Value at Risk: The New Benchmark for Managing Financial Risk [Hardcover]

Philippe Jorion (Author)

Book Description

ISBN-10: 0071355022 | ISBN-13: 978-0071355025 | Publication Date: August 17, 2000 | Edition: 2

To accommodate sweeping global economic changes, the risk management field has evolved substantially since the first edition of Value at Risk, making this revised edition a must. Updates include a new chapter on liquidity risk, information on the latest risk instruments and the expanded derivatives market, recent developments in Monte Carlo methods, and more. Value at Risk, Second Edition, will help professional risk managers understand, and operate within, today’s dynamic new risk environment.

Editorial Reviews

From the Back Cover

[BACK COVER] Value at Risk The Benchmark for Managing Financial Risk Second Edition Philippe Jorion [HEADLINE] Extensively Revised and Updated—Philippe Jorion’s Comprehensive Reference on Financial Risk Management [SUBHEAD] Praise for Value at Risk, Second Edition: "This book has become an industry standard for value at risk." —Leslie Rahl, President Capital Markets Risk Advisors "Professor Jorion has succeeded in producing a great second edition. The book excels in explaining a complex subject with amazing clarity and depth. I recommend it highly to the novice as well as the practitioner and regulator of financial risk management. The theory is presented in plain language and brilliantly interspersed with examples of how the craft evolved—as well as accidents and what can be learned from them. A ‘must read.’" —Till Guldimann, Senior Vice President SunGard Trading and Risk Systems "Many books on VaR can be intimidating. Philippe Jorion offers a pragmatic and readable guide that covers the basics as well as recent best practice. A good primer, but also a good review of the state of the art." —Leo de Bever, Vice-President, Research and Economics Ontario Teachers’ Pension Plan Board In 1996, the first edition of Philippe Jorion’s Value at Risk gave financial professionals worldwide the first comprehensive description of value at risk (VAR). Now, to keep pace with sweeping changes and advances in the field of risk management, Jorion updates this state-of-the-art reference with new information on: • Latest risk management methods including backtesting, liquidity risk, and stress-testing • Techniques for understanding—and working within—today’s new environment of integrated risk management, including market, credit, and operational risk • Strategic application of RAROC methods and VAR investment management systems [FLAP COPY] Value at Risk The Benchmark for Managing Financial Risk Second Edition Philippe Jorion Even as risk management assumes an increasingly central role in financial institutions, the actual understanding of financial risk continues to be problematic. Financial disasters still occur—witness Asia’s 1997 market turmoil, Russia’s 1998 default, and the near-collapse of Long Term Capital Management—as institutions either fail to see or, in some cases, completely ignore easily recognizable hallmarks of impending financial disaster. For financial risk managers attempting to navigate this tumultuous, rapidly changing environment, the updated, expanded, and substantially revised Value at Risk, second edition, will clarify the latest advances in risk management. The book’s extensive restructuring, and broader scope, is reflected in its new subtitle. Whereas the first edition was described as "the new benchmark for controlling market risk," Value at Risk, second edition is now identified as "the benchmark for managing financial risk." With more than 200 pages of new material, the updated edition of this international bestseller (translated into Chinese, Hungarian, Japanese, Korean, Polish, Portuguese, and Spanish) provides financial professionals with the latest information they need to understand and implement value at risk—and manage newer dimensions of financial risk. Initially confined to measuring market risk, VAR is now being used to actively control financial risk well beyond derivatives. Professionals can depend on this substantially new edition of Value at Risk for comprehensive, authoritative counsel and assistance in: • Measuring aggregate risk, and communicating a corporation’s financial risks to both senior management and shareholders • Setting position limits, and creating a common denominator with which to compare risky activities in diverse markets • Allocating capital within an institution—by adjusting returns for risk and implementing risk-adjusted performance measures (RAPM). As we move into the 21st century, the value at risk approach will continue to improve worldwide standards for managing numerous types of financial risk. Traders and financial risk managers; financial institution executives and supervisors; regulators; researchers ; and professors, graduate students, and others who need to know more about VAR, its application, and its results will get access to updated information and practices—plus valuable data and guidance—in Value at Risk, second edition. About the Author Philippe Jorion, Ph.D., is Professor of Finance at the University of California at Irvine. Editor-in-chief of Journal of Risk and author of more than 50 professional articles on risk management and international finance, he also wrote Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County and cowrote Financial Risk Management. Dr. Jorion is a frequent speaker at academic and professional conferences, and has also served as a consultant to various institutions.

