Risk Management and Financial Institutions, Fifth Edition
John Wiley & Sons Inc (Verlag)
978-1-119-44811-2 (ISBN)
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Risk Management and Financial Institutions, Fifth Edition explains all aspects of financial risk and financial institution regulation, helping you better understand the financial markets—and their potential dangers. Inside, you’ll learn the different types of risk, how and where they appear in different types of institutions, and how the regulatory structure of each institution affects risk management practices. Comprehensive ancillary materials include software, practice questions, and all necessary teaching supplements, facilitating more complete understanding and providing an ultimate learning resource.
All financial professionals need to understand and quantify the risks associated with their decisions. This book provides a complete guide to risk management with the most up to date information.
• Understand how risk affects different types of financial institutions
• Learn the different types of risk and how they are managed
• Study the most current regulatory issues that deal with risk
• Get the help you need, whether you’re a student or a professional
Risk management has become increasingly important in recent years and a deep understanding is essential for anyone working in the finance industry; today, risk management is part of everyone's job. For complete information and comprehensive coverage of the latest industry issues and practices, Risk Management and Financial Institutions, Fifth Edition is an informative, authoritative guide.
JOHN C. HULL is the Maple Financial Professor of Derivatives and Risk Management at the Joseph L. Rotman School of Management, University of Toronto, and codirector of Rotman's Master of Finance and Master of Financial Risk Management programs. He has been a consultant to many North American, Japanese, and European financial institutions.
Business Snapshots xxiii
Preface xxv
Chapter 1 Introduction 1
1.1 Risk vs. Return for Investors 2
1.2 The Efficient Frontier 6
1.3 The Capital Asset Pricing Model 8
1.4 Arbitrage Pricing Theory 14
1.5 Risk vs. Return for Companies 14
1.6 Risk Management by Financial Institutions 18
1.7 Credit Ratings 19
Summary 20
Further Reading 20
Practice Questions and Problems (Answers at End of Book) 21
Further Questions 22
Part 1: Financial Institutions and Their Trading 23
Chapter 2 Banks 25
2.1 Commercial Banking 26
2.2 The Capital Requirements of a Small Commercial Bank 28
2.3 Deposit Insurance 30
2.4 Investment Banking 31
2.5 Securities Trading 36
2.6 Potential Conflicts of Interest in Banking 38
2.7 Today’s Large Banks 39
2.8 The Risks Facing Banks 42
Summary 43
Further Reading 43
Practice Questions and Problems (Answers at End of Book) 44
Further Questions 44
Chapter 3 Insurance Companies and Pension Plans 47
3.1 Life Insurance 48
3.2 Annuity Contracts 51
3.3 Mortality Tables 52
3.4 Longevity and Mortality Risk 56
3.5 Property-Casualty Insurance 57
3.6 Health Insurance 60
3.7 Moral Hazard and Adverse Selection 61
3.8 Reinsurance 62
3.9 Capital Requirements 63
3.10 The Risks Facing Insurance Companies 64
3.11 Regulation 64
3.12 Pension Plans 66
Summary 70
Further Reading 71
Practice Questions and Problems (Answers at End of Book) 71
Further Questions 72
Chapter 4 Mutual Funds, ETFs, and Hedge Funds 75
4.1 Mutual Funds 75
4.2 Exchange-Traded Funds 79
4.3 Active vs. Passive Management 80
4.4 Regulation 82
4.5 Hedge Funds 83
4.6 Hedge Fund Strategies 88
4.7 Hedge Fund Performance 93
Summary 94
Further Reading 95
