The most complete, up to date guide to risk management in finance Risk Management and Financial Institutions explains all aspects of financial risk and financial institution regulation, helping readers better understand the financial markets and potential dangers. This new fourth edition has been updated to reflect the major developments in the industry, including the finalization of Basel III, the fundamental review of the trading book, SEFs, CCPs, and the new rules affecting derivatives markets. There are new chapters on enterprise risk management and scenario analysis. Readers learn the different types of risk, how and where they appear in different types of institutions, and how the regulatory structure of each institution affects risk management practices. Comprehensive ancillary materials include software, practice questions, and all necessary teaching supplements, facilitating more complete understanding and providing an ultimate learning resource. All financial professionals need a thorough background in risk and the interlacing connections between financial institutions to better understand the market, defend against systemic dangers, and perform their jobs.
This book provides a complete picture of the risk management industry and practice, with the most up to date information. * Understand how risk affects different types of financial institutions * Learn the different types of risk and how they are managed * Study the most current regulatory issues that deal with risk Risk management is paramount with the dangers inherent in the financial system, and a deep understanding is essential for anyone working in the finance industry; today, risk management is part of everyone's job. For complete information and comprehensive coverage of the latest industry issues and practices, Risk Management and Financial Institutions is an informative, authoritative guide.
JOHN C. HULLis the Maple Financial Professor of Derivatives and Risk Management at the Joseph L. Rotman School of Management, University of Toronto, and codirector of Rotman's Master of Finance program. He has been a consultant to many North American, Japanese, and European fi nancial institutions, and is the author of three books, which are widely used by both practitioners and academics, and an associate editor of eight academic journals.
Business Snapshots xxi Preface xxiii Chapter 1: Introduction 1 PART ONE : FINANCIAL INSTITUTIONS AND THEIR TRADING Chapter 2: Banks 25 Chapter 3: Insurance Companies and Pension Plans 45 Chapter 4: Mutual Funds and Hedge Funds 71 Chapter 5: Trading in Financial Markets 93 Chapter 6: The Credit Crisis of 2007 121 Chapter 7: Valuation and Scenario Analysis: The Risk-Neutral and Real Worlds 137 PART TWO : MARKET RISK Chapter 8: How Traders Manage Their Risks 153 Chapter 9: Interest Rate Risk 175 Chapter 10: Volatility 201 Chapter 11: Correlations and Copulas 231 Chapter 12: Value at Risk and Expected Shortfall 255 Chapter 13: Historical Simulation and Extreme Value Theory 277 Chapter 14: Model-Building Approach 299 PART THREE : REGULATION Chapter 15: Basel I, Basel II, and Solvency II 325 Chapter 16: Basel II.5, Basel III, and Other Post-Crisis Changes 353 Chapter 17: Fundamental Review of the Trading Book 373 PART FOUR : CREDIT RISK Chapter 18: Managing Credit Risk: Margin, OTC Markets, and CCPs 383 Chapter 19: Estimating Default Probabilities 401 Chapter 20: CVA and DVA 429 Chapter 21: Credit Value at Risk 447 PART FIVE : OTHER TOPICS Chapter 22: Scenario Analysis and Stress Testing 463 Chapter 23: Operational Risk 481 Chapter 24: Liquidity Risk 501 Chapter 25: Model Risk 527 Chapter 26: Economic Capital and RAROC 547 Chapter 27: Enterprise Risk Management 565 Chapter 28: Risk Management Mistakes to Avoid 579 PART SIX : APPENDICES Appendices 591 Answers to Questions and Problems 629 Glossary 669 DerivaGem Software 689 Tables for N(x) 695 Index 699