Risk assessment Books

Book SynopsisTable of ContentsForeword, Prólogo, Organization/Organización, Sponsors/Patrocinadores, Session 1. Critical infrastructure management, Session 2. Risk analysis, Session 3. Dam safety, Session 4. Dam security

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Book SynopsisAdvances in Safety, Reliability and Risk Management contains the papers presented at the 20th European Safety and Reliability (ESREL 2011) annual conference in Troyes, France, in September 2011. The books covers a wide range of topics, including: Accident and Incident Investigation; Bayesian methods; Crisis and Emergency Management; Decision Making under Risk; Dynamic Reliability; Fault Diagnosis, Prognosis and System Health Management; Fault Tolerant Control and Systems; Human Factors and Human Reliability; Maintenance Modelling and Optimisation; Mathematical Methods in Reliability and Safety; Occupational Safety; Quantitative Risk Assessment; Reliability and Safety Data Collection and Analysis; Risk and Hazard Analysis; Risk Governance; Risk Management; Safety Culture and Risk Perception; Structural Reliability and Design Codes; System Reliability Analysis; Uncertainty and Sensitivity Analysis.Advances in Safety, Reliability and Risk Management will be of Table of ContentsPreface, Conference organization, Acknowledgements, Introduction, Thematic areas, Industrial sectors, Back Cover

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Book SynopsisProjects overspend and overrun. Business cases perform less well than expected. Managers tighten their grip and initiate more procedure. But little changes and the scenario repeats, and it has done so for decades. Losing other peoples' money and goodwill is almost an innate characteristic of projects. This may be a norm but it need not be the natural state of affairs. In Project Risk Analysis, Derek Salkeld shows how easily assimilated techniques developed out of formal risk analysis methods can be used to increase the chances of projects being delivered to the oft quoted objective of on time and to budget, to quality and to popular acceptance. These techniques need to be understood by managers so that they can foresee the benefits of directing their teams to carry them out, and so they can inform their clients about the potential consequences of the investments they wish to make and how the project team plan to assure these. The three parts of the book explain how you can: calcTrade Review’The book provides a multitude of aids to help with determining risks, identifying costs, and how the risks affect the schedule. These aids include examples, areas to address and checklists... it stresses the importance of tying risks to people through assignment of ownership and risks to the project budget through allocation of contingences.... The project management and risk management professions may get a better reputation because of projects getting completed at a higher rate and on time and within budget.’ PM World Journal, September 2013 ’Derek Salkeld’s book is about understanding the uncertainty inherent in projects, which leads to the inability to predict timescales and costs precisely at the beginning of a project. In an industry where even large companies are wedded to single-valued estimating techniques, against which they may enter fixed-price contracts with penalties for lateness, (or judge the performance of the project delivery staff), the content of this book provides valuable material to help manage expectations, obligations, and funding.’ Camel Blog (Arras People), January 2015Table of Contents1: Introduction; 1: The Case for Risk Analysis; 2: Risk Modelling Primitives; 3: Risk Modelling Examples: Cost Context; 4: Risk Modelling Examples: Time; 5: Using Risk Analysis to Inform the Allocation of Risk Ownership; 6: Using Risk Analysis to Derive the Risk Management Strategy; 7: A Risk Analysis Process; Conclusion

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Book SynopsisDrawing on examples ranging from military history to the business world, a retired four-star general in the U.S. Army offers a battle-tested system for detecting and responding to risk, showing that there are in fact ten dimensions of control we can adjust at any given time.

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Book SynopsisProfessional Risk and Working with People provides advice on assessing and managing risks for all those employed to take risks with or on behalf of other people.The authors explore issues of risk assessment and management that provides readers with a broad knowledge of risk practices that can be applied across a range of disciplines. They detail the benefits of risk as well as the potential harm and explain relevant legislation and concepts of negligence in clear and accessible language. Examples of risk policies, systems and effective judgement in managing complex risk decisions are also included.In the current climate of blame and readiness to pursue legal action against professionals, this book will prove essential reading for all practitioners who come into contact with risk, including doctors and other health and care professionals, probation officers and social workers. Leaders of professional courses and their students will also find this an invaluable guide.Trade ReviewThe style of writing and presentation of complex concepts is a useful model for analysing, monitoring and evaluating any organisation which provides a public service. There are very useful sections on an appendix of shared vocabulary, references, subject index, author index and an index of case law