Practice Questions and Problems (Answers at End of Book) 95
Further Questions 96
Chapter 5 Trading in Financial Markets 97
5.1 The Markets 97
5.2 Clearing Houses 98
5.3 Long and Short Positions in Assets 99
5.4 Derivatives Markets 101
5.5 Plain Vanilla Derivatives 102
5.6 Non-Traditional Derivatives 114
5.7 Exotic Options and Structured Products 117
5.8 Risk Management Challenges 118
Summary 120
Further Reading 122
Practice Questions and Problems (Answers at End of Book) 122
Further Questions 125
Chapter 6 The Credit Crisis of 2007–2008 127
6.1 The U.S. Housing Market 128
6.2 Securitization 131
6.3 The Losses 137
6.4 What Went Wrong? 138
6.5 Lessons from the Crisis 140
Summary 141
Further Reading 142
Practice Questions and Problems (Answers at End of Book) 142
Further Questions 143
Chapter 7 Valuation and Scenario Analysis: The Risk-Neutral and Real Worlds 145
7.1 Volatility and Asset Prices 146
7.2 Risk-Neutral Valuation 147
7.3 Scenario Analysis 152
7.4 When Both Worlds Have to Be Used 153
7.5 The Calculations in Practice 154
7.6 Estimating Real-World Processes 155
Summary 156
Further Reading 157
Practice Questions and Problems (Answers at End of Book) 157
Further Questions 158
Part 2: Market Risk 159
Chapter 8 How Traders Manage Their Risks 161
8.1 Delta 161
8.2 Gamma 169
8.3 Vega 171
8.4 Theta 173
8.5 Rho 174
8.6 Calculating Greek Letters 174
8.7 Taylor Series Expansions 175
8.8 The Realities of Hedging 177
8.9 Hedging Exotic Options 178
8.10 Scenario Analysis 180
Summary 181
Further Reading 181
Practice Questions and Problems (Answers at End of Book) 181
Further Questions 182
Chapter 9 Interest Rate Risk 185
9.1 The Management of Net Interest Income 186
9.2 Types of Rates 188
9.3 Duration 193
9.4 Convexity 196
9.5 Generalization 198
9.6 Nonparallel Yield Curve Shifts 200
9.7 Principal Components Analysis 204
9.8 Gamma and Vega 207
Summary 208
Further Reading 209
Practice Questions and Problems (Answers at End of Book) 209
Further Questions 210
Chapter 10 Volatility 213
10.1 Definition of Volatility 213
10.2 Implied Volatilities 215
10.3 Are Daily Percentage Changes in Financial
Variables Normal? 217
10.4 The Power Law 220
10.5 Monitoring Daily Volatility 222
10.6 The Exponentially Weighted Moving Average Model 225
10.7 The GARCH(1,1) Model 227
10.8 Choosing Between the Models 229
10.9 Maximum Likelihood Methods 229
10.10 Using GARCH(1,1) to Forecast Future Volatility 235
Summary 239
Further Reading 239
Practice Questions and Problems (Answers at End of Book) 240
Further Questions 241
Chapter 11 Correlations and Copulas 243
11.1 Definition of Correlation 243
11.2 Monitoring Correlation 245
11.3 Correlation and Covariance Matrices 248
11.4 Multivariate Normal Distributions 250
11.5 Copulas 252
11.6 Application to Loan Portfolios: Vasicek’s Model 258
Summary 264
Further Reading 264
Practice Questions and Problems (Answers at End of Book) 265
Further Questions 266
Chapter 12 Value at Risk and Expected Shortfall 269
12.1 Definition of VaR 271
12.2 Examples of the Calculation of VaR 272
12.3 A Drawback of VaR 273
12.4 Expected Shortfall 274
12.5 Coherent Risk Measures 274
12.6 Choice of Parameters for VaR and ES 278
12.7 Marginal, Incremental, and Component Measures 283
12.8 Euler’s Theorem 284
12.9 Aggregating VaRs and ESs 285
12.10 Back-Testing 285
Summary 289
Further Reading 289
Practice Questions and Problems (Answers at End of Book) 290
Further Questions 291
Chapter 13 Historical Simulation and Extreme Value Theory 293
13.1 The Methodology 293
13.2 Accuracy of VaR 299
13.3 Extensions 301
13.4 Computational Issues 306
13.5 Extreme Value Theory 307
