{"product_id":"risk-management-and-shareholders-value-in-banking-9780470029787","title":"Risk Management and Shareholders Value in Banking","description":"\u003cb\u003eBook Synopsis\u003c\/b\u003e\u003cbr\u003eRisk Management and Shareholders' Value in Banking covers all main aspects of risk management, capital management and value creation for financial institutions; it is structured in six parts.  Part One covers the measurement and management of the interest rate risk on all assets and liabilities of a banking institution.\u003cbr\u003e\u003cbr\u003e\u003cb\u003eTable of Contents\u003c\/b\u003e\u003cbr\u003e\u003cb\u003eForeword.\u003c\/b\u003e  \u003cp\u003e\u003cb\u003eMotivation and Scope of this Book: A Quick Guided Tour.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART I INTEREST RATE RISK.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part I.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e1 The Repricing Gap Model.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.1 Introduction.\u003c\/p\u003e \u003cp\u003e1.2 The gap concept\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.3 The maturity-adjusted gap\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.4 Marginal and cumulative gaps\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.5 The limitations of the repricing gap model\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.6 Some possible solutions\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.6.1 Non-uniform rate changes: the standardized gap.\u003c\/p\u003e \u003cp\u003e1.6.2 Changes in rates of on-demand instruments\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.6.3 Price and quantity interaction\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.6.4 Effects on the value of assets and liabilities\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 1A The Term Structure of Interest Rates.\u003c\/p\u003e \u003cp\u003eAppendix 1B Forward Rates.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e2 The Duration Gap Model.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2.1 Introduction.\u003c\/p\u003e \u003cp\u003e2.2 Towards mark-to-market accounting.\u003c\/p\u003e \u003cp\u003e2.3 The duration of financial instruments.\u003c\/p\u003e \u003cp\u003e2.3.1 Duration as a weighted average of maturities.\u003c\/p\u003e \u003cp\u003e2.3.2 Duration as an indicator of sensitivity to interest rates charges.\u003c\/p\u003e \u003cp\u003e2.3.3 The properties of duration.\u003c\/p\u003e \u003cp\u003e2.4 Estimating the duration gap.\u003c\/p\u003e \u003cp\u003e2.5 Problems of the duration gap model.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 2A The Limits of Duration.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e3 Models Based on Cash-Flow Mapping.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3.1 Introduction.\u003c\/p\u003e \u003cp\u003e3.2 The objectives of cash-flow mapping and term structure.\u003c\/p\u003e \u003cp\u003e3.3 Choosing the vertices of the term structure.\u003c\/p\u003e \u003cp\u003e3.4 Techniques based on discrete intervals.\u003c\/p\u003e \u003cp\u003e3.4.1 The duration intervals method.\u003c\/p\u003e \u003cp\u003e3.4.2 The modified residual life method.\u003c\/p\u003e \u003cp\u003e3.4.3 The Basel Committee method.\u003c\/p\u003e \u003cp\u003e3.5 Clumping.\u003c\/p\u003e \u003cp\u003e3.5.1 Structure of the methodology.\u003c\/p\u003e \u003cp\u003e3.5.2 An example.\u003c\/p\u003e \u003cp\u003e3.5.3 Clumping on the basis of price volatility.\u003c\/p\u003e \u003cp\u003e3.6 Concluding comments.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 3A Estimating the Zero-coupon Curve.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e4 Internal Transfer Rates.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e4.1 Introduction.\u003c\/p\u003e \u003cp\u003e4.2 Building an ITR system: a simplified example.