examples used. I would recommend the book for managers of organisations engaged in public service. It may also be useful for anyone involved in working in child protection and requiring a CRB check for their work and also EPs engaged in specialist work such as expert witness, CAMHs and YOT. -- DebateWhat makes this book different to many of the previous books on risk for professionals is that rather than focusing on delivering a series of facts and issues, it encourages readers to think through risk issues for themselves in their own context. It provides a clear structure for how risk issues can be framed and how professionals can consider their own practice, the constraints that are sometimes outside their control and, perhaps most importantly, a way of interpreting how their practice relates to the legal system. -- Mental Health TodayFor many years David Carson has delivered risk traing workshops to a variety of professionals. These have been stimulating and informative. Much of this book reflects these events, with the exercises refined and the teaching reproduce on paper. This enables newcomers to access Carson's arguments, while also offering a welcome refresh of training ideas for those familiar with his work.This book is an excellent resource for any health professional - probation officer, social worker or teacher. -- Professional Social WorkCarson (law and behavioural sciences, U. of Portsmouth, UK) and Bain (criminal and community justice studies, U. of Portsmouth, UK) discuss dealing with risk in health, social care, education, and criminal justice fields, and provide ideas for making decisions, assessment, and management plans. They also describe important legal concepts, methods of communication, thinks that can go wrong in the assessment process, and what should be included in risk policies. -- Book News IncThe authors are both well qualified to analyse the type of risk decisions increasingly encountered by professional individually and within organisations. Their aims in this book include: provision of a range of aids for professional thinking on risk assessments and management plans; detailing both the benefits and potential harm of risk, explaining relevant legislation and concepts of negligence clearly and accessibly highlighting currently poor procedure and practice; together with advice on satisfying legal requirements; practical advice on effective communication about risk and recomendations for pratice and policy. -- The Rospa Occupational Safety & Health JournalThis a book that every occupational therapist in clinical practice should read. Eash point is illustrated with case examples, spanning across areas such as the prison/parole service, mental health, child protection and medical negligence. This book has an easy, conversational style, making it enjoyable and light to read despite the complexity of the subject matter. The book is thought provoking as it raises almost as many questions as it answers. Occupational therapists, especially those working in 'high risk' settings such as community care or psychiatric services, will find this text an invaluable asset. -- British Journal of Occupational TherapyThis book is written in clear language throughout, easily accesible to various professionals or beginning professionals in a range of work situations... I found it not only thought-provoking and enlightening, but also an enjoyable read -- SWAP E-bulletinThe authors fully achieve their aims of targeting the professionals making decisions about other people, and suggesting ways that decision makers ought to approach risk. Also practical tools and applied concepts offered, along with accessible straight forward style of writing offers those new to risk decisions the confidence to embrace their work, and those old hands a timely refresher. -- Prison Service JournalTable of ContentsPreface.1: Risk: Making It Work For and Not Against You. 2: Map and Model. 3: The Law: From Judging to Supporting Decision-making. 4: Risk Assessment. 5: Risk Management. 6: Risk Communication. 7: Risk Procedures. 8: Risk Policies. 9: Risk Strategies. 10: Conclusion. Appendix: Shared Vocabulary of Risk and Risk-taking. References. Subject Index. Author Index. Index of Legislation.

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Book SynopsisCan we better predict or mitigate the consequences of natural disasters, such as earthquakes and hurricanes? Can we reduce the number of oil spills? And what should be done to clean up the mess when something does goes wrong? Why are people concerned about nuclear plants, but so reckless when they go skiing, or when they drive their motor cars? And how can we ensure that experts and ordinary citizens exchange meaningful information about hazards?Over the past fifty years or so, eminent scholars from the decision sciences, geography, sociology, anthropology, and many other fields, have offered useful pointers towards finding an answer to these and other crucial questions. Their prolific and converging efforts have established Risk Analysis as a vivid new discipline, a discipline which this new Routledge collection enables users to discoveror to understand better.The collection conveys essential lessons about how risks can be better assessed. Sophisticated models about t

