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Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Managements (Wiley Finance) 1st Edition

4.3 out of 5 stars 4 customer reviews
ISBN-13: 978-0470821268
ISBN-10: 0470821264
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Editorial Reviews

From the Inside Flap

Advanced Financial Risk Management outlines an integrated framework for fully integrated risk management. Credit risk, market risk, asset and liability management, and performance measurement have historically been thought of as separate disciplines, but recent developments in financial theory and computer science now allow these views of risk to be analyzed on a fully integrated basis.

In Advanced Financial Risk Management Donald R. van Deventer and Kenji Imai, joined by Mark Mesler, extend the concepts outlined in their previous book Credit Risk Models and the Basel Accords and update their 1996 work Financial Risk Analytics. The authors lay out a comprehensive strategy of risk management measures, objectives, and hedging techniques that apply to all types of institutions. They describe a performance measurement approach that goes far beyond traditional capital allocation techniques in measuring risk-adjusted shareholder value creation. Most important, the authors supplement this strategic view of integrated risk with step-by-step tools and techniques for constructing a risk management system that achieves these objectives.

The authors start with an updated review of techniques for constructing the building blocks of risk management, continuous yield curves that are used in everything from equity options to mortgage-backed securities analysis. They show how the creation of smooth credit spreads from bond price data is an extension of traditional yield curve smoothing technology. The authors review the primary credit risk models and discuss the implementation of the most modern form of credit models, the reduced form models of Jarrow, Duffy and Singleton, at great length. They present results from a 1.2 million observation data base on default probabilities in demonstrating how to meet Basel II requirements for credit model testing. They also show how to estimate default probabilities from bond prices and credit derivatives prices even when there is a liquidity ?premium? reflected in those prices above and beyond the risk of expected loss due to default or bankruptcy.

The authors then go on to show how three important topics in finance are special cases of the credit risk analysis they introduce: prepayment modeling, valuation of life insurance policies, and the valuation of property and casualty insurance contracts. Van Deventer, Imai and Mesler also revisit the critical issue of the valuation of savings deposits and demand deposits, which have no explicit maturity and a random principal balance.

Finally, the authors present a comprehensive framework for performance measurement at both the transaction level and the portfolio level that is consistent with best practice valuation techniques. Performance measurement has a history of many decades but it is rapidly evolving beyond simple concepts of ?plus alpha? or interest rate margin to true measures of value generation.

Advanced Financial Risk Management also contains a rich array of formulas for basic and advanced risk management calculations which will be of enormous use to practitioners in fund management, pension fund management, banking, insurance and the securities industry.

From the Back Cover

"This invaluable book combines a rigorous primer on risk management and fixed income analytics with sophisticated treatment of modern financial instruments and markets. I am particularly impressed with the authors' treatment of modern credit risk management models and techniques. Any serious student of the fields of risk management and investment strategies will find this volume extremely useful." - Edward I. Altman, Director, Credit & Debt Markets Research Program, Max L. Heine Professor of Finance New York University, Stern School of Business

"Derivatives traders in credit default swaps and collateralized debt obligations are using state of the art technology that integrates both interest rate and credit risk. In this groundbreaking book, Don van Deventer, formerly treasurer of one of the largest banks in the United States and a member of the RISK hall of fame, Kenji Imai, and Mark Mesler show why it's desirable and practical to apply these same concepts to the total balance sheet of a financial institution. This book should be on every risk manager's essential reading list." - Robert Jarrow, Ronald and Susan Lynch Professor of Investment Management, Johnson School of Business, Cornell University

"Van Deventer, Imai, and Mesler utilize their incomparable academic and professional experience and their technical expertise to comprehensively express their perspectives on how integrated interest rate and credit risk management creates shareholder value. I recommend this book to banking and hedge fund professionals seeking a complete education in current interest rate and credit risk management practices." - David P. Belmont, Author of Value Added Risk Management in Financial Institutions