\u003c\/p\u003e \u003cp\u003e4.3 Single and multiple ITRs.\u003c\/p\u003e \u003cp\u003e4.4 Setting internal interest transfer rates.\u003c\/p\u003e \u003cp\u003e4.4.1 ITRs for fixed-rate transactions.\u003c\/p\u003e \u003cp\u003e4.4.2 ITRs for floating-rate transactions.\u003c\/p\u003e \u003cp\u003e4.4.3 ITRs for transactions indexed at “non-market” rates.\u003c\/p\u003e \u003cp\u003e4.5 ITRs for transactions with embedded options.\u003c\/p\u003e \u003cp\u003e4.5.1 Option to convert from a fixed to a floating rate.\u003c\/p\u003e \u003cp\u003e4.5.2 Floating rate loan subject to a cap.\u003c\/p\u003e \u003cp\u003e4.5.3 Floating rate loan subject to a floor.\u003c\/p\u003e \u003cp\u003e4.5.4 Floating rate loan subject to both a floor and a cap.\u003c\/p\u003e \u003cp\u003e4.5.5 Option for early repayment.\u003c\/p\u003e \u003cp\u003e4.6 Summary: the ideal features of an ITR system.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 4A Derivative Contracts on Interest Rates.\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART II MARKET RISKS.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part II.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e5 The Variance-Covariance Approach.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5.1 Introduction.\u003c\/p\u003e \u003cp\u003e5.2 VaR derivation assuming normal return distribution.\u003c\/p\u003e \u003cp\u003e5.2.1 A simplified example.\u003c\/p\u003e \u003cp\u003e5.2.2 Confidence level selection.\u003c\/p\u003e \u003cp\u003e5.2.3 Selection of the time horizon.\u003c\/p\u003e \u003cp\u003e5.3 Sensitivity of portfolio positions to market factors.\u003c\/p\u003e \u003cp\u003e5.3.1 A more general example.\u003c\/p\u003e \u003cp\u003e5.3.2 Portfolio VaR.\u003c\/p\u003e \u003cp\u003e5.3.3 Delta-normal and asset-normal approaches.\u003c\/p\u003e \u003cp\u003e5.4 Mapping of risk positions.\u003c\/p\u003e \u003cp\u003e5.4.1 Mapping of foreign currency bonds.\u003c\/p\u003e \u003cp\u003e5.4.2 Mapping of forward currency positions.\u003c\/p\u003e \u003cp\u003e5.4.3 Mapping of forward rate agreements.\u003c\/p\u003e \u003cp\u003e5.4.4 Mapping of stock positions.\u003c\/p\u003e \u003cp\u003e5.4.5 Mapping of bonds.\u003c\/p\u003e \u003cp\u003e5.5 Summary of the variance-covariance approach and main limitations.\u003c\/p\u003e \u003cp\u003e5.5.1 The normal distribution hypothesis.\u003c\/p\u003e \u003cp\u003e5.5.2 Serial independence and stability of the variance-covariance matrix.\u003c\/p\u003e \u003cp\u003e5.5.3 The linear payoff hypothesis and the delta\/gamma approach.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 5A Stockmarket Betas.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e6 Volatility Estimation Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e6.1 Introduction.\u003c\/p\u003e \u003cp\u003e6.2 Volatility estimation based upon historical data: simple moving averages.\u003c\/p\u003e \u003cp\u003e6.3 Volatility estimation based upon historical data: exponential moving averages.\u003c\/p\u003e \u003cp\u003e6.4 Volatility prediction: GARCH models.\u003c\/p\u003e \u003cp\u003e6.5 Volatility prediction: implied volatility.\u003c\/p\u003e \u003cp\u003e6.6 Covariance and correlation estimation.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e7 Simulation Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e7.1 Introduction.\u003c\/p\u003e \u003cp\u003e7.2 Historical simulations.\u003c\/p\u003e \u003cp\u003e7.2.1 A first example: the VaR of a single position.\u003c\/p\u003e \u003cp\u003e7.2.2 Estimation of a portfolio’s VaR.\u003c\/p\u003e \u003cp\u003e7.2.3 A comparison between historical simulations and the.\u003c\/p\u003e \u003cp\u003evariance-covariance approach.\u003c\/p\u003e \u003cp\u003e7.2.4 Merits and limitations of the historical simulation method.\u003c\/p\u003e \u003cp\u003e7.2.5 The hybrid approach.\u003c\/p\u003e \u003cp\u003e7.2.6 Bootstrapping and path generation.