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Book SynopsisChapter 1) Equity Derivatives The Fundamentals.- Chapter 2) Corporate Actions.- Chapter 3) Equity Valuation.- Chapter 4) Valuation of Equity Derivatives.- Chapter 5) Risk Management of Vanilla Equity Options.- Chapter 6) Volatility and Correlation.- Chapter 7) Barrier and binary Options.- Chapter 8) Correlation-Dependent Exotic Options.- Chapter 9) Equity Forwards and Futures.- Chapter 10) Equity Swaps.- Chapter 11) Investor Applications of Equity Options.- Chapter 12) Structured Equity Products.- Chapter 13) Traded Dividends.- Chapter 14) Trading Volatility.- Chapter 15) Trading Correlation. Table of Contents

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Book SynopsisInvaluable insights on trading today's futures market The CME Risk Management Handbook provides an accessible overview of the futures market in today's electronic world of trading. Page by page, it outlines the various CME products currently available and explains how those products can be used to manage risk.Table of ContentsForeword by Leo Melamed. Prologue by Terry Duffy. Acknowledgments. Introduction by Craig S. Donohue. Chapter 1 Futures Market Fundamentals. What Is a Futures Contract? Overview of Popular Financial Futures Contracts. Anatomy of a Futures Transaction. Conclusion. Notes. Chapter 2 Order Entry and Execution Methodologies. Open Outcry or Pit Trading. Introduction of the CME Globex Platform. Trade Matching Algorithms. About Options Markets. Ex-Pit Trading. Conclusion. Notes. Chapter 3 Role of the Clearinghouse. Financial Safeguards. Financial Surveillance. Default by a Clearing Member. Resources Backing CME Group Clearing System. Customer Protection. Disaster Recovery and Business Continuity. Rule Enforcement. Financial and Regulatory Information Sharing. Conclusion. Chapter 4 Currency Futures: The First Financial Futures. Evolution of Foreign Exchange Marketplace. Over-the-Counter Currency Trading Vehicles. Exchange-Traded Currency Futures and Options. Foreign Exchange Market Growth and Trends. Conclusion. Notes. Chapter 5 Stock Index Futures: The First Financial Futures. Mechanics of Stock Index Futures. E-Minis versus Exchange-Traded-Funds. Pricing Stock Index Futures. Spreading Stock Index Futures. Hedging with Stock Index Futures. Portable Alpha Strategies. Conclusion. Notes. Chapter 6 Eurodollar Futures: Interest Rate Market Building Blocks. Eurodollar Futures Market. Speculating on Shape of Yield Curve. Term Treasury/Eurodollar (TED) Spreads with Futures and Options. Interest Rate Swap Market. Growing Up Together. Pricing Relationship. Hedging Techniques. Conclusion. Technical Appendix: Complications and Shortcuts for Pricing and Hedging Swaps. Notes. Chapter 7 Understanding U.S. Treasury Futures. Coupon-Bearing Treasury Securities. Treasury Futures Delivery Practices. Measuring Risk of Coupon-Bearing Securities. Risk Management with Treasury Futures. Macro Hedging with Treasury Futures. Trading the Yield Curve with Treasury Futures. Conclusion. Notes. Chapter 8 Commodities: Backbone of the Futures Industry. What Are Commodities? Grain Markets. Livestock Markets. Energy Products. Precious Metals. The Forward Curve. Intermarket Commodity Spreading. ClearPort Over-the-Counter Clearing Facility. Conclusion. Appendix: Major Commodity Market Specifications. Chapter 9 Alternative Investment Market fundamentals. Weather. Residential Housing Futures. Economic Indicators. Conclusion. Notes. Chapter 10 Fundamental Market Indicators. Why These Indicators? Trading Volumes. Volatility: Daily Net Change. Volitility: Daily High-Low Range. Conclusions. Appendix: Economic Indicator Descriptions. Notes. Chapter 11 Technical Analysis Primer. Why Technical Analysis? Interpreting Charts. Elliot Wave Theory. Intraday Trading Techniques. Trend-Following Systems. Conclusion. Chapter 12 Fundamentals of Option Markets. What is an Option? Mathematical Option Pricing Models. Historic and Implied Volatilities. Measuring Option Performance. Conclusion. Chapter 13 Option Trading Strategies. Option Spreads. Horizontal Spreads. Diagonal Spreads. Comparing Verticals, Horizontals, and Diagonals. Weighted Spreads. Volatility-Driven Strategies. Specialty Option Strategies. Matching Strategy and Forecast. Conclusion. Chapter 14 Hedging with Options. Baseline Futures Hedge. Buying Protection with Puts. Yield Enhancement with Calls. In- and Out-of-the-Money Options. Matching Strategy with Forecast. Collar Strategy. Delta-Neutral Hedge. Conclusion. About the Authors and Contributors. Index.

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Book SynopsisA new book to help senior executives and boards get smart about risk management The ability of businesses to survive and thrive often requires unconventional thinking and calculated risk taking. The key is to make the right decisions-even under the most risky, uncertain, and turbulent conditions.Trade Review"The authors propose a more holistic approach of "risk intelligence," in which leaders acknowledge and prepare for a wide range of potential threats. The authors isolate ten essential risk intelligence skills-such as abandoning familiar assumptions, anticipating causes of failure, and sustaining operational discipline-and provide in-depth guidelines for how executives and board members can hone these skills. They understand that there is no reward without risk - but only if the risks are properly managed." (BizEd, July/August 2010)Table of ContentsAcknowledgments xiii Foreword xv Preface xix Introduction xxi Conventional Risk Management xxi A Risk Intelligent Approach xxii The Approach of This Book xxiii The Structure of This Book xxv Part I When Risks Become Brutal Realities 1 Chapter 1 To Survive and Thrive: A Matter of Judgment 3 The Revolving Door to the Corner Office 4 Barriers to Board Effectiveness 8 The Imperatives of the Enterprise 11 Chapter 2 Conventional Risk Management Has Failed 17 