The Risk Modeling Evaluation Handbook

Submitted by Book Library on 24 February, 2010 - 22:02

The first in-depth analysis of inherent deficiencies in present practices! In The Risk Modeling Evaluation Handbook, an international team of experts evaluates the problematic risk-modeling methods used by large financial institutions and breaks down how these models contributed to the decline of the global capital markets. You will learn to identify the shortcomings of the most widely used risk models and gain important strategies for properly implementing these models into their investing portfolios.

This comprehensive resource includes examinations of model risk as applied to:

  • Equity and fixed income investments
  • Credit and credit derivatives investments and credit processes
  • Carry trades, rating models, and the supervisory formula
  • Valuation models, as well as VaR, Copula, GARCH, and EVT models
  • Counter party, market, and operational risk models

The Risk Modeling Evaluation Handbook: Rethinking Financial Risk Management Methodologies in the Global Capital Markets provides expansive explanations of the types of model risk that appear in risk measurement, risk management, and pricing, as well as market-tested techniques for mitigating risk in loan, equity, and derivative portfolios. This book will serve as the go-to guide for financial professionals looking to improve or adjust their approach to modeling financial risk.

Author Biography

Greg N. Gregoriou is Professor of Finance in the School of Business and Economics at the State University of New York, Plattsburgh. He holds a Ph.D. in finance from the University of Quebec in Montreal. Gregoriou specializes in hedge funds, funds of hedge funds, and managed futures. He has published 26 books and over 50 journal articles. He is also hedge fund editor for the peer-reviewed publication Journal of Derivatives and Hedge Funds and editorial board member of the Journal of Wealth Management and the Journal of Risk Management in Financial Institutions.Christian Hoppe is the head of credit solutions in the corporate banking division of Commerzbank AG Frankfurt. Carsten Wehn is head of market risk at DekaBank, Frankfurt.

Table of Contents

1. Section One: Introduction to Model Risk

  • The Problem of Systemic Risk as a Strong Case for the Lender of Last Resort
  • Learning from Previous Financial Crises and the Necessity to Recognize Liquidity Shocks and the Limits of Arbitrage
  • Valuing Political Risk

2. Section Two: Model Risk Related to Equity and Fixed Income Investments

  • Analysts' Forecasts, Market Risk Premia, and Estimations of Expected Security Returns
  • The Market-timing Ability of Australian Superannuation Funds
  • Caring About Stylized Features of Asset Returns
  • Price Transmissions and Market Risk in Financial Markets
  • Volatility Asymmetry and Leverage
  • The Effects of Different Parameter Estimation Methods on Option Pricing
  • Effects of Benchmark Misspecification on Risk-adjusted Performance Measures

3. Section Three: Model Risk Related to Credit and Credit Derivatives Instruments

  • The Term Structure of Risk in Emerging Markets and Implications for the Carry-trade
  • A Strategic Management Insight into Model Risk in Ratings
  • Tranching a Securitization with the Supervisory Formula
  • Model Risk in the Quantitative and Qualitative Credit Process
  • Model Risk in Highly Correlated Credit Portfolios of Object Financing

4. Section Four: Model Risk Related to Valuation Models

  • Concepts to Validate Valuation Models
  • Model Risk in the Context of Valuing Equity Derivatives
  • Techniques for Mitigating Model Risk

5. Section Five: Limitations to Measure Risk

  • Beyond VaR
  • VaR Computation in a Non-stationary Setting
  • Copula-VaR and Copula-VaR-GARCH Modeling
  • Small-sample Properties of EVT Estimators

6. Section Six: Modeling Market Risk for Risk Markets

  • Model Risk in Counterparty Exposure Modeling
  • Model Risk for Credit Risk Modeling
  • Model Risk in Credit Portfolio Models
  • Model Risk for Market Risk Modeling
  • Evaluating the Adequacy of Market Risk Models
  • Model Risk Related to Operational Risk Models

7. Section Seven: Economic Capital and Asset Allocation

  • Validation of Economic Capital Models
  • Robust Asset Allocation Under Model Risk
  • The Asset-liability Management Compound Option Model

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