"Successful risk management demands up-to-date knowledge of asset-liabilities management, market, credit and operational risk; and the ability to implement sound quantitative tools and techniques. This book provides an insightful overview of credit and interest rate risk, and discusses a broad treatment of the related modeling theory and methods. In particular, it discusses the pros and cons of both structural and reduced form models of credit risk. The presentation is accessible, foregoing unnecessary technical details. Written by experienced professionals, it offers both technical information and advice that can help practitioners involved in managing credit and interest rate risk." - J.R. Sobehart, VP - Senior Analyst, Credit and Operational Risk Analytics, Citigroup Risk Architecture

"In clear prose, the authors show why market-based tools such as put option theory, interest rate analytics, mark-to-market thinking, and bond prices are so important to modern credit risk management. Helpful examples pepper each chapter, illustrating and developing important concepts. This reader-friendly book is both a reference manual and a teaching companion for developing risk management skills." - Drake Pike, Head of Credit Risk Management, Asia ex-Japan Lehman Brothers


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Product Details

  • Series: Wiley Finance (Book 310)
  • Hardcover: 650 pages
  • Publisher: Wiley; 1 edition (November 10, 2004)
  • Language: English
  • ISBN-10: 0470821264
  • ISBN-13: 978-0470821268
  • Product Dimensions: 6.3 x 1.7 x 9 inches
  • Shipping Weight: 2.4 pounds
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (4 customer reviews)
  • Amazon Best Sellers Rank: #3,195,312 in Books (See Top 100 in Books)

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Top Customer Reviews

By Dr. Lee D. Carlson HALL OF FAMEVINE VOICE on November 18, 2006
Format: Hardcover Verified Purchase
Risk management, as the authors define it, delineates for the management of a firm the risks and returns of every strategic decision at the institutional and transactional levels. It indicates how the management must change a particular strategy with the goal of aligning the trade-off between risk and return with the optimal long and short-term goals of the firm. If one desires an in-depth quantitative understanding of risk management as it is practiced at the present time, this book offers a comprehensive and useful overview. Although the authors are clearly showing bias towards a particular tool used for risk management, namely the Kamakura Risk Manager @ product which they helped to develop and market, the reader still gains insight into the relevant factors that go into successful risk management and will understand just how challenging this field is. The book is geared towards the student, for there are usually exercises at the end of each chapter. The goal of the book is very ambitious, in that the authors attempt to integrate credit, market, and operational risk, along with asset and liability management, performance measurement, and transfer pricing into a single framework. The justification for this integration is given as the book unfolds, and because of this the reader may frequently feel impatient, and thus tempted to skip ahead. However, readers who do this will miss out on the interesting argumentation and historical analysis the authors give, with each chapter setting up next. There is therefore a heavy dependence between chapters, and this makes a "skim read" more difficult, at least from the standpoint of in-depth comprehension of the subject matter.Read more ›
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Format: Hardcover
This book is written by professionals for professionals. Period.

Unless you are serious about risk management, you will not care about some of the little details covered by this book. When you do, you will really appreciate this book.

Formulas are well places, examples are real life relevent, well written. I fell in love with this book when I first read this book.
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Format: Hardcover Verified Purchase
I think this book is a must have for everyone involved in managing or supervising interest rate risk. The authors are clear in their explanations and light to read, but they also get in-depth in several technical aspects.

I am a banking supervisor and I had been lookin for a book on this subject for a while, specially one with an emphasis on managing interest rate risk since the Basel committee has very few pointers on this.

The book tackles the most common problems, including the managerial aspects, as well as the techniques frequently used for modelling things like deposits (DDAs), revolving credit and a product by product guide to financial instruments, and much, much more. Definitely a must have, if you can browse through a few sections or the index and you will quickly see what I mean.
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Format: Hardcover
I was genuinely surprised to read the positive reviews of this book. For it's price, you might think it likely to be good. It isn't. The coverage is very narrow. Forget equities, commodities, energy products, portfolio risk metrics, and counterparty credit risk. There is only the flimsiest coverage of the few of these topics that are even mentioned. As for the topics that are covered properly, there is an annoying tendency toward auto-citation. As if that were not enough, much of the relevant material has been displaced by advances in the field. If you need a text on the topics that are covered by this book, get Brigo and Mecurio.

Still not convinced? View the index. Both of its generously type-set pages speak eloquently of the contents, though not in terms that will have you rushing to the checkout.
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