13.6 Applications of EVT 310
Summary 313
Further Reading 313
Practice Questions and Problems (Answers at End of Book) 314
Further Questions 314
Chapter 14 Model-Building Approach 317
14.1 The Basic Methodology 318
14.2 Generalization 321
14.3 The Four-Index Example Revisited 323
14.4 Handling Term Structures 326
14.5 Extensions of the Basic Procedure 331
14.6 Risk Weights and Weighted Sensitivities 332
14.7 Handling Non-Linearity 333
14.8 Model-Building vs.Historical Simulation 339
Summary 340
Further Reading 340
Practice Questions and Problems (Answers at End of Book) 341
Further Questions 342
Part 3: Regulation 345
Chapter 15 Basel I, Basel II, and Solvency II 347
15.1 The Reasons for Regulating Banks 347
15.2 Bank Regulation Pre-1988 348
15.3 The 1988 BIS Accord 350
15.4 The G-30 Policy Recommendations 353
15.5 Netting 354
15.6 The 1996 Amendment 356
15.7 Basel II 359
15.8 Credit Risk Capital Under Basel II 360
15.9 Operational Risk Capital Under Basel II 369
15.10 Pillar 2: Supervisory Review 370
15.11 Pillar 3: Market Discipline 370
15.12 Solvency II 371
Summary 372
Further Reading 373
Practice Questions and Problems (Answers at End of Book) 373
Further Questions 375
Chapter 16 Basel II.5, Basel III, and Other Post-Crisis Changes 377
16.1 Basel II.5 378
16.2 Basel III 381
16.3 Contingent Convertible Bonds 390
16.4 Use of Standardized Approaches and SA-CCR 390
16.5 Dodd–Frank Act 392
16.6 Legislation in Other Countries 394
Summary 396
Further Reading 397
Practice Questions and Problems (Answers at End of Book) 397
Further Questions 398
Chapter 17 Regulation of the OTC Derivatives Market 399
17.1 Clearing in OTC Markets 400
17.2 Post-Crisis Regulatory Changes 404
17.3 Impact of the Changes 408
17.4 CCPs and Bankruptcy 412
Summary 412
Further Reading 413
Practice Questions and Problems (Answers at End of Book) 413
Further Questions 414
Chapter 18 Fundamental Review of the Trading Book 415
18.1 Background 416
18.2 Standardized Approach 417
18.3 Internal Models Approach 421
18.4 Trading Book vs. Banking Book 425
Summary 426
Further Reading 426
Practice Questions and Problems (Answers at End of Book) 426
Further Question 427
Part 4: Credit Risk 429
Chapter 19 Estimating Default Probabilities 431
19.1 Credit Ratings 431
19.2 Historical Default Probabilities 434
19.3 Recovery Rates 436
19.4 Credit Default Swaps 437
19.5 Credit Spreads 442
19.6 Estimating Default Probabilities from Credit Spreads 444
19.7 Comparison of Default Probability Estimates 447
19.8 Using Equity Prices to Estimate Default Probabilities 452
Summary 454
Further Reading 455
Practice Questions and Problems (Answers at End of Book) 455
Further Questions 457
Chapter 20 CVA and DVA 459
20.1 Credit Exposure on Derivatives 460
20.2 CVA 461
20.3 The Impact of a New Transaction 465
20.4 CVA Risk 467
20.5 Wrong-Way Risk 468
20.6 DVA 469
20.7 Some Simple Examples 470
Summary 474
Further Reading 475
Practice Questions and Problems (Answers at End of Book) 475
Further Questions 476
Chapter 21 Credit Value at Risk 479
21.1 Ratings Transition Matrices 480
21.2 Vasicek’s Model 482
21.3 Credit Risk Plus 483
21.4 Creditmetrics 486
21.5 Credit Spread Risk 488
Summary 492
Further Reading 492
Practice Questions and Problems (Answers at End of Book) 492
Further Questions 493
Part 5: Other Topics 495
Chapter 22 Scenario Analysis and Stress Testing 497
22.1 Generating the Scenarios 497
22.2 Regulation 504
22.3 What to Do with the Results 507
Summary 511
Further Reading 511
Practice Questions and Problems (Answers at End of Book) 512
Further Questions 513
Chapter 23 Operational Risk 515
23.1 Defining Operational Risk 517