What Goes Up Must Come Down 19 The Evolution of Finance, Market, and Risk Management Theory 24 Taking a (Random) Walk 26 Chapter 3 An Unconventional Approach to Risk Management 33 Calculated Risk Taking Creates Value 35 Calculated Risk Taking and Risk Aversion 44 Risk Intelligence: An Unconventional Approach 46 Part II Ten Essential Risk Intelligence Skills 51 Chapter 4 Check Your Assumptions at the Door 53 Fatal Flaw #1: Failing to Challenge Your Assumptions 55 Risk Intelligence Skill #1: Check Your Assumptions at the Door 61 Chapter 5 Maintain Constant Vigilance 73 Fatal Flaw #2: Lack of Vigilance 73 Risk Intelligence Skill #2: Maintain Constant Vigilance 83 Chapter 6 Factor in Velocity and Momentum 93 Fatal Flaw # 3: Failure to Consider Velocity and Momentum 95 Risk Intelligence Skill #3: Factor in Velocity and Momentum 101 Chapter 7 Manage the Key Connections 111 Fatal Flaw #4: Failure to Make Key Connections and Manage Complexity 112 Risk Intelligence Skill #4: Manage Your Key Connections 117 Chapter 8 Anticipate Causes of Failure 131 Fatal Flaw #5: Failure to Anticipate Failure 132 Risk Intelligence Skill #5: Anticipate Causes of Failure 137 Chapter 9 Verify Sources and Corroborate Information 149 Fatal Flaw #6: Failure to Verify Sources and Corroborate Information 150 Risk Intelligence Skill # 6: Verify Sources and Corroborate Information 158 Chapter 10 Maintain a Margin of Safety 165 Fatal Flaw #7: Failing to Maintain a Margin of Safety 166 Risk Intelligence Skill #7: Maintain a Margin of Safety 170 Chapter 11 Set Your Enterprise Time Horizons 183 Fatal Flaw #8: Short-Termism 184 Risk Intelligence Skill #8: Set Your Enterprise Time Horizons 190 Chapter 12 Take Enough of the Right Risks 203 Fatal Flaw #9: Failure to Take Enough of the Right Risks 204 Risk Intelligence Skill #9: Taking Enough of the Right Risks 208 Chapter 13 Sustain Operational Discipline 219 Case Example: The U.S. Submarine Force 220 Fatal Flaw #10: Lack of Operational Discipline 222 Risk Intelligence Skill #10: Develop and Sustain Operational Discipline 227 Part III Creating the Risk Intelligent Enterprise 235 Chapter 14 Risk Intelligence Is Free 237 A Closer Look at Costs 239 The Rewards of Risk Intelligence 253 Chapter 15 Risk Intelligent Governance 257 The Risk Intelligent Board 258 Committees of the Board and Risk Intelligence 271 Where Does Risk Oversight End and Risk Management Begin? 277 Chapter 16 Risk Intelligent Enterprise Management 281 ERM and Risk Intelligence 282 Developing Risk Intelligent Enterprise Management 284 Act as One 287 A New Way of Doing Business 291 Chapter 17 The Way Forward: Creating the Risk Intelligent Enterprise 293 The Benefits of Improved Risk Intelligence 294 What’s Your Enterprise Risk IQ? 295 Making the Transformation 298 Conclusion 304 Notes 307 About the Authors 325 Index 327

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Book SynopsisPraise for Enterprise Risk Management and COSO: A Guide for Directors, Executives, and Practitioners Enterprise Risk Management and COSO is a comprehensive reference book that presents core management of risk tools in a helpful and organized way. If you are an internal auditor who is interested in risk management, exploring this book is one of the best ways to gain an understanding of enterprise risk management issues. Naly de Carvalho, FSA Times This book represents a unique guide on how to manage many of the critical components that constitute an organization''s corporate defense program. Sean Lyons, Corporate Defense Management (CDM) professional This book provides a comprehensive analysis of enterprise risk management and is invaluable to anyone working in the risk management arena. It provides excellent information regarding the COSO framework, control components, control environment, and qTrade Review"Enterprise Risk Management and COSO, is a useful book for readers who are directly or indirectly involved in risk management. It is relevant for managers and practitioners alike as we constantly face a myriad of constraints to accomplish our work. In my opinion, the authors introduce topics in an innovative way that invites brainstorming and analytical thinking. Enterprise Risk Management is a comprehensive reference book that presents core management or risks in a helpful and organized way. If you are an internal auditor who is interested in risk management, exploring this book is one of the best ways to gain an understanding of enterprise risk management issues." (Financial Services Audit News, April 2010)Table of ContentsAbout the Contributors. Acknowledgments. Preface. SECTION I ORGANIZATIONAL RISK MANAGEMENT. Chapter 1 An Introduction to Risk. Chapter 2 Key Tenets of Enterprise Risk Management. Chapter 3 Mitigating Operational Risks Through Strategic Thinking. Chapter 4 Mitigating Risk in Internal Investigations and Insurance Coverage. SECTION II QUANTITATIVE RISK MANAGEMENT. Chapter 5 Recognized Control Frameworks: COSO-IC and COSO-ERM. Chapter 6 Other Control Frameworks. Chapter 7 Qualitative Control Concepts. Chapter 8 Quantitative Control Relationships. Chapter 9 Excel Applications. Chapter 10 Interdependent Systems. Chapter 11 Documentation. Chapter 12 The Process for Assessing Internal Control. Chapter 13 Monitoring Internal Controls. Chapter 14 Accounting Policies and Procedures. Chapter 15 Business Process Applications. Chapter 16 General and Infrastructure Systems. Chapter 17 Trusted System Providers. Chapter 18 Reporting on Internal Control. Chapter 19 Review and Acceptance of Assessments. Glossary. Appendix: Internal Control Sections of the Sarbanes-Oxley Act. Index.