About the Author

Philippe Jorion (Irvine, CA) is a professor of finance at the University of California at Irvine. Among his previous books is Financial Risk Management: Domestic and International Dimensions.

Product Details

• Hardcover: 544 pages
• Publisher: McGraw-Hill; 2 edition (August 17, 2000)
• Language: English
• ISBN-10: 0071355022
• ISBN-13: 978-0071355025
• Product Dimensions: 9.1 x 6.5 x 2.1 inches
• Shipping Weight: 2.2 pounds
• Average Customer Review: 2.9 out of 5 stars  See all reviews (19 customer reviews)
• Amazon Best Sellers Rank: #446,208 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

128 of 129 people found the following review helpful:

2.0 out of 5 stars Better Alternatives, February 13, 2003

By A Customer

This review is from: Value at Risk: The New Benchmark for Managing Financial Risk (Hardcover)

This book was rushed into print following the release of JPMorgan's landmark RiskMetrics description of VaR. Like RiskMetrics, its focus is on explaining VaR to corporate end users. For a while, it was the only book available on VaR, so it became well known. A second edition added material on topics other than VaR, but did not update the treatment of VaR. By today's standards, the book is dated.

Now there are a number of excellent books available on VaR, and these cater to various audiences. Depending upon what you are looking for, they offer a more accessible, more sophisticated, or more up-to-date treatment of VaR.

For an elementary introduction, you can't beat Butler. Downplaying theory, he shows you practical spreadsheet examples you can use to implement basic VaR models. He explains related topics, such as probability distributions, delta and gamma, and the Monte Carlo method, so the book is self-contained.

Marrison's "Measuring Market Risk" describes VaR in the context of bank risk management. More sophisticated than Butler, this is a practical, "real world" book for people starting in bank risk management. Marrison ties VaR together with topics such as capital allocation, credit risk modeling and asset-liability management.

Holton is written for practicing risk mangers or researchers. Before it even publishes, it has made a splash on trading floors where dog-eared preprint copies have become a coveted item. Holton explains in detail things like delta-gamma VaR and variance reduction for Monte Carlo VaR -- topics other books only mention. Also, Holton is the only book that offers exercises.

For use of VaR in investment management, see Pearson's "Risk Budgeting." It introduces VaR and then explains how it can be used to allocate assets between investment categories or among managers -- this is known as risk budgeting. The focus of the book is a technique from calculus that allows you to decompose risks so that the parts sum to the whole. There isn't much else written on this topic, and Pearson offers the best treatment that I know of.

Finally, there is Dowd's "Beyond Value-at-Risk." This provides an excellent survey of the literature on VaR. It also covers related risk management topics, including credit risk management and risk-adjusted performance measurement.

25 of 26 people found the following review helpful:

2.0 out of 5 stars Shallow, March 20, 2001

By 

Jane Marsh (LA) - See all my reviews

This review is from: Value at Risk: The New Benchmark for Managing Financial Risk (Hardcover)

Based upon its marketing, this book over-promises and under-delivers. Yes, the author uses big words like "autoregressive conditional heteroskedasticity." He also tosses around: "principal component analysis", "importance sampling" and "Quasi Monte Carlo." Anyone who needs to understand these concepts will be disappointed. The explanations are shallow ... often just a single paragraph. The reader is left with an elementary book that adds little to the original RiskMetrics document. If you are new to VAR, I recommend Dowd. For more experienced professionals (especially those who need to implement a VAR system) you will need to read the original literature.

16 of 17 people found the following review helpful:

1.0 out of 5 stars No longer useful, November 22, 2003

By 

GP West FMA (Johannesburg, Gauteng South Africa) - See all my reviews
(REAL NAME)   

This review is from: Value at Risk: The New Benchmark for Managing Financial Risk (Hardcover)

The first edition was for a while the only book on the subject. As such, it had to be the best. But, at that time, RiskMetrics VCV approach was the only approach. Jorion analyses this approach in detail, and derives many results (for example, attributing risks, etc.). He then implies by omission that they work for other methods, they don't. He also implies by omission that RiskMetrics is the absolute greatest, it isn't - it's probably now the weakest method. Surveys show that now only 10% of banks worldwide are using this method - and the numbers are falling.

There is nothing about coherence, the problems with VaR, the fundamental problems with using it to allocate risks to portfolios...
There was no reason to bring out a new edition.