23.2 Categorization of Operational Risks 518
23.3 Regulatory Capital Under Basel II 519
23.4 The Standardized Measurement Approach 525
23.5 Preventing Operational Risk Losses 527
23.6 Allocation of Operational Risk Capital 530
23.7 Use of Power Law 530
23.8 Insurance 531
23.9 Sarbanes–Oxley 533
Summary 533
Further Reading 534
Practice Questions and Problems (Answers at End of Book) 535
Further Questions 536
Chapter 24 Liquidity Risk 537
24.1 Liquidity Trading Risk 538
24.2 Liquidity Funding Risk 545
24.3 Liquidity Black Holes 554
Summary 561
Further Reading 562
Practice Questions and Problems (Answers at End of Book) 562
Further Questions 563
Chapter 25 Model Risk Management 565
25.1 Regulatory Requirements 566
25.2 Models in Physics and Finance 572
25.3 Simple Models: Expensive Mistakes 572
25.4 Models for Pricing Actively Traded Products 575
25.5 Models for Less Actively Traded Products 578
25.6 Accounting 580
25.7 What Makes a Successful Pricing Model? 580
25.8 Model Building Missteps 581
Summary 582
Further Reading 583
Practice Questions and Problems (Answers at End of Book) 583
Further Questions 584
Chapter 26 Economic Capital and RAROC 585
26.1 Definition of Economic Capital 586
26.2 Components of Economic Capital 588
26.3 Shapes of the Loss Distributions 590
26.4 Relative Importance of Risks 591
26.5 Aggregating Economic Capital 592
26.6 Allocation of Economic Capital 596
26.7 Deutsche Bank’s Economic Capital 597
26.8 RAROC 598
Summary 600
Further Reading 600
Practice Questions and Problems (Answers at End of Book) 600
Further Questions 601
Chapter 27 Enterprise Risk Management 603
27.1 Risk Appetite 604
27.2 Risk Culture 610
27.3 Identifying Major Risks 614
27.4 Strategic Risk Management 616
Summary 617
Further Reading 618
Practice Questions and Problems (Answers at End of Book) 618
Further Questions 619
Chapter 28 Financial Innovation 621
28.1 Technological Advances 622
28.2 Payment Systems 625
28.3 Lending 629
28.4 Wealth Management 632
28.5 Insurance 633
28.6 Regulation and Compliance 635
28.7 How Should Financial Institutions Respond? 638
Summary 640
Further Reading 641
Practice Questions and Problems (Answers at End of Book) 641
Further Questions 642
Chapter 29 Risk Management Mistakes to Avoid 643
29.1 Risk Limits 643
29.2 Managing the Trading Room 647
29.3 Liquidity Risk 649
29.4 Lessons for Nonfinancial Corporations 652
29.5 A Final Point 653
Further Reading 654
Part 6: Appendices 655
Appendix A Compounding Frequencies for Interest Rates 657
Appendix B Zero Rates, Forward Rates, and Zero-Coupon Yield Curves 661
Appendix C Valuing Forward and Futures Contracts 667
Appendix D Valuing Swaps 669
Appendix E Valuing European Options 673
Appendix F Valuing American Options 677
Appendix G Taylor Series Expansions 681
Appendix H Eigenvectors and Eigenvalues 685
Appendix I Principal Components Analysis 689
Appendix J Manipulation of Credit Transition Matrices 691
Appendix K Valuation of Credit Default Swaps 693
Appendix L Synthetic CDOs and Their Valuation 697
Answers to Questions and Problems 701
Glossary 745
RMFI Software 773
Table for N(x) When x ≥ 0 777
Table for N(x) When x ≤ 0 779
Index 781
| Erscheinungsdatum | 16.04.2018 |
|---|---|
| Verlagsort | New York |
| Sprache | englisch |
| Maße | 178 x 254 mm |
| Gewicht | 1564 g |
| Themenwelt | Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Versicherungsbetriebslehre |
| ISBN-10 | 1-119-44811-5 / 1119448115 |
| ISBN-13 | 978-1-119-44811-2 / 9781119448112 |
| Zustand | Neuware |
| Haben Sie eine Frage zum Produkt? |
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