The Essentials of Risk Management, Second Edition

Dr. Michel Crouhy is Senior Vice President, Global Analytics, Market Risk Management Division at Canadian Imperial Bank of Commerce (CIBC). Prior to this he was a Professor of Finance at HEC. He has been a visiting professor at Wharton School where he received his Ph.D. He has extensively published in academic journals and is also the associate editor of the Journal of Derivatives, the Journal of Banking and Finance. He is also on the editorial board of the new Journal of Risk. Dr. Dan Galai is the Abe Gray Professor of Finance and Business Administration at Hebrew University. He has been a visiting professor of Finance at INSEAD, and also has taught at UCLA and the University of Chicago where he received his Ph.D. He has consulted for the Chicago Board of Exchange and the American Stock Exchange. He has published numerous articles in leading business and finance journals and was the winner of the First Annual Pomeranze Prize for excellence in options research presented by the CBOE.

Foreword xi
Introduction to the Second Edition:Reforming Risk Management for the Post-Crisis Era xv
1. Risk Management: A Helicopter View 1
1.1 Typology of Risk Exposures 23
2. Corporate Risk Management: A Primer 45
3. Banks and Their Regulators:The Post-Crisis Regulatory Framework 67
3.1 Basel I 117
3.2 The 1996 Market Risk Amendment 125
3.3 Basel II and Minimum Capital Requirements for Credit Risk 131
3.4 Basel 2.5: Enhancements to the Basel II Framework 137
3.5 Contingent Convertible Bonds 143
4. Corporate Governance and Risk Management 151
5. A User-Friendly Guide to the Theory of Risk and Return 183
6. Interest Rate Risk and Hedging with Derivative Instruments 203
7. Measuring Market Risk: Value-at-Risk,Expected Shortfall, and Similar Metrics 233
8. Asset/Liability Management 265
9. Credit Scoring and Retail Credit Risk Management 305
10. Commercial Credit Risk and the Ratingof Individual Credits 333
10.1 Definitions of Key Financial Ratios 363
11. Quantitative Approaches to CreditPortfolio Risk and Credit Modeling 365
11.1 The Basic Idea of the Reduced Form Model 407
12. The Credit Transfer Markets—and Their Implications 411
12.1 Why the Rating of CDOs byRating Agencies Was Misleading 467
13. Counterparty Credit Risk: CVA, DVA, and FVA 471
14. Operational Risk 499
15. Model Risk 529
16. Stress Testing and Scenario Analysis 555
16.1 The 2013 Dodd-Frank Severely Adverse Scenarios 581
17. Risk Capital Attribution andRisk-Adjusted Performance Measurement 583
Epilogue: Trends in Risk Management 609
Index 619