Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk (with CD-ROM) [Hardcover]

Steve L. Allen (Author)

Book Description

ISBN-10: 0471219770 | ISBN-13: 978-0471219774 | Publication Date: February 14, 2003

Financial Risk Management covers the strategies, principles, and measurement techniques necessary to measure and manage financial risk. With a focus on management perspective, this book explores real-world issues such as model validation, risk measurement, valuation methodologies, and much more. Self-contained Excel spreadsheets are included on the companion CD-ROM.

Editorial Reviews

From the Inside Flap

Financial risk management as a field of study and practice continues to rapidly evolve. But despite the long list of books written about this subject, most focus mainly on statistical risk measurement techniques. Financial Risk Management: A Practitioner’s Guide to Managing Market and Credit Risk breaks this mold by providing a comprehensive overview of the entire field of risk management.

Steve Allen, Managing Director in charge of risk methodology at JPMorgan Chase, offers an insider’s view of financial risk management and covers the strategies, principles, and measurement techniques necessary to manage and measure financial risk. Focusing on the management of those risks that can be successfully quantified, Allen explores real-world issues such as proper mark-to-market valuation of trading positions and determination of needed reserves against valuation uncertainty, the structuring of limits to control risk taking, and a review of mathematical models and how they can contribute to risk control.

Financial Risk Management is divided into three equally informative parts, each filled with in-depth insights and valuable advice gleaned from years of risk management experience. Part one provides a general background to financial risk management and illustrates how risk arises in financial firms. You’ll discover key concepts used to manage risk and learn–through some of the most prominent financial disasters of the past twenty-five years–how to avoid failures in risk management. Part two examines the methodology of market risk management and discusses its application to forward risk, spot risk, vanilla options risk, and exotic options risk. As each type is discussed, a detailed analysis is given of models used to price these risks as well as how these models can be used to measure and control risk. After these issues are thoroughly explored, part three of Financial Risk Management rounds out the discussion with lessons on the management of portfolio risk. Here, you will gain a firm understanding of value-at-risk (VaR), stress testing, and management of portfolio credit risk.

With the communication skills of an academic instructor and the hands-on experience of a market practitioner, Steve Allen has made understanding the field of risk management both informative and engaging. To assist the learning process, Allen has also designed some original Excel® spreadsheets (contained on the companion CD-ROM) to help you develop an intuitive and detailed feel for risk measurement and reporting. Financial Risk Management is the definitive source for practical guidance on managing market and credit risk. With this book at your side, you can take your risk management skills to the next level.

From the Back Cover

Praise for Financial Risk Management

"Key material on how risks can be isolated, quantified, and managed from a top risk management practitioner."
–John Hull, Maple Financial Chair in Derivatives and Risk Management, and Director, Bonham Centre for Finance, University of Toronto

"Steve Allen’s book is an excellent read for both seasoned risk professionals and students. He has done a wonderful job of making a complex topic understandable and provided the necessary tools to help others develop and sharpen their own intuition about risk exposure and how to manage it. Theory about risk management is always interesting, but even more refreshing is to see how risk management is performed by those, like Allen, with years of experience in the trenches."
–Leslie Rahl, President, Capital Market Risk Advisors

"A very practical and deep approach to the problems of financial risk management."
–Nassim Nicholas Taleb, Empirica LLC, author of Fooled by Randomness and Dynamic Hedging

"Allen’s book is a treasure-trove of material and an invaluable resource for any professional seeking to understand modern risk management. It begins with basic concepts and builds carefully to the practical and theoretical ideas necessary for dealing with the complexities of the most sophisticated and relevant financial instruments today."
–Neil Chriss, Managing Director of Quantitative Strategies, SAC Capital, and author of Black-Scholes and Beyond

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Product Details

• Hardcover: 288 pages
• Publisher: Wiley (February 14, 2003)
• Language: English
• ISBN-10: 0471219770
• ISBN-13: 978-0471219774
• Product Dimensions: 9.5 x 6.3 x 1.2 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (3 customer reviews)
• Amazon Best Sellers Rank: #665,021 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

25 of 26 people found the following review helpful:

5.0 out of 5 stars An Excellent book on risk management, June 18, 2003

By 

Aarti Sanan (New York City, NY United States) - See all my reviews

This review is from: Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk (with CD-ROM) (Hardcover)

This is a must buy book for both kinds of people: students or people in academia and practitioners who want to understand different type of risk they face at a macro or micro level. The reasons I like this book on risk management better than thousand others already out there are following. I like to describe this book as having two sections, both the sections are very important and people can focus on either depending on what they are looking for. The first part of the book provides a very good understanding of the risks faced by managers, for example risk managers, head of a trading portolfio or a desk or even CEOs. Very often these people face risk which are hard to quantify or even understand and are not often talked about. The author draws from personal experience and provides interesting case studies,. which makes this part of the book a pleasure to read. I learnt about model risk, reputation risk and other such risks which typically a junior person on a trading desk is not exposed to. So this understanding is very valuable in order to communicate with your boss or to get more insights about risks that management may care about.
The Second part of the book focusses on risk management of different type of instruments, instruments range from plain vanilla to complex path dependent options. It spans through assets classes as well. As promised by the author, the level of mathematical and quantitative background required is kept to the minimum. The text provides intuition about what market variables or market moves a specific instruments depends on rather than complex formulae to price such instruments. For somebody like me, who has a little more mathematical background than an average reader, the text points to latest research or specific papers that I can explore if I want to flex my quantitative muscle.
The book is full of very interesting exercises and case studies, which are truly practical. This is something which is completely different from many texts that I have seen on this topic.
Overall, I highly recommend this book to anybody who has anything to do with trading financial instruments.

8 of 8 people found the following review helpful:

5.0 out of 5 stars Smart, Savvy, Practical, November 13, 2003

By A Customer

This review is from: Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk (with CD-ROM) (Hardcover)

Allen delivers the most insightful look at market risk management for dealers since the Group of 30 Report. While other books are taking on an increasingly bureaucratic tone when it comes to risk management, Allen is refreshingly proactive. I really like the treatment of valuation reserves. His discussion of managing spot, forward and options risks bridges the gap between what a trader is thinking and what a risk manager should be thinking. This isn't a book for the sort of risk manager who hasn't been on the trading floor in a few months. It is a tactical book for the pro who works shoulder to shoulder with quants, traders and salespeople. Note that the book is qualitative. For the quantitative side of all this, see Holton's landmark "Value-at-Risk".

7 of 7 people found the following review helpful:

5.0 out of 5 stars Best Practical Risk Management Book Ever!, May 23, 2006

By 

Sanekh Goss - See all my reviews

This review is from: Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk (with CD-ROM) (Hardcover)

Allen's book is absolutely phenomenal. Most of the risk management books out there are too technical to be of any practical use. Allen truly focuses on the practice of risk management and gives us insights on how to be a truly good risk manager. Traders could benefit from his insights as well. I particularly liked his breakdown of linear vs. non-linear risks, and liquid vs. non-liquid positions. In terms of the practical risk management of options (vanilla and exotics) I haven't seen anything this clear and this comprehensive. The accompanying CD is an absolute blessing in order to fully understand the concepts like price vol matrices, etc. This should be a required additional reading for all students in financial mathematics/MBA programs around the world! Well Done Mr. Allen!!