\u003c\/p\u003e \u003cp\u003e7.2.7 Filtered historical simulations.\u003c\/p\u003e \u003cp\u003e7.3 Monte Carlo simulations.\u003c\/p\u003e \u003cp\u003e7.3.1 Estimating the VaR of a single position.\u003c\/p\u003e \u003cp\u003e7.3.2 Estimating portfolio VaR.\u003c\/p\u003e \u003cp\u003e7.3.3 Merits and limitations of Monte Carlo simulations.\u003c\/p\u003e \u003cp\u003e7.4 Stress testing.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e8\u003c\/b\u003e \u003cb\u003eEvaluating VaR Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8.1 Introduction.\u003c\/p\u003e \u003cp\u003e8.2 An example of backtesting: a stock portfolio VaR.\u003c\/p\u003e \u003cp\u003e8.3 Alternative VaR model backtesting techniques.\u003c\/p\u003e \u003cp\u003e8.3.1 The unconditional coverage test.\u003c\/p\u003e \u003cp\u003e8.3.2 The conditional coverage test.\u003c\/p\u003e \u003cp\u003e8.3.3 Lopez test based upon a loss function.\u003c\/p\u003e \u003cp\u003e8.3.4 Tests based upon the entire distributio.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 8A VaR Model Backtesting According to the Basel Committee.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e9\u003c\/b\u003e \u003cb\u003eVaR Models: Summary, Applications and Limitations.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e9.1 Introduction.\u003c\/p\u003e \u003cp\u003e9.2 A summary overview of the different models.\u003c\/p\u003e \u003cp\u003e9.3 Applications of VaR models.\u003c\/p\u003e \u003cp\u003e9.3.1 Comparison among different risks.\u003c\/p\u003e \u003cp\u003e9.3.2 Determination of risk taking limits.\u003c\/p\u003e \u003cp\u003e9.3.3 The construction of risk-adjusted performance (RAP) measures.\u003c\/p\u003e \u003cp\u003e9.4 Six “false shortcomings” of VaR.\u003c\/p\u003e \u003cp\u003e9.4.1 VaR models disregard exceptional events.\u003c\/p\u003e \u003cp\u003e9.4.2 VaR models disregard customer relations.\u003c\/p\u003e \u003cp\u003e9.4.3 VaR models are based upon unrealistic assumptions.\u003c\/p\u003e \u003cp\u003e9.4.4 VaR models generate diverging results.\u003c\/p\u003e \u003cp\u003e9.4.5 VaR models amplify market instability.\u003c\/p\u003e \u003cp\u003e9.4.6 VaR measures “come too late, when damage has already been done”.\u003c\/p\u003e \u003cp\u003e9.5 Two real problems of VaR models.\u003c\/p\u003e \u003cp\u003e9.5.1 The size of losses.\u003c\/p\u003e \u003cp\u003e9.5.2 Non-subadditivity.\u003c\/p\u003e \u003cp\u003e9.6 An alternative risk measure: expected shortfall (ES).\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 9A Extreme Value Theory.\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART III CREDIT RISK.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part III.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e10\u003c\/b\u003e \u003cb\u003eCredit-Scoring Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e10.1 Introduction.\u003c\/p\u003e \u003cp\u003e10.2 Linear discriminant analysis.\u003c\/p\u003e \u003cp\u003e10.2.1 The discriminant function.\u003c\/p\u003e \u003cp\u003e10.2.2 Wilks’ Lambada.\u003c\/p\u003e \u003cp\u003e10.2.3 Altman’s Z-score.\u003c\/p\u003e \u003cp\u003e10.2.4 From the score to the probability of default.\u003c\/p\u003e \u003cp\u003e10.2.5 The cost of errors.\u003c\/p\u003e \u003cp\u003e10.2.6 The selection of discriminant variables.\u003c\/p\u003e \u003cp\u003e10.2.7 Some hypotheses underlying discriminant analysis.\u003c\/p\u003e \u003cp\u003e10.3 Regression models.\u003c\/p\u003e \u003cp\u003e10.3.1 The linear probabilistic model.\u003c\/p\u003e \u003cp\u003e10.3.2 The logit and probit models.\u003c\/p\u003e \u003cp\u003e10.4 Inductive models.\u003c\/p\u003e \u003cp\u003e10.4.1 Neural networks.\u003c\/p\u003e \u003cp\u003e10.4.2 Genetic algorithms.\u003c\/p\u003e \u003cp\u003e10.5 Uses, limitations and problems of credit-scoring models.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 10A The Estimation of the Gamma Coefficients in Linear.