Written for executives and professionals in risk control, this
report blends theory with practical examples. A number of case
studies provide the evidence that risk control requires
continuous gauging, not only of quantitative information, but
also of attitudes, opinions, and the character of everyone with
power to commit the company on deals and transactions. All these
factors have an impact on exposure.
The report
presents:
- The most incisive
analysis of subprime to date.
- A framework for operational and strategic risk management
with key regulatory and compliance issues emerging from Basel II
explained.
- Intuitive and non-technical approaches to risk, including
the historical, human, philosophical and scientific aspects of the
subject with case studies including: The Challenger Disaster and
Tiger Management.
- The lessons from previous financial crises.
The bottom line
The risk manager's job has become even more important to a bank's
strategic planning and business. Risk is, again, at the top of the
table. The risk manager not only has to warn about the dangers but
also counsel as to what to do in the crisis in order to take
control.
The old adage has it: ‘A person who never made
a mistake never made anything’.
We all make mistakes, and some of these
mistakes involve, or lead to, significant risks. But
risks are also present in actions that go according to plan. The
challenge is that, whether we like it or not, the doors of risk and
return are adjacent and indistinguishable.
Risks can be managed. As its name implies the
task of risk management is that of being in charge of risk,
not in eliminating it – because, by doing away with risk we also
wipe out business opportunity. There is a delicate balance which
must be kept between risk and return, and for this reason risk
management is no child’s play. It
requires insight, foresight, personal
strength and persistence, as well as a
methodology and the appropriate tools. This management report
addresses all of these issues.
The time for an integrated approach to risk
management is ripe and in view of subprime incredibly
timely. There is a growing
trend towards the implementation and
administration of effective, holistic risk control policies and
procedures. This text is written for professionals responsible for
taking a company-wide approach to risk control, including:
- credit risk;
- market risk; and
- operational risk.
One of the focal points of this report
is risk management solutions for compliance with
Basel II. Another strong element is the link being provided between
risk control, criticality in exposure and stress testing. The text
also addresses issues connected to both expected losses and
unexpected losses defined by Basel II.
Both risk and return are related to the volatility of the future
value of an investment or of a trade, due to market changes and,
more generally, to the uncertainty of future events. There is
nothing wrong with uncertainty. As Francis Bacon put it: “If a man
will begin with certainties, he shall end in doubts. But if he will
be content to begin in doubts, he will end in certainties.” No
better dictum describes the work
involved in risk management. The
keywords are:
- volatility;
- uncertainty; and,
- exposure.
Many factors underlie the importance of these
three keywords, and the forces propelling them, for example,
leverage, which magnifies the risk(s) embedded in financial
instruments, as well as market psychology and illiquidity, leading
to conditions of growing exposure. Large market events are
typically followed by periods of illiquidity
and, as this report explains in
a factual and documented manner, this can have
significant effects on risks being assumed.
Analytical skills are important but risk
management is not only about numbers and mathematics. The best risk
managers are those possessing organisational virtuosity, a fertile
mind, experience in the line of trade he or she is asked to
perform, the ability to take action and knowledge. Still, although
knowledge is strength, knowledge by itself is no guarantee of
success.
Written for executives and for professionals
in risk control, this report blends theory with practical examples.
A number of case studies provide the evidence that risk
control requires continuous gauging
not only of quantitative information, but
also of attitudes, opinions, and the character of everyone with
power to commit the company on deals and transactions. All these
factors have an impact on exposure..
PART ONE: THE CONCEPT OF RISK
1 Risk Defined
2 Counterparty Risk
3 Market Risk
4 Operational Risk
5 Pricing Risk
PART TWO: EFFECTIVE RISK MANAGEMENT
6 Risk Management Defined
7 Basel II and Risk Management
8 Case Studies on Risk Management
9 Learning Lessons from Physical Sciences
10 Case Studies with Expert Systems for Credit Risk
Control
PART THREE: RESPONSIBILITIES IN RISK
MANAGEMENT
11 An Integrated Risk Management System
12 The Risk Manager’s Job
13 Criticality, Stress Testing and Unexpected
Losses
14 A Methodology for Risk Management
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Report
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