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Book SynopsisEveryday we face decisions that carry an element of risk and uncertainty. The ability to analyze, predict, and prepare for the level of risk entailed by these decisions is, therefore, one of the most constant and vital skills needed for analysts, scientists and managers. Risk analysis can be defined as a systematic use of information to identify hazards, threats and opportunities, as well as their causes and consequences, and then express risk. In order to successfully develop such a systematic use of information, those analyzing the risk need to understand the fundamental concepts of risk analysis and be proficient in a variety of methods and techniques. Risk Analysis adopts a practical, predictive approach and guides the reader through a number of applications. Risk Analysis: Provides an accessible and concise guide to performing risk analysis in a wide variety of fields, with minimal prior knowledge required. Adopts a broad peTrade Review"This book provides accessible and concise guidance to the process of planning, execution and use of risk analysis in the context of risk management, with minimal prior knowledge required."(Journal of Applied Statistics, August 2009) "The author has been successful in presenting the subject of risk analysis effectively. The reviewer would like to recommend this book to all those who would like to know about risk analysis and how it can be performed in practical situations." (International Journal of Performability Engineering, January 2009) Table of ContentsPreface. Part I: Theory and methods. 1 What is a risk analysis? 1.1 Why risk analysis?. 1.2 Risk management. 1.2.1 Decision-making under uncertainty. 1.3 Examples: decision situations. 1.3.1 Risk analysis for a tunnel. 1.3.2 Risk analysis for an offshore installation. 1.3.3 Risk analysis related to a cash depot. 2 What is risk? 2.1 Vulnerability. 2.2 How to describe risk quantitatively. 2.2.1 Description of risk in a financial context. 2.2.2 Description of risk in a safety context. 3 The risk analysis process: planning. 3.1 Problem definition. 3.2 Selection of analysis method. 3.2.1 Checklist-based approach. 3.2.2 Risk-based approach. 4 The risk analysis process: risk assessment. 4.1 Identification of initiating events. 4.2 Cause analysis. 4.3 Consequence analysis. 4.4 Probabilities and uncertainties. 4.5 Risk picture: Risk presentation. 4.5.1 Sensitivity and robustness analyses. 4.5.2 Risk evaluation. 5 The risk analysis process: risk treatment. 5.1 Comparisons of alternatives. 5.1.1 How to assess measures? 5.2 Management review and judgement. 6 Risk analysis methods. 6.1 Coarse risk analysis. 6.2 Job safety analysis. 6.3 Failure modes and effects analysis. 6.3.1 Strengths and weaknesses of an FMEA. 6.4 Hazard and operability studies. 6.5 SWIFT. 6.6 Fault tree analysis. 6.6.1 Qualitative analysis. 6.6.2 Quantitative analysis. 6.7 Event tree analysis. 6.7.1 Barrier block diagrams. 6.8 Bayesian networks. 6.9 Monte Carlo simulation. Part II Examples of applications. 7 Safety measures for a road tunnel. 7.1 Planning. 7.1.1 Problem definition. 7.1.2 Selection of analysis method. 7.2 Risk assessment. 7.2.1 Identification of initiating events. 7.2.2 Cause analysis. 7.2.3 Consequence analysis. 7.2.4 Risk picture. 7.3 Risk treatment. 7.3.1 Comparison of alternatives. 7.3.2 Management review and decision. 8 Risk analysis process for an offshore installation. 8.1 Planning. 8.1.1 Problem definition. 8.1.2 Selection of analysis method. 8.2 Risk analysis. 8.2.1 Hazard identification. 8.2.2 Cause analysis. 8.2.3 Consequence analysis. 8.3 Risk picture and comparison of alternatives. 8.4 Management review and judgement. 9 Production assurance. 9.1 Planning. 9.2 Risk analysis. 9.2.1 Identification of failures. 9.2.2 Cause analysis. 9.2.3 Consequence analysis. 9.3 Risk picture and comparison of alternatives. 9.4 Management review and judgement. Decision. 10 Risk analysis process for a cash depot. 10.1 Planning. 10.1.1 Problem definition. 10.1.2 Selection of analysis method. 10.2 Risk analysis. 10.2.1 Identification of hazards and threats. 10.2.2 Cause analysis. 10.2.3 Consequence analysis. 10.3 Risk picture. 10.4 Risk-reducing measures. 10.4.1 Relocation of the NOKAS facility. 10.4.2 Erection of a wall. 10.5 Management review and judgment. Decision. 10.6 Discussion. 11 Risk analysis process for municipalities. 11.1 Planning . 11.1.1 Problem definition. 11.1.2 Selection of analysis method. 11.2 Risk assessment. 11.2.1 Hazard and threat identification. 11.2.2 Cause and consequence analysis. Risk picture. 11.3 Risk treatment. 12 Risk analysis process for the entire enterprise. 12.1 Planning. 12.1.1 Problem definition. 12.1.2 Selection of analysis method. 12.2 Risk analysis. 12.2.1 Price risk. 12.2.2 Operational risk. 12.2.3 Health, Environment and Safety (HES). 12.2.4 Reputation risk. 12.3 Overall risk picture. 12.4 Risk treatment. 13 Discussion. 13.1 Risk analysis as a decision support tool. 13.2 Risk is more than the calculated probabilities and expected values. 13.3 Risk analysis has both strengths and weaknesses. 13.3.1 Precision of a risk analysis: uncertainty and sensitivity analysis. 13.3.2 Terminology. 13.3.3 Risk acceptance criteria (tolerability limits). 13.4 Reflection on approaches, methods and results. 13.5 Limitations of the causal chain approach. 13.6 Risk perspectives. 13.7 Scientific basis. 13.8 The implications of the limitations of risk assessment. 13.9 Critical systems and activities. 13.10 Conclusions. A Probability calculus and statistics. A.1 The meaning of a probability. A.2 Probability calculus. A.3 Probability distributions: expected value. A.3.1 Binomial distribution. A.4 Statistics (Bayesian statistics). B Introduction to reliability analysis. B.1 Reliability of systems composed of components. B.2 Production system. B.3 Safety system. C Approach for selecting risk analysis methods. C.1 Expected consequences. C.2 Uncertainty factors. C.3 Frame conditions. C.4 Selection of a specific method. D Terminology. D.1 Risk management: relationships between key terms. Bibliography. Index.