\u003c\/p\u003e \u003cp\u003eDiscriminant Analysis.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e11\u003c\/b\u003e \u003cb\u003eCapital Market Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11.1 Introduction.\u003c\/p\u003e \u003cp\u003e11.2 The approach based on corporate bond spreads.\u003c\/p\u003e \u003cp\u003e11.2.1 Foreword: continuously compounded interest rates.\u003c\/p\u003e \u003cp\u003e11.2.2 Estimating the one-year probability of default.\u003c\/p\u003e \u003cp\u003e11.2.3 Probabilities of default beyond one year.\u003c\/p\u003e \u003cp\u003e11.2.4 An alternative approach.\u003c\/p\u003e \u003cp\u003e11.2.5 Benefits and limitations of the approach based on corporate.\u003c\/p\u003e \u003cp\u003ebond spreads.\u003c\/p\u003e \u003cp\u003e11.3 Structural models based on stock prices.\u003c\/p\u003e \u003cp\u003e11.3.1 An introduction to structural models.\u003c\/p\u003e \u003cp\u003e11.3.2 Merton’s model: general structure.\u003c\/p\u003e \u003cp\u003e11.3.3 Merton’s model: the role of contingent claims analysis.\u003c\/p\u003e \u003cp\u003e11.3.4 Merton’s model: loan value and equilibrium spread.\u003c\/p\u003e \u003cp\u003e11.3.5 Merton’s model: probability of default.\u003c\/p\u003e \u003cp\u003e11.3.6 The term structure of credit spreads and default probabilities.\u003c\/p\u003e \u003cp\u003e11.3.7 Strengths and limitations of Merton’s model.\u003c\/p\u003e \u003cp\u003e11.3.8 The KMV model for calculating \u003cb\u003eVo and ov\u003c\/b\u003e.\u003c\/p\u003e \u003cp\u003e11.3.9 The KMV approach and the calculation of PD.\u003c\/p\u003e \u003cp\u003e11.3.10 Benfits and limitations of the KMV model.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 11A Calculating the Fair Spread on a Loan.\u003c\/p\u003e \u003cp\u003eAppendix 11B Real and Risk-Neutral Probabilities of Default.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e12\u003c\/b\u003e \u003cb\u003eLGD and Recovery Risk.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e12.1 Introduction.\u003c\/p\u003e \u003cp\u003e12.2 What factors drive recovery rates?\u003c\/p\u003e \u003cp\u003e12.3 The estimation of recovery rates.\u003c\/p\u003e \u003cp\u003e12.3.1 Market LGD and default LGD.\u003c\/p\u003e \u003cp\u003e12.3.2 Computing workout LGDs.\u003c\/p\u003e \u003cp\u003e12.4 From past data to LGD estimates.\u003c\/p\u003e \u003cp\u003e12.5 Results from selected empirical studies.\u003c\/p\u003e \u003cp\u003e12.6 Recovery risk.\u003c\/p\u003e \u003cp\u003e12.7 The link between default risk and recovery risk.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 12A The Relationship Between PD and RR in the Merton Model.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e13\u003c\/b\u003e \u003cb\u003eRating Systems.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e13.1 Introduction.\u003c\/p\u003e \u003cp\u003e13.2 Rating assignment.\u003c\/p\u003e \u003cp\u003e13.2.1 Internal ratings and agency ratings: how do they differ?\u003c\/p\u003e \u003cp\u003e13.2.2 The assignment of agency ratings.\u003c\/p\u003e \u003cp\u003e13.2.3 Rating assessment in bank internal rating systems.\u003c\/p\u003e \u003cp\u003e13.3 Rating quantification.\u003c\/p\u003e \u003cp\u003e13.3.1 The possible approaches.\u003c\/p\u003e \u003cp\u003e13.3.2 The actuarial approach: marginal, cumulative and annualized default rates.\u003c\/p\u003e \u003cp\u003e13.3.3 The actuarial approach: migration rates.\u003c\/p\u003e \u003cp\u003e13.4 Rating validation.\u003c\/p\u003e \u003cp\u003e13.4.1 Some qualitative data.\u003c\/p\u003e \u003cp\u003e13.4.2 Quantitative criteria for validating rating assignments.\u003c\/p\u003e \u003cp\u003e13.4.3 The validation of the rating quantification step.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e14\u003c\/b\u003e \u003cb\u003ePortfolio Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e14.1 Introduction.