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Elements of Financial Risk Management

by: Christoffersen

Elements of Financial Risk Management

by: Christoffersen

ISBN 13:
9780123744487
ISBN 10:
0123744482
Edition: 2nd
Format: Hardcover
Copyright: 11/22/2011
Publisher: Elsevier Science

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Summary

The Second Edition of this best-selling book expands its advanced approach to financial risk models by covering market, credit, and integrated risk. With new data that cover the recent financial crisis, it combines Excel-based empirical exercises at the end of each chapter with online exercises so readers can use their own data. Its unified GARCH modeling approach, empirically sophisticated and relevant yet easy to implement, sets this book apart from others. Four new chapters and updated end-of-chapter questions and exercises, as well as Excel-solutions manual and PowerPoint slides, support its step-by-step approach to choosing tools and solving problems. Examines market risk, credit risk, and operational risk Provides exceptional coverage of GARCH models Features online Excel-based empirical exercises

Preface	p. xiii
Acknowledgments	p. xv
Background	p. 1
Risk Management and Financial Returns	p. 3
Chapter Outline	p. 3
Learning Objectives	p. 3
Risk Management and the Firm	p. 4
A Brief Taxonomy of Risks	p. 6
Asset Returns Definitions	p. 7
Stylized Facts of Asset Returns	p. 9
A Generic Model of Asset Returns	p. 11
From Asset Returns to Portfolio Returns	p. 12
Introducing the Value-at-Risk (VaR) Risk Measure	p. 12
Overview of the Book	p. 16
Appendix: Return VaR and $VaR	p. 17
Further Resources	p. 18
References	p. 18
Empirical Exercises	p. 19
Historical Simulation, Value at Risk, and Expected Shortfall	p. 21
Chapter Overview	p. 21
Historical Simulation	p. 21
Weighted Historical Simulation (WHS)	p. 24
Evidence from the 2008-2009 Crisis	p. 28
The True Probability of Breaching the HS VaR	p. 31
VaR with Extreme Coverage Rates	p. 32
Expected Shortfall	p. 33
Summary	p. 36
Further Resources	p. 37
References	p. 37
Empirical Exercises	p. 38
A Primer on Financial Time Series Analysis	p. 39
Chapter Overview	p. 39
Probability Distributions and Moments	p. 40
The Linear Model	p. 45
Univariate Time Series Models	p. 48
Multivariate Time Series Models	p. 59
Summary	p. 62
Further Resources	p. 63
References	p. 63
Empirical Exercises	p. 64
Univariate Risk Models	p. 65
Volatility Modeling Using Daily Data	p. 67
Chapter Overview	p. 67
Simple Variance Forecasting	p. 68
The GARCH Variance Model	p. 70
Maximum Likelihood Estimation	p. 73
Extensions to the GARCH Model	p. 76
Variance Model Evaluation	p. 82
Summary	p. 86
Component GARCH and GARCH(2,2)	p. 86
The HYGARCH Long-Memory Model	p. 88
Further Resources	p. 89
References	p. 89
Empirical Exercises	p. 91
Volatility Modeling Using Intraday Data	p. 93
Chapter Overview	p. 93
Realized Variance: Four Stylized Facts	p. 94
Forecasting Realized Variance	p. 98
Realized Variance Construction	p. 103
Data Issues	p. 107
Range-based Volatility Modeling	p. 110
GARCH Variance Forecast Evaluation Revisited	p. 115
Summary	p. 116
Further Resources	p. 116
References	p. 117
Empirical Exercises	p. 119
Nonnormal Distributions	p. 121
Chapter Overview	p. 121
Learning Objectives	p. 121
Visualizing Nonnormality Using QQ Plots	p. 123
The Filtered Historical Simulation Approach	p. 125
The Cornish-Fisher Approximation to VaR	p. 126
The Standardized t Distribution	p. 128
The Asymmetric t Distribution	p. 133
Extreme Value Theory (EVT)	p. 137
Summary	p. 143
ES for the Symmetric and Asymmetric t Distributions	p. 144
Cornish-Fisher ES	p. 145
Extreme Value Theory ES	p. 146
Further Resources	p. 147
References	p. 147
Empirical Exercises	p. 149
Multivariate Risk Models	p. 151
Covariance and Correlation Models	p. 153
Chapter Overview	p. 153
Portfolio Variance and Covariance	p. 154
Dynamic Conditional Correlation (DCC)	p. 159
Estimating Daily Covariance from Intraday Data	p. 165
Summary	p. 168
Further Resources	p. 169
References	p. 170
Empirical Exercises	p. 171
Simulating the Term Structure of Risk	p. 173
Chapter Overview	p. 173
The Risk Term Structure in Univariate Models	p. 174
The Risk Term Structure with Constant Correlations	p. 182
The Risk Term Structure with Dynamic Correlations	p. 186
Summary	p. 189
Further Resources	p. 189
References	p. 190
Empirical Exercises	p. 191
Distributions and Copulas for Integrated Risk Management	p. 193
Chapter Overview	p. 193
Threshold Correlations	p. 194
Multivariate Distributions	p. 195
The Copula Modeling Approach	p. 203
Risk Management Using Copula Models	p. 210
Summary	p. 213
Further Resources	p. 213
References	p. 214
Empirical Exercises	p. 215
Further Topics in Risk Management	p. 217
Option Pricing	p. 219
Chapter Overview	p. 219
Basic Definitions	p. 220
Option Pricing Using Binomial Trees	p. 222
Option Pricing under the Normal Distribution	p. 230
Allowing for Skewness and Kurtosis	p. 235
Allowing for Dynamic Volatility	p. 239
Implied Volatility Function (IVF) Models	p. 244
Summary	p. 245
Appendix: The CFG Option Pricing Formula	p. 245
Further Resources	p. 247
References	p. 248
Empirical Exercises	p. 249
Option Risk Management	p. 251
Chapter Overview	p. 251
The Option Delta	p. 252
Portfolio Risk Using Delta	p. 257
The Option Gamma	p. 259
Portfolio Risk Using Gamma	p. 261
Portfolio Risk Using Full Valuation	p. 265
A Simple Example	p. 267
Pitfall in the Delta and Gamma Approaches	p. 271
Summary	p. 273
Further Resources	p. 273
References	p. 274
Empirical Exercises	p. 275
Credit Risk Management	p. 277
Chapter Overview	p. 277
A Brief History of Corporate Defaults	p. 278
Modeling Corporate Default	p. 280
Portfolio Credit Risk	p. 284
Other Aspects of Credit Risk	p. 290
Summary	p. 295
Further Resources	p. 295
References	p. 296
Empirical Exercises	p. 297
Backtesting and Stress Testing	p. 299
Chapter Overview	p. 299
Backtesting VaRs	p. 301
Increasing the Information Set	p. 307
Backtesting Expected Shortfall	p. 308
Backtesting the Entire Distribution	p. 309
Stress Testing	p. 312
Summary	p. 316
Further Resources	p. 317
References	p. 318
Empirical Exercises	p. 319
Index	p. 321
Table of Contents provided by Ingram. All Rights Reserved.

Amazon no longer offers textbook rentals. We do!

Elements of Financial Risk Management

Elements of Financial Risk Management

9780123744487

0123744482

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Table of Contents

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