Book Description

From the Inside Flap If the global credit crisis has taught us anything about financial risk management, it's that the traditional 'silo' approach falls fatally short of the mark when it comes to understanding and circumventing the array of institutional risks inherent in virtually all financial and business activities. While the limitations of pre-digital technologies may once have made it seem natural to treat credit risk, market risk, asset and liability management, and performance measurement as separate disciplines, developments in financial theory and computer science not only make it possible for those risks to be analyzed on a fully integrated basis, they mandate it. Written by a team of internationally recognized experts in the field, Advanced Financial Risk Management, Second Edition schools you in proven tools and techniques for fulfilling that mandate. The authors lay out a comprehensive strategy for integrating risk management measures, objectives, and hedging techniques that apply to all types of financial institutions. Just as importantly, they develop a framework for creating a dynamic, fully integrated, multi-model risk management system tailored to your specific institutional needs and goals. Thoroughly updated and revised to reflect the many changes wrought by the 2008 credit crisis, this new edition of the acclaimed guide bridges the gap between idealized assumptions about valuation and the realities of day-to-day risk management actions with: Detailed explanations of which models performed well during the credit crisis, as well as the reasons why other models failed to measure up Proven tools and techniques for constructing a risk management system that protects institutional assets while measuring risk-adjusted shareholder value Guidance on how to construct continuous yield curves for everything from equity options to mortgage-backed securities Performance measurement techniques that go far beyond traditional methods of capital allocation and measuring risk-adjusted shareholder value creation Clear, accessible expositions of fixed income mathematics, duration, convexity, term structure models, risk-neutral instruments, derivatives, advanced hedging, and more Detailed discussions of the analytics of interest rate risk, credit risk, foreign exchange risk, and capital allocation In-depth discussions of the false assumptions behind many accepted risk management models and how to avoid falling prey to them A strong case for why a realistic computer simulation that has no 'closed form' mathematical solution is, in most cases, the best, most accurate way to describe risk. Describing a strategic integrated multi-model approach to risk management designed to insulate institutions from catastrophic events such as those that unfolded during the credit crisis, Advanced Financial Risk Management, Second Edition is an indispensable working resource for commercial bank lenders, insurance company lenders, credit derivatives dealers, securities firms and bankers. Read more From the Back Cover High Praise for Advanced Financial Risk Management 'Advanced Financial Risk Management is a superb presentation of current risk management methods, including both the HJM interest rate and credit risk models. The writing is crisp and clear. The topic coverage is relevant and comprehensive. There is no doubt that his book should be on every CEO's, CFO's, and risk manager's desk.' ?Robert Jarrow, Ronald P. and Susan E. Lynch Professor of Investment Management Johnson Graduate School of Management, Cornell University 'The first edition of Advanced Financial Risk Management was already a valuable resource for anyone responsible for risk-based portfolios, or even just trying to understand risk analysis, in complex modern setting. With the new material that van Deventer, Imai and Mesler have added following the financial crisis, it's become essential. The sorry history of the crisis and what caused it is replete with the mistakes key decision-makers made, in private risk management and the public policy arena too. With this analysis in hand, there is no excuse for repeating them.' ?Benjamin M. Friedman, William Joseph Maier Professor of Political Economy, Harvard University 'Recent events have clearly demonstrated, once again, the importance of sound risk management techniques. Even the largest most sophisticated institutions have stumbled and lost billions of dollars. In this second edition of Advanced Financial Risk Management, the authors include a comprehensive review of events leading to the collapse of the 'bubble.' I found the chronological list of events leading up to the meltdown of 2008 a most effective way of demonstrating that the early warning signs were all there but ignored by the markets and most market participants. 'The authors draw on lessons from the past as well as their own practical experience in presenting a comprehensive review of risk management techniques. The authors also review and dissect previous models to determine what went wrong and use this as a basis to develop new and better models. This candid discussion was very helpfulthey didn't make excuses! 'The book is very comprehensive in that it includes an in-depth discussion across a broad cross section of asset classes. The use of case studies as well as drawing on the authors' own experience greatly enhances the value of the book. Lastly, the book strikes a good balance between quantitative, qualitative and anecdotal examples.' ?Edward Emmer, Retired Executive Managing Director, Standard & Poor's 'The global financial crisis has made it abundantly clear that shortcuts in risk management create the preconditions for catastrophe. This timely volume explains risk management without shortcuts: an integrated understanding of multiple risks from multiple underlying instruments, based on careful empirical analysis rather than convenient simplifications. Despite its rigorous approach, the book is a pleasure to read and should be owned by every risk manager.' ?John Y. Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University Read more See all Editorial Reviews