\u003c\/p\u003e \u003cp\u003e14.2 Selecting time horizon and confidence level.\u003c\/p\u003e \u003cp\u003e14.2.1 The choice of risk horizon.\u003c\/p\u003e \u003cp\u003e14.2.2 The choice of the confidence level.\u003c\/p\u003e \u003cp\u003e14.3 The migration approach: \u003ci\u003eCreditMetrics\u003c\/i\u003e TM.\u003c\/p\u003e \u003cp\u003e14.3.1 Estimating risk on a single credit.\u003c\/p\u003e \u003cp\u003e14.3.2 Estimating the risk of a two-exposure portfolio.\u003c\/p\u003e \u003cp\u003e14.3.3 Estimating asset correlation.\u003c\/p\u003e \u003cp\u003e14.3.4 Application to a portfolio of \u003ci\u003eN\u003c\/i\u003e positions.\u003c\/p\u003e \u003cp\u003e14.3.5 Merits and limitations of the \u003ci\u003eCreditMetrics\u003c\/i\u003e TM model.\u003c\/p\u003e \u003cp\u003e14.4 The structural approach: \u003ci\u003ePortfolioManager\u003c\/i\u003e TM.\u003c\/p\u003e \u003cp\u003e14.5 The macroeconomic approach: \u003ci\u003eCreditPortfolioView\u003c\/i\u003e TM.\u003c\/p\u003e \u003cp\u003e14.5.1 Estimating conditional default probabilities.\u003c\/p\u003e \u003cp\u003e14.5.2 Estimating the conditional transition matrix.\u003c\/p\u003e \u003cp\u003e14.5.3 Merits and limitations of \u003ci\u003eCreditPortfolioView\u003c\/i\u003e TM.\u003c\/p\u003e \u003cp\u003e14.6 The actuarial approach: the \u003ci\u003eCreditRisk+\u003c\/i\u003e TM model.\u003c\/p\u003e \u003cp\u003e14.6.1 Estimating the probability distribution of defaults.\u003c\/p\u003e \u003cp\u003e14.6.2 The probability distribution of losses.\u003c\/p\u003e \u003cp\u003e14.6.3 The distribution of losses of the entire portfolio.\u003c\/p\u003e \u003cp\u003e14.6.4 Uncertainty about the average default rate and correlations.\u003c\/p\u003e \u003cp\u003e14.6.5 Merits and limitations of \u003ci\u003eCreditRisk+\u003c\/i\u003e TM.\u003c\/p\u003e \u003cp\u003e14.7 A brief comparison of the main models.\u003c\/p\u003e \u003cp\u003e14.8 Some limitations of the credit risk models.\u003c\/p\u003e \u003cp\u003e14.8.1 The treatment of recovery risk.\u003c\/p\u003e \u003cp\u003e14.8.2 The assumption of independence between exposure risk and.\u003c\/p\u003e \u003cp\u003edefault risk.\u003c\/p\u003e \u003cp\u003e14.8.3 The assumption of independence between credit risk and market risk.\u003c\/p\u003e \u003cp\u003e14.8.4 The impossibility of backtesting.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 14A Asset Correlation Versus Default Correlation.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e15\u003c\/b\u003e \u003cb\u003eSome Applications of Credit Risk Measurement Models.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.1 Introduction.\u003c\/p\u003e \u003cp\u003e15.2 Loan pricing\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.2.1 The cost of the expected loss.\u003c\/p\u003e \u003cp\u003e15.2.2 The cost of economic capital absorbed by unexpected losses\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.3 Risk-adjusted performance measurement.\u003c\/p\u003e \u003cp\u003e15.4 Setting limits on risk-taking units\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.5 Optimizing the composition of the loan portfolio\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 15A Credit Risk Transfer Tools.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e16\u003c\/b\u003e \u003cb\u003eCounterparty Risk on OTC Derivatives.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.1 Introduction.\u003c\/p\u003e \u003cp\u003e16.2 Settlement and pre-settlement risk\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3 Estimating pre-settlement risk\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.1 Two approaches suggested by the Basel Committee (1988).