Risk Management and Financial Institutions

Business Snapshots xxiii Preface xxv Chapter 1 Introduction: Risk-Return Trade-offs 1 Part 1: Financial Institutions 23 Chapter 2 Banks 25 Chapter 3 Insurance Companies and Pension Plans 47 Chapter 4 Fund Managers 75 Part 2: Financial Markets 97 Chapter 5 Financial Instruments 99 Chapter 6 The OTC Derivatives Market 129 Chapter 7 Securitization and the Global Financial Crisis 145 Chapter 8 Volatility 163 Chapter 9 Correlations and Copulas 193 Chapter 10 Valuation and Scenario Analysis 217 Part 3: Market Risk 231 Chapter 11 Value at Risk and Expected Shortfall 233 Chapter 12 Historical Simulation and Extreme Value Theory 257 Chapter 13 Model-Building Approach 279 Chapter 14 Interest Rate Risk 293 Chapter 15 Derivatives Risk 319 Chapter 16 Scenario Analysis and Stress Testing 347 Part 4: Credit Risk 365 Chapter 17 Estimating Default Probabilities 367 Chapter 18 xVAs 393 Chapter 19 Credit Value at Risk 413 Part 5: Other Risks 429 Chapter 20 Operational Risk 431 Chapter 21 Liquidity Risk 449 Chapter 22 Model Risk Management 477 Chapter 23 Climate Risk, ESG, and Sustainability 497 Chapter 24 Enterprise Risk Management 513 Part 6: Regulation 531 Chapter 25 Basel I, Basel II, and Solvency II 533 Chapter 26 Basel II.5, Basel III, and Other Post-Crisis Changes 563 Chapter 27 Fundamental Review of the Trading Book 585 Chapter 28 Economic Capital and RAROC 599 Part 7: Other Topics 617 Chapter 29 Financial Innovation 619 Chapter 30 Risk Management Mistakes to Avoid 641 Part 8: Appendices 653 Appendix A Compounding Frequencies for Interest Rates 655 Appendix B Zero Rates, Forward Rates, and Zero-Coupon Yield Curves 659 Appendix C Valuing Forward and Futures Contracts 663 Appendix D Valuing Swaps 665 Appendix E Valuing European Options 669 Appendix F Valuing American Options 673 Appendix G Taylor Series Expansions 677 Appendix H Eigenvectors and Eigenvalues 681 Appendix I Principal Components Analysis 685 Appendix J Manipulation of Credit Transition Matrices 687 Appendix K Valuation of Credit Default Swaps 689 Appendix L Synthetic CDOs and Their Valuation 693 Appendix M SIMM 697 Answers to Questions and Problems 701 Glossary 743 RMFI Software 771 Table for N(x) When x >= 0 775 Table for N(x) When x <= 0 777 Index 779