Handbook of Market Risk
Published on 16. October 2013
432 pages
978-1-118-57306-8 (ISBN)
Description
A ONE-STOP GUIDE FOR THE THEORIES, APPLICATIONS, AND STATISTICALMETHODOLOGIES OF MARKET RISK
Understanding and investigating the impacts of market risk onthe financial landscape is crucial in preventing crises. Written bya hedge fund specialist, the Handbook of Market Risk is thecomprehensive guide to the subject of market risk.
Featuring a format that is accessible and convenient, thehandbook employs numerous examples to underscore the application ofthe material in a real-world setting. The book starts byintroducing the various methods to measure market risk whilecontinuing to emphasize stress testing, liquidity, and interestrate implications. Covering topics intrinsic to understanding andapplying market risk, the handbook features:
* An introduction to financial markets
* The historical perspective from market
* events and diverse mathematics to the
* value-at-risk
* Return and volatility estimates
* Diversification, portfolio risk, and
* efficient frontier
* The Capital Asset Pricing Model
* and the Arbitrage Pricing Theory
* The use of a fundamental
* multi-factors model
* Financial derivatives instruments
* Fixed income and interest rate risk
* Liquidity risk
* Alternative investments
* Stress testing and back testing
* Banks and Basel II/III
The Handbook of Market Risk is a must-have resource forfinancial engineers, quantitative analysts, regulators, riskmanagers in investments banks, and large-scale consultancy groupsadvising banks on internal systems. The handbook is also anexcellent text for academics teaching postgraduate courses onfinancial methodology.
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CHRISTIAN SZYLAR, PhD, is Global Head of Risk at MarshallWace, LLP. Dr. Szylar has over eighteen years of working experiencewith international financial organizations and has advised numerousfinancial institutions on how best to implement efficient riskmanagement in banking as well as in both UCITS and hedge fundmarkets. Dr. Szylar has taught multiple master's-level courses onmarket risk and speaks regularly at international conferences.
Content
PREFACE
ACKNOWLEDGEMENTS
ABOUT THE AUTHOR
INTRODUCTION
Chapter 1 Introduction to financial markets
1.1. The money market
1.2. The capital market
1.3. The futures and options market
1.4. The foreign exchange market
1.5. The commodity market
Chapter 2 The efficient markets theory
2.1. Assumptions behind a perfectly competitive market
2.2. The efficient market hypothesis
2.3. Critics of efficient markets theory
2.4. Development of behavioural finance
2.5. Beating the market: fundamental versus technical
Chapter 3 Return and volatility estimates
3.1. Standard deviation
3.2. Standard deviation with a moving observation window
3.3. Exponentially Weighted Moving Average
3.4. Double (Holt) Exponential Smoothing Model
3.5. Principal Component Analysis (PCA) models
3.6. The VIX
3.7. Geometric Brownian motion process
3.8. GARCH
3.9. Estimator using the highest and lowest
Chapter 4 Diversification, portfolio of risky assets and efficient frontier, correlation estimates
4.1. Variance and covariance
4.2. Two asset portfolio: expected return and risk
4.3. Correlation coefficient
4.4. The efficient frontier
4.5. Correlation regime shifts and correlation estimates
4.6. Correlation estimates
Chapter 5 The Capital Asset Pricing Model and the Arbitrage Pricing Theory
5.1. Implications of the CAPM assumptions
5.3. The separation theorem
5.4. Relationships defined by the CAPM
5.5. Interpretation of Beta
5.6. Determining the level of diversification of a portfolio
5.7. Investment implications of the CAPM
5.8. Introduction to the Arbitrage Pricing Theory
Chapter 6 Market risk and fundamental multi-factors model
6.1. Why a multi-factors model
6.2. The returns model
6.3. Estimation universe
6.4. Model factors
6.5. The risk model
Chapter 7 Market Risk: an historical perspective from market events and diverse mathematics to the value-at-risk
7.1. A brief history of market events
7.2. Towards the development of the value-at-risk
7.3. The definition of value-at-risk
7.4. VaR calculation models
Chapter 8 Financial derivatives instruments
8.1. Introducing financial derivatives instruments
8.2. Market risk and global exposure
8.3. Options
Chapter 9 Fixed income and interest rate risk
9.1. Bond valuation
9.2. The yield curve
9.3. Risk of holding a bond
Chapter 10 Liquidity risk
10.1. Traditional methods and techniques to measure liquidity risk
10.2. Liquidity-at-risk
10.3. Other liquidity risk metrics
10.4. Methods to measure liquidity risk on the liability side
Chapter 11 Alternatives investment: targeting alpha, idiosyncratic risk
11.1. Passive investing
11.2. Active management
11.3. Main alternative strategies
11.4. Specific hedge funds metrics
Chapter 12 Stress testing and back testing
12.1. Definition and introduction to stress testing
12.2. Stress test main approaches
12.3. Historical Stress testing
12.4. Reverse stress test
12.5. Stress testing correlation and volatility
12.6. Multivariate stress testing
12.7. What is back testing?
12.8. Back testing: a rigorous approach is required
Chapter 13 Banks and Basel II/III
13.1. A brief history of banking regulations
13.2. The 1988 Basel Accord
13.3. Basel II
13.4. Example of calculation of the Capital Ratio
13.5. Basel III and the new definition of capital, and the introduction of liquidity ratios
Conclusion