\u003c\/p\u003e \u003cp\u003e16.3.2 A more sophisticated approach\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.3 Estimating the loan equivalent exposure of an interest rate swap\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.4 Amortization and diffusion effect\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.5 Peak exposure (OE) and average expected exposure (AEE)\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.6 Further approaches to LEE computation\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.3.7 Loan equivalent and Value at Risk: analogies and differences\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.4 Risk-adjusted performance measurement.\u003c\/p\u003e \u003cp\u003e16.5 Risk-mitigation tools for pre-settlement risk\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.5.1 Bilateral netting agreements.\u003c\/p\u003e \u003cp\u003e16.5.2 Safety margins\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.5.3 Recouponing and guarantees\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.5.4 Credit triggers and early redemption options\u003cb\u003e.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART IV OPERATIONAL RISK.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part IV.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e17\u003c\/b\u003e \u003cb\u003eOperational Risk: Definition, Measurement and Management.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e17.1 Introduction.\u003c\/p\u003e \u003cp\u003e17.2 OR: how can we define it?\u003c\/p\u003e \u003cp\u003e17.2.1 OR risk factors.\u003c\/p\u003e \u003cp\u003e17.2.2 Some peculiarities of OR.\u003c\/p\u003e \u003cp\u003e17.3 Measuring OR.\u003c\/p\u003e \u003cp\u003e17.3.1 Identifying the risk factors.\u003c\/p\u003e \u003cp\u003e17.3.2 Mapping business units and estimating risk exposure.\u003c\/p\u003e \u003cp\u003e17.3.3 Estimating the probability of the risky events.\u003c\/p\u003e \u003cp\u003e17.3.4 Estimating the losses.\u003c\/p\u003e \u003cp\u003e17.3.5 Estimating expected loss.\u003c\/p\u003e \u003cp\u003e17.3.6 Estimating unexpected loss.\u003c\/p\u003e \u003cp\u003e17.3.7 Estimating capital at risk against OR.\u003c\/p\u003e \u003cp\u003e17.4 Towards an OR management system.\u003c\/p\u003e \u003cp\u003e17.5 Final remarks.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 17A OR Measurement and EVT.\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART V REGULATORY CAPITAL REQUIREMENTS.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part V.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e18\u003c\/b\u003e \u003cb\u003eThe 1988 Capital Accord.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e18.1 Introduction.\u003c\/p\u003e \u003cp\u003e18.2 The capital ratio.\u003c\/p\u003e \u003cp\u003e18.2.1 Regulatory capital (\u003ci\u003eRC\u003c\/i\u003e).\u003c\/p\u003e \u003cp\u003e18.2.1.1 Tier 1 capital.\u003c\/p\u003e \u003cp\u003e18.2.1.2 Supplementary capital (Tier 2 and Tier 3).\u003c\/p\u003e \u003cp\u003e18.2.2 Risk weights (\u003ci\u003ew\u003c\/i\u003ei).\u003c\/p\u003e \u003cp\u003e18.2.3 Assets included in the capital ration (\u003ci\u003eA\u003c\/i\u003ei).\u003c\/p\u003e \u003cp\u003e18.3 Shortcomings of the capital adequacy framework.\u003c\/p\u003e \u003cp\u003e18.3.1 Focus on credit risk only.\u003c\/p\u003e \u003cp\u003e18.3.2 Poor differentiation of risk.\u003c\/p\u003e \u003cp\u003e18.3.3 Limited recognition of the link between maturity and credit risk.\u003c\/p\u003e \u003cp\u003e18.3.4 Disregard for portfolio diversification.\u003c\/p\u003e \u003cp\u003e18.3.5 Limited recognition of risk mitigation tools.\u003c\/p\u003e \u003cp\u003e18.3.6 “Regulatory arbitrage”.\u003c\/p\u003e \u003cp\u003e18.4 Conclusions.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 18A The Basel Committee.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e19\u003c\/b\u003e \u003cb\u003eThe Capital Requirements for Market Risks.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e19.1 Introduction.\u003c\/p\u003e \u003cp\u003e19.2 Origins and characteristics of capital requirements.