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Book SynopsisThis authoritative handbook illustrates practical implementation of simulation techniques in the banking and financial industries through use of real-world, time-sensitive applications.Table of ContentsList of Figures x List of Tables xiv Preface xx 1 An Introduction to Excel VBA 1 1.1 How to start Excel VBA 1 1.2 VBA Programming Fundamentals 3 1.3 Linking VBA to C++ 14 1.5 Random Number Generation 19 1.6 List of functions defined in the book 22 2 Background 27 2.1 A brief review of Martingales and Itô’s calculus 28 2.2 Volatility 39 2.3 Mark to Market and Calibration 41 2.4 Variance Reduction Techniques 43 3 Structured Products 55 3.1 When is simulation unnecessary? 55 3.2 Simulation of Black-Scholes model and European Options 56 3.3 American Options 61 3.4 Range Accrual Notes 69 3.5 FX accumulator: The case of Citic Pacific LTD 73 3.6 Life Insurance Contracts 80 3.7 Multi-asset Instruments 83 4 Volatility Modeling 93 4.1 Local Volatility Models: Simulation and Binomial tree 94 4.2 The Heston Stochastic Volatility Model 104 4.3 Simulation of Exotic Option Prices under Heston Model 110 4.4 The GARCH Option Pricing Model 121 4.5 Jump-Diffusion Model 127 5 Fixed-Income Derivatives I: Short-Rate Models 137 5.1 Yield Curve Building 138 5.2 The Hull-White Model 150 5.3 Pricing Interest Rate Products Using The Direction Simulation Approach 156 5.4 Pricing Interest Rate Products Using The Trinomial Tree Approach 161 6 Fixed-Income Derivatives II: LIBOR Market Models 169 6.1 LIBOR Market Models 171 6.2 Calibration to Caps and Swaptions 177 6.3 Simulation Across Different Forward Measures 186 6.4 Bermudan Swaptions in a Three-Factor Model 194 6.5 Epilogue 196 7 Credit Derivatives and Counterparty Credit Risk 199 7.1 Structural Models of Credit Risk 200 7.2 The Vasicek Single-Factor Model 203 7.3 Copula Approach to Credit Derivative Pricing 212 7.4 Counterparty credit risk 223 8 Value-at-Risk and Related Risk Measures 237 8.1 Value-at-Risk 237 8.2 Parametric VaR 238 8.3 Delta-normal Approximation 245 8.4 Delta-Gamma Approximation 247 8.5 VaR Simulation Methods 249 8.6 VaR-related Risk Measures 258 8.7 VaR Back-testing 264 9 The Greeks 267 9.1 Black-Scholes Greeks 269 9.2 Greeks in A Binomial Tree 271 9.3 Finite Difference Approximation 272 9.4 Likelihood Ratio Method 276 9.5 Pathwise Derivative Estimates 279 9.6 Greek Calculation with Discontinuous Payoffs 289 10 Appendix 295 References 315 Subject Index 319 Author Index 323

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Book SynopsisFinancial Risk Forecasting is a complete introduction to practical quantitative risk management, with a focus on market risk.Table of ContentsPreface xiii Acknowledgments xv Abbreviations xvii Notation xix 1 Financial markets, prices and risk 1 1.1 Prices, returns and stock indices 2 1.1.1 Stock indices 2 1.1.2 Prices and returns 2 1.2 S&P 500 returns 5 1.2.1 S&P 500 statistics 6 1.2.2 S&P 500 statistics in R and Matlab 7 1.3 The stylized facts of financial returns 9 1.4 Volatility 9 1.4.1 Volatility clusters 11 1.4.2 Volatility clusters and the ACF 12 1.5 Nonnormality and fat tails 14 1.6 Identification of fat tails 16 1.6.1 Statistical tests for fat tails 16 1.6.2 Graphical methods for fat tail analysis 17 1.6.3 Implications of fat tails in finance 20 1.7 Nonlinear dependence 21 1.7.1 Sample evidence of nonlinear dependence 22 1.7.2 Exceedance correlations 23 1.8 Copulas 25 1.8.1 The Gaussian copula 25 1.8.2 The theory of copulas 25 1.8.3 An application of copulas 27 1.8.4 Some challenges in using copulas 28 1.9 Summary 29 2 Univariate volatility modeling 31 2.1 Modeling volatility 31 2.2 Simple volatility models 32 