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Financial risk manager Exam part 1 Foundations of risk manager

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Описание

Chapter 1 Risk Management:

A Helicopter View 3

What Is Risk? 5

The Conflict of Risk and Reward 8

The Danger of Names 10

Numbers Are Dangerous, Too 11

The Risk Managers Job 12

The Past, the Future—and This

Book's Mission 13

Appendix 14

Typology of Risk Exposures 14

Market Risk 14

Interest Rate Risk 15

Equity Price Risk 15

Foreign Exchange Risk 15

Commodity Price Risk 16

Credit Risk 16

Credit Risk at the Portfolio Level 18

Liquidity Risk 18

Operational Risk 19

Legal and Regulatory Risk 19

Business Risk 19

Strategic Risk 21

Reputation Risk 21

Systemic Risk - 23

Chapter 2 Corporate Risk

Management:

A Primer 27

Why Not to Manage Risk

in Theory ... 28

... And Some Reasons for Managing Risk in Practice

Hedging Operations versus Hedging Financial Positions

Putting Risk Management into Practice

Determining the Objective Mapping the Risks Instruments for Risk Management

pter 3 Corporate

Governance and Risk Management 41

Setting the Scene: Corporate Governance and Risk Management 43

True Risk Governance 45

Committees and Risk Limits: Overview 46

A Key Traditional Mechanism:

The Special Role of the Audit

Committee of the Board 47

A Key New Mechanism: The Evolving Role of a Risk Advisory Director 47

The Special Role of the Risk

Management Committee

of the Board 48

The Special Role of the

Compensation Committee

of the Board 49

Roles and Responsibilities in Practice 50

Limits and Limit Standards Policies 52

Standards for Monitoring Risk 53

What Is the Role of the Audit Function? 54

Conclusion: Steps to Success 56

ERM Definitions 61

The Benefits of ERM 61

Organizational Effectiveness 62

Risk Reporting 62

Business Performance 62

The Chief Risk Officer 63

Components of ERM 65

Corporate Governance 66

Line Management 66

Portfolio Management 66

Risk Transfer 67

Risk Analytics 67

Data and Technology Resources 67

Stakeholder Management 67

by Banks 71

How Does Risk Management

Add Value? 72

Step One: Determining a

Bank's Risk Appetite 74

Taking Social Costs into Account 76

Governance and Risk Taking 76

The Organization of Risk Management 77

Using VaR to Target Risk 79

The Limits of Risk Measurement 79

Incentives, Culture, and Risk Management 80

Conclusion 82

Chapter 6 Financial

Disasters 85

Disasters Due to Misleading Reporting 86

Chase Manhattan Bank/Drysdale Securities 87

Kidder Peabody 88

Barings Bank 89

Allied Irish Bank (AJB) 90

Union Bank of Switzerland (UBS) 92

Societe Generate 93

Other Cases 95

Disasters Due to Large Market Moves 96

Long-Term Capital

Management (LTCM) 96

Metallgesellschaft (MG) 100

Disasters Due to the Conduct of Customer Business 101

Bankers Trust (BT) 101

JPMorgan, Citigroup, and Enron 102

Other Cases 103

Chapter 7 The Credit Crisis

of 2007 107

The U.S. Housing Market 108

The Relaxation of Lending

Standards 108

The Bubble Bursts 109

Securitization no

Asset-Backed Securities no

ABS CDOs 112

CDOs and ABS COOs in Practice 113

The Crisis 114

What Went Wrong? 114

Regulatory Arbitrage 115

Incentives 115

Lessons from the Crisis 115

Summary 116

Chapter 8 Risk Management Failures 119

Abstract 120

Was the Collapse of Long-Term Capital Management a Risk Management Failure? 120

A Typology of Risk Management Failures 122

Mismeasurement of Known Risks 123

Mismeasurement Due to

Ignored Risks 124

Ignored Known Risks 124

Mistakes in Information Collection 124 Unknown Risks 125

Communication Failures 126

Failures in Monitoring

and Managing Risks 126

Risk Measures and Risk

Management Failures 128

Summary 130

Chapter 9 The Standard

Capital Asset

Pricing Model 133

The Assumptions Underlying the Standard Capital Asset Pricing

Model (CAPM) 134

The CAPM 135

Deriving the CAPM—A Simple Approach 135

Deriving the CAPM—A More Rigorous Approach 139

Prices and the CAPM 140

Conclusion 141

Chapter 10 Applying the CAPM to Performance Measurement 147

Applying the CAPM to Performance

Measurement: Single-index Performance Measurement Indicators 148

The Treynor Measure 148

The Sharpe Measure 148

The Jensen Measure 149

Relationships between the Different Indicators and Use of the Indicators 149

Extensions to the Jensen Measure 151 The Tracking-Error 152

The Information Ratio 152

The Sortino Ratio 153

Recently Developed Risk-Adjusted Return Measures 153

Chapter 11 Arbitrage Pricing

Theory and Multifactor Models of Risk and Return 161

Multifactor Models:

An Overview 162

Factor Models of Security Returns 162

Arbitrage Pricing Theory 164

Arbitrage, Risk Arbitrage,

and Equilibrium 164

Well-Diversified Portfolios 165

Diversification and Residual

Risk in Practice 166

Executing Arbitrage 167

The No-Arbitrage Equation

of the APT 168

The APTS the CAPM, and the index Model 169

The APT and the CAPM 169

The APT and Portfolio Optimization in a Single-Index Market 170

A Multifactor APT 172

The Fama-French (FF)

Three-Factor Model 173

Summary 175

Chapter 12 Information Risk

and Data Quality Simnwy

Management 179

Managing Scorecard Views

186

Organizational Risk, Business Impacts, and Data Quality 180

Business Impacts of Poor Data Quality 180

Information Flaws 181

Examples 181

Employee Fraud and Abuse 181

Underbilling and Revenue

Assurance 182

Credit Risk 182

Insurance Exposure 182

Development Risk 182

Compliance Risk 182

Data Quality Expectations 182

Accuracy 183

Completeness 183

Consistency 183

Reasonableness 183

Currency 183

Uniqueness 183

Other Dimensions of Data Quality 183

Mapping Business Policies

to Data Rules 184

Data Quality Inspection, Control, and Oversight: Operational Data Governance 184

Managing Information Risk via a Data Quality Scorecard 185

Data Quality Issues View 185

Business Process View 185

Business Impact View 185

Chapter 13 Principles for

Effective Risk Data

Aggregation and Risk Reporting 189

Introduction 190

Definition 191

Objectives 191

Scope and initial Considerations 191

I. Overarching Governance

and Infrastructure 193

Principle 1 193

Principle 2 194

II. Risk Data Aggregation

Capabilities 194

Principle 3 195

Principle 4 195

Principle 5 195

Principle 6 196

III. Risk Reporting Practices 196

Principle 7 196

Principle 8 197

Principle 9 198

Principle 10 198

Principle 11 199

IV. Supervisory Review, Tools

and Cooperation 199

Principle 12 199

Principle 13 199

Principle 14 200