\u003c\/p\u003e \u003cp\u003e19.2.1 Origins of the requirements.\u003c\/p\u003e \u003cp\u003e19.2.2 Logic and scope of application.\u003c\/p\u003e \u003cp\u003e19.2.3 The “building blocks” approach.\u003c\/p\u003e \u003cp\u003e19.2.4 Tier 3 capital.\u003c\/p\u003e \u003cp\u003e19.3 The capital requirements on debt securities.\u003c\/p\u003e \u003cp\u003e19.3.1 The requirement for specific risk.\u003c\/p\u003e \u003cp\u003e19.3.2 The requirement for generic risk.\u003c\/p\u003e \u003cp\u003e19.4 Positions in equity securities: specific and generic requirements.\u003c\/p\u003e \u003cp\u003e19.5 The requirement for positions in foreign currencies.\u003c\/p\u003e \u003cp\u003e19.6 The requirement for commodity positions.\u003c\/p\u003e \u003cp\u003e19.7 The use of internal models.\u003c\/p\u003e \u003cp\u003e19.7.1 Criticism of the Basel Committee proposals.\u003c\/p\u003e \u003cp\u003e19.7.2 The 1995 revised draft.\u003c\/p\u003e \u003cp\u003e19.7.3 The final amendment of January 1996.\u003c\/p\u003e \u003cp\u003e19.7.4 Advantages and limitations of the internal model approach.\u003c\/p\u003e \u003cp\u003e19.7.5 The pre-commitment approach.\u003c\/p\u003e \u003cp\u003eSelected Questions and Answers.\u003c\/p\u003e \u003cp\u003eAppendix 19A Capital requirements Related to Settlement, Counterparty and Concentration Risks.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e20\u003c\/b\u003e \u003cb\u003eThe New Basel Accord.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e20.1 Introduction.\u003c\/p\u003e \u003cp\u003e20.2 Goals and contents of the reform.\u003c\/p\u003e \u003cp\u003e20.3 Pillar One: the standard approach to credit risk.\u003c\/p\u003e \u003cp\u003e20.3.1 Risk weighting.\u003c\/p\u003e \u003cp\u003e20.3.2 Collateral and guarantees.\u003c\/p\u003e \u003cp\u003e20.4 The internal ratings-based approach.\u003c\/p\u003e \u003cp\u003e20.4.1 Risk factors.\u003c\/p\u003e \u003cp\u003e20.4.2 Minimum requirements of the internal ratings system.\u003c\/p\u003e \u003cp\u003e20.4.3 From the rating system to the minimum capital requirements.\u003c\/p\u003e \u003cp\u003e20.5 Pillar two: a new role for supervisory authorities.\u003c\/p\u003e \u003cp\u003e20.6 Pillar three: market discipline.\u003c\/p\u003e \u003cp\u003e20.6.1 The rationale underlying market discipline.\u003c\/p\u003e \u003cp\u003e20.6.2 The reporting obligations required by the Basel Committee.\u003c\/p\u003e \u003cp\u003e20.6.3 Other necessary conditions for market discipline.\u003c\/p\u003e \u003cp\u003e20.7 Pros and cons of Basel II.\u003c\/p\u003e \u003cp\u003e20.8 The Impact of Basel II.\u003c\/p\u003e \u003cp\u003e20.8.1 The impact on first implementation.\u003c\/p\u003e \u003cp\u003e20.8.2 The dynamic impact: procyclicality.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e21\u003c\/b\u003e \u003cb\u003eCapital Requirements on Operational Risk.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e21.1 Introduction.\u003c\/p\u003e \u003cp\u003e21.2 The capital requirement on operational risk.\u003c\/p\u003e \u003cp\u003e21.2.1 The basic indicator approach.\u003c\/p\u003e \u003cp\u003e21.2.2 The standardized approach.\u003c\/p\u003e \u003cp\u003e21.2.3 The requirements for adopting the standardized approach.\u003c\/p\u003e \u003cp\u003e21.2.4 Advanced measurement approaches.\u003c\/p\u003e \u003cp\u003e21.2.5 The requirements for adopting advanced approaches.\u003c\/p\u003e \u003cp\u003e21.2.6 The role of the second and third pillars.\u003c\/p\u003e \u003cp\u003e21.2.7 The role of insurance coverage.\u003c\/p\u003e \u003cp\u003e21.3 Weaknesses of the 2004 Accord.\u003c\/p\u003e \u003cp\u003e21.4 Final remarks.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART VI CAPITAL MANAGEMENT AND VALUE CREATION.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction to Part VI.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e22\u003c\/b\u003e \u003cb\u003eCapital Management.