2.2.1 Moving average models 32 2.2.2 EWMA model 33 2.3 GARCH and conditional volatility 35 2.3.1 ARCH 36 2.3.2 GARCH 38 2.3.3 The ‘‘memory’’ of a GARCH model 39 2.3.4 Normal GARCH 40 2.3.5 Student-t GARCH 40 2.3.6 (G)ARCH in mean 41 2.4 Maximum likelihood estimation of volatility models 41 2.4.1 The ARCH(1) likelihood function 42 2.4.2 The GARCH(1,1) likelihood function 42 2.4.3 On the importance of σ1 43 2.4.4 Issues in estimation 43 2.5 Diagnosing volatility models 44 2.5.1 Likelihood ratio tests and parameter significance 44 2.5.2 Analysis of model residuals 45 2.5.3 Statistical goodness-of-fit measures 45 2.6 Application of ARCH and GARCH 46 2.6.1 Estimation results 46 2.6.2 Likelihood ratio tests 47 2.6.3 Residual analysis 47 2.6.4 Graphical analysis 48 2.6.5 Implementation 48 2.7 Other GARCH-type models 51 2.7.1 Leverage effects and asymmetry 51 2.7.2 Power models 52 2.7.3 APARCH 52 2.7.4 Application of APARCH models 52 2.7.5 Estimation of APARCH 53 2.8 Alternative volatility models 54 2.8.1 Implied volatility 54 2.8.2 Realized volatility 55 2.8.3 Stochastic volatility 55 2.9 Summary 56 3 Multivariate volatility models 57 3.1 Multivariate volatility forecasting 57 3.1.1 Application 58 3.2 EWMA 59 3.3 Orthogonal GARCH 62 3.3.1 Orthogonalizing covariance 62 3.3.2 Implementation 62 3.3.3 Large-scale implementations 63 3.4 CCC and DCC models 63 3.4.1 Constant conditional correlations (CCC) 64 3.4.2 Dynamic conditional correlations (DCC) 64 3.4.3 Implementation 65 3.5 Estimation comparison 65 3.6 Multivariate extensions of GARCH 67 3.6.1 Numerical problems 69 3.6.2 The BEKK model 69 3.7 Summary 70 4 Risk measures 73 4.1 Defining and measuring risk 73 4.2 Volatility 75 4.3 Value-at-risk 76 4.3.1 Is VaR a negative or positive number? 77 4.3.2 The three steps in VaR calculations 78 4.3.3 Interpreting and analyzing VaR 78 4.3.4 VaR and normality 79 4.3.5 Sign of VaR 79 4.4 Issues in applying VaR 80 4.4.1 VaR is only a quantile 80 4.4.2 Coherence 81 4.4.3 Does VaR really violate subadditivity? 83 4.4.4 Manipulating VaR 84 4.5 Expected shortfall 85 4.6 Holding periods, scaling and the square root of time 89 4.6.1 Length of holding periods 89 4.6.2 Square-root-of-time scaling 90 4.7 Summary 90 5 Implementing risk forecasts 93 5.1 Application 93 5.2 Historical simulation 95 5.2.1 Expected shortfall estimation 97 5.2.2 Importance of window size 97 5.3 Risk measures and parametric methods 98 5.3.1 Deriving VaR 99 5.3.2 VaR when returns are normally distributed 101 5.3.3 VaR under the Student-t distribution 102 5.3.4 Expected shortfall under normality 103 5.4 What about expected returns? 104 5.5 VaR with time-dependent volatility 106 5.5.1 Moving average 106 5.5.2 EWMA 107 5.5.3 GARCH normal 108 5.5.4 Other GARCH models 109 5.6 Summary 109 6 Analytical value-at-risk for options and bonds 111 6.1 Bonds 112 6.1.1 Duration-normal VaR 112 6.1.2 Accuracy of duration-normal VaR 114 6.1.3 Convexity and VaR 114 6.2 Options 115 6.2.1 Implementation 117 6.2.2 Delta-normal VaR 119 6.2.3 Delta and gamma 120 6.3 Summary 120 7 Simulation methods for VaR for options and bonds 121 7.1 Pseudo random number generators 122 7.1.1 Linear congruental generators 122 7.1.2 Nonuniform RNGs and transformation methods 123 7.2 Simulation pricing 124 7.2.1 Bonds 125 7.2.2 Options 129 7.3 Simulation of VaR for one asset 132 7.3.1 Monte Carlo VaR with one basic asset 133 7.3.2 VaR of an option on a basic asset 134 7.3.3 Options and a stock 136 7.4 Simulation of portfolio VaR 137 7.4.1 Simulation of portfolio VaR for basic assets 137 7.4.2 Portfolio VaR for options 139 7.4.3 Richer versions 139 7.5 Issues in simulation estimation 140 7.5.1 The quality of the RNG 140 7.5.2 Number of simulations 140 7.6 Summary 