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In Hedging Market Exposures, authors and financial industry leaders Oleg Bychuk and Brian Haughey—who through the Great Recession have successfully managed a complex highly leveraged portfolio of asset-backed securities with significant equity, fixed income, credit, and other exposures—offer a practical guide to three fundamental elements of the risk control process that have not previously received the attention they deserve—identifying, quantifying, and managing market risks.
Providing a practical, proactive plan to help you know the risks facing your portfolio, Hedging Market Exposures offers expert guidance on:
How to select the appropriate tools to hedge various risks
Learning the language of quantitative finance
Communicating effectively with professional risk managers and "quants''
Market exposures and factor sensitivities
Constructing a hedge
The tasks of identifying and quantifying risks and then selecting an optimal hedge when a "perfect" one does not exist are just as important as understanding the intricacies of exotic derivative valuation, but are usually overlooked. In-depth and straightforward, Hedging Market Exposures reveals how to focus not merely on quantitative measurement of risk but also on qualitative analysis and, crucially, on risk management.
While a manager is ultimately concerned with the risks of a portfolio as a whole, the need also exists to understand the dangers associated with the underlying portfolio constituents. In the end, it is the risks of these individual securities and, especially, the interplay of these risks that shape the portfolio's risk profile. Find out how you can identify, quantify, and manage market risks in your portfolio with the dynamic hedging strategies found in Hedging Market Exposures.
"This timely book draws on the lessons of the recent financial crisis to provide a comprehensive survey of the vast array of overt and, most importantly, hidden hazards that face investors and managers. The authors, who combine extensive industry experience with academic thoroughness, offer a practical guide on how to prepare for market turbulence by following the often challenging steps of identifying, quantifying, and, most crucially, managing risks. An indispensable read for all market participants."—Frank J. Fabozzi, Professor in the Practice of Finance, Yale School of Management, and Editor, Journal of Portfolio Management
"An essential addition to every asset manager's library, this book is an apt reminder that investment management means, above all, managing risks. The authors make this task easier by introducing a number of innovative techniques that extend and complement existing methods."—Jolanta Wysocka, CEO, Mountain Pacific Group, LLC
"This is a valuable resource for seasoned professionals and beginners alike. Methodical yet accessible, it is written by authors with broad experience in hedging various financial exposures, offering a refreshingly original perspective on handling risk and the role and use of hedging techniques. They guide the reader from identifying the major sources of risks in capital markets to a detailed explanation of the quantitative tools necessary to measure those risks, to demonstrating the practical trade-offs of actual hands-on market exposure management."—Rudi Schadt, PhD, Senior Portfolio Risk Analyst, Invesco Ltd.
"This book, by two veterans of the financial crisis, puts the reader on a fast track to understanding risk management and hedging in modern financial markets. It presents a comprehensive catalog of investment risks and a practitioner's perspective on the whys and hows of hedging those risks. The authors elucidate how the interplay of markets, regulation, financial practice, and human behavior impact the hedging decision, and enliven the discussion with examples from past risk management debacles. This is an enjoyable book and can be effective either as an introduction or as an overview."—Colm O'Cinneide, Head of Portfolio Construction, QS Investors, LLC, New York