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e22.1 Introduction.\u003c\/p\u003e \u003cp\u003e22.2 Defining and measuring capital.\u003c\/p\u003e \u003cp\u003e22.2.1 The definition of capital.\u003c\/p\u003e \u003cp\u003e22.2.2 The relationship between economic capital and available capital.\u003c\/p\u003e \u003cp\u003e22.2.3 Calculating a bank’s economic capital.\u003c\/p\u003e \u003cp\u003e22.2.4 The relationship between economic capital and regulatory capital.\u003c\/p\u003e \u003cp\u003e22.2.5 The limitation of regulatory capital: implications on pricing and.\u003c\/p\u003e \u003cp\u003eperformance measurement.\u003c\/p\u003e \u003cp\u003e22.2.6 The determinants of capitalization.\u003c\/p\u003e \u003cp\u003e22.3 Optimizing regulatory capital.\u003c\/p\u003e \u003cp\u003e22.3.1 Technical features of the different regulatory capital requirements.\u003c\/p\u003e \u003cp\u003e22.3.2 The actual use of the various instruments included within regulatory capital.\u003c\/p\u003e \u003cp\u003e22.4 Other instruments not included within regulatory capital.\u003c\/p\u003e \u003cp\u003e22.4.1 Insurance capital.\u003c\/p\u003e \u003cp\u003e22.4.2 Contingent capital.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e23\u003c\/b\u003e \u003cb\u003eCapital Allocation.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e23.1 Introduction.\u003c\/p\u003e \u003cp\u003e23.2 Measuring capital for the individual business units.\u003c\/p\u003e \u003cp\u003e23.2.1 The “benchmark capital” approach.\u003c\/p\u003e \u003cp\u003e23.2.2 The model-based approach.\u003c\/p\u003e \u003cp\u003e23.2.3 The Earnings-at-Risk (EaR) approach.\u003c\/p\u003e \u003cp\u003e23.3 The relationship between allocated capital and total capital.\u003c\/p\u003e \u003cp\u003e23.3.1 The concept of diversified capital.\u003c\/p\u003e \u003cp\u003e23.3.2 Calculating diversified capital.\u003c\/p\u003e \u003cp\u003e23.3.3 Calculating the correlations used in determining diversified capital.\u003c\/p\u003e \u003cp\u003e23.4 Capital allocated and capital absorbed.\u003c\/p\u003e \u003cp\u003e23.5 Calculating risk-adjusted performance.\u003c\/p\u003e \u003cp\u003e23.6 Optimizing the allocation of capital.\u003c\/p\u003e \u003cp\u003e23.6.1 A model for optimal capital allocation.\u003c\/p\u003e \u003cp\u003e23.6.2 A more realistic model.\u003c\/p\u003e \u003cp\u003e23.7 The organizational aspects of the capital allocation process.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003eAppendix 23A The Correlation Approach.\u003c\/p\u003e \u003cp\u003eAppendix 23B The Virtual nature of Capital Allocation.\u003c\/p\u003e \u003cp\u003e\u003cb\u003e24\u003c\/b\u003e \u003cb\u003eCost of Capital and Value Creation.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e24.1 Introduction.\u003c\/p\u003e \u003cp\u003e24.2 The link between risk management and capital budgeting.\u003c\/p\u003e \u003cp\u003e24.3 Capital budgeting in banks and non-financial enterprises.\u003c\/p\u003e \u003cp\u003e24.4 Estimating the cost of capital.\u003c\/p\u003e \u003cp\u003e24.4.1 Estimating the cost of capital.\u003c\/p\u003e \u003cp\u003e24.4.2 The method based on the price\/earnings ratio.\u003c\/p\u003e \u003cp\u003e24.4.3 The method based on the Capital Asset Pricing Model (CAPM).\u003c\/p\u003e \u003cp\u003e24.4.4 Caveats.\u003c\/p\u003e \u003cp\u003e24.5 Some empirical examples.\u003c\/p\u003e \u003cp\u003e24.6 Value creation and RAROC.\u003c\/p\u003e \u003cp\u003e24.7 Value creation and EVA.\u003c\/p\u003e \u003cp\u003e24.8 Conclusions.\u003c\/p\u003e \u003cp\u003eSelected Questions and Exercises.\u003c\/p\u003e \u003cp\u003e\u003cb\u003eBibliography.\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eIndex\u003c\/b\u003e.\u003c\/p\u003e","brand":"John Wiley \u0026 Sons Inc","offers":[{"title":"Default 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