 Monitoring
8.11 Put options
8.12 Credit Derivatives
8.13 Credit insurance
8.14 Securitization
8.15 Basel Guidelines
Chapter 9 Operational Risk
9.1 Introduction
9.2 Types of Operational Risk Losses
9.3 Measurement of Operational Risk
9.4 Managing Operational Risk
Chapter 10 Liquidity Risk
10.1 Introduction
10.2 Types of Liquidity Risk
10.3 Funding Liquidity Risk
10.4 Managing Liquidity Risk
10.5 Liquidity Black Holes
10.6 Basel III Regulations
Chapter 11 Model Risk
11.1 Introduction
11.2 Models for Pricing Standard Products
11.3 Models for Non-standard Products
11.4 Sources of Model Risk
11.5 Quantifying Model Risk
11.6 Managing Model Risk
11.7 Regulatory Requirement
11.8 Model Development
11.9 Model Validation
Chapter 12 Asset Liability Management
12.1 Introduction
12.2 Objectives of ALM
12.3 Interest Rate Risk
12.4 Liquidity Funding Risk
12.5 Organization of the ALM Function
12.6 Reserve Bank of India Guidelines on ALM by Indian Banks
Chapter 13 Enterprise Risk Management
13.1 Introduction
13.2 Economic Capital
13.3 Risk Appetite
13.4 Risk Culture
13.5 Top-down Approach
13.6 Bottom-up Approach
13.7 Risk Allocation
13.8 Risk-Adjusted Performance Measurement
13.9 Risk-Based Pricing
Chapter 14 Financial Innovation
14.1 Introduction
14.2 Important Financial Innovations
14.3 Role of Finance Theories and Models in Stimulating Financial Innovation
14.4 Factors that Motivate Financial Innovation
14.5 Diffusion of Financial Innovations
14.6 Classification and Functions of the Financial Innovations
14.7 Implications of Innovations on Financial Markets
14.8 The Future of Financial Innovation
Chapter 15 Role of Analytics in Risk Management
15.1 Introduction
15.2 Types of Data Analytics
15.3 Steps in Risk Analytics
15.4 Financial Risk Analytics
15.5 Benefits of Risk Analytics
15.6 Challenges in Use of Data Analytics
Summary
Glossary
Assignment Material
Caselets
Appendix A Sovereign Risk and Financial Crisis
A.1 Introduction
A.2 Sovereign Risk
A.3 Credit Crisis 2007
A.4 Flash Crashes
Appendix B Solvency II Guidelines
B.1 Introduction
B.2 Objectives of Solvency II
B.3 Applicability
B.4 Pillars
Appendix C Introduction to Probability Theory
C.1 Probability
C.2 Properties of Probability
C.3 Characteristics of Probability Distributions
Appendix D Introduction to Financial Derivatives
D.1 Derivative
D.2 Types of Derivative Contracts
D.3 Put-call Parity Theorem
Appendix E Financial Risk Management during COVID-19
Index