142 8 Backtesting and stress testing 143 8.1 Backtesting 143 8.1.1 Market risk regulations 146 8.1.2 Estimation window length 146 8.1.3 Testing window length 147 8.1.4 Violation ratios 147 8.2 Backtesting the S&P 500 147 8.2.1 Analysis 150 8.3 Significance of backtests 153 8.3.1 Bernoulli coverage test 154 8.3.2 Testing the independence of violations 155 8.3.3 Testing VaR for the S&P 500 157 8.3.4 Joint test 159 8.3.5 Loss-function-based backtests 159 8.4 Expected shortfall backtesting 160 8.5 Problems with backtesting 162 8.6 Stress testing 163 8.6.1 Scenario analysis 163 8.6.2 Issues in scenario analysis 165 8.6.3 Scenario analysis and risk models 165 8.7 Summary 166 9 Extreme value theory 167 9.1 Extreme value theory 168 9.1.1 Types of tails 168 9.1.2 Generalized extreme value distribution 169 9.2 Asset returns and fat tails 170 9.3 Applying EVT 172 9.3.1 Generalized Pareto distribution 172 9.3.2 Hill method 173 9.3.3 Finding the threshold 174 9.3.4 Application to the S&P 500 index 175 9.4 Aggregation and convolution 176 9.5 Time dependence 179 9.5.1 Extremal index 179 9.5.2 Dependence in ARCH 180 9.5.3 When does dependence matter? 180 9.6 Summary 181 10 Endogenous risk 183 10.1 The Millennium Bridge 184 10.2 Implications for financial risk management 184 10.2.1 The 2007–2010 crisis 185 10.3 Endogenous market prices 188 10.4 Dual role of prices 190 10.4.1 Dynamic trading strategies 191 10.4.2 Delta hedging 192 10.4.3 Simulation of feedback 194 10.4.4 Endogenous risk and the 1987 crash 195 10.5 Summary 195 Appendices A Financial time series 197 A.1 Random variables and probability density functions 197 A.1.1 Distributions and densities 197 A.1.2 Quantiles 198 A.1.3 The normal distribution 198 A.1.4 Joint distributions 200 A.1.5 Multivariate normal distribution 200 A.1.6 Conditional distribution 200 A.1.7 Independence 201 A.2 Expectations and variance 201 A.2.1 Properties of expectation and variance 202 A.2.2 Covariance and independence 203 A.3 Higher order moments 203 A.3.1 Skewness and kurtosis 204 A.4 Examples of distributions 206 A.4.1 Chi-squared (χ2) 206 A.4.2 Student-t 206 A.4.3 Bernoulli and binomial distributions 208 A.5 Basic time series concepts 208 A.5.1 Autocovariances and autocorrelations 209 A.5.2 Stationarity 209 A.5.3 White noise 210 A.6 Simple time series models 210 A.6.1 The moving average model 210 A.6.2 The autoregressive model 211 A.6.3 ARMA model 212 A.6.4 Random walk 212 A.7 Statistical hypothesis testing 212 A.7.1 Central limit theorem 213 A.7.2 p-values 213 A.7.3 Type 1 and type 2 errors and the power of the test 214 A.7.4 Testing for normality 214 A.7.5 Graphical methods: QQ plots 215 A.7.6 Testing for autocorrelation 215 A.7.7 Engle LM test for volatility clusters 216 B An introduction to R 217 B.1 Inputting data 217 B.2 Simple operations 219 B.2.1 Matrix computation 220 B.3 Distributions 222 B.3.1 Normality tests 223 B.4 Time series 224 B.5 Writing functions in R 225 B.5.1 Loops and repeats 226 B.6 Maximum likelihood estimation 228 B.7 Graphics 229 C An introduction to Matlab 231 C.1 Inputting data 231 C.2 Simple operations 233 C.2.1 Matrix algebra 234 C.3 Distributions 235 C.3.1 Normality tests 237 C.4 Time series 237 C.5 Basic programming and M-files 238 C.5.1 Loops 239 C.6 Maximum likelihood 242 C.7 Graphics 243 B Maximum likelihood 245 D.1 Likelihood functions 245 D.1.1 Normal likelihood functions 246 D.2 Optimizers 247 D.3 Issues in ML estimation 248 D.4 Information matrix 249 D.5 Properties of maximum likelihood estimators 250 D.6 Optimal testing procedures 250 D.6.1 Likelihood ratio test 251 D.6.2 Lagrange multiplier test 252 D.6.3 Wald test 253 Bibliography 255 Index 259

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