The Fundamentals of Risk Measurement

The Fundamentals of Risk Measurement

by Christopher Marrison
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The Fundamentals of Risk Measurement by Christopher Marrison

A step-by-step guidebook for understanding—and implementing—integrated financial risk measurement and management

The Fundamentals of Risk Measurement introduces the state-of-the-art tools and practices necessary for planning, executing, and maintaining risk management in today’s volatile financial environment. This comprehensive book provides description and analysis of topics including:

  • Economic capital
  • Risk adjusted return on capital (RAROC)
  • Shareholder Value Added (SVA)
  • Value at Risk (VaR)
  • Asset/liability management (ALM)
  • Credit risk for a single facility
  • Credit risk for portfolios
  • Operating risk
  • Inter-risk diversification
  • The Basel Committee Capital Accords

The banking world is driven by risk. The Fundamentals of Risk Measurement shows you how to quantify that risk, outlining an integrated framework for risk measurement and management that is straightforward, practical for implementation, and based on the realities of today’s tumultuous global marketplace.

“Banks make money in one of two ways: providing services to customers and taking risks. In this book, we address the business of making money by taking risk.…”—From the Introduction

In The Fundamentals of Risk Measurement, financial industry veteran Chris Marrison examines what banks must do to succeed in the business of making money by taking risk. Encompassing the three primary areas of banking risk—market, credit, and operational—and doing so in a uniquely intuitive, step-by-step format, Marrison provides hands-on details on the primary tools for financial risk measurement and management, including:

  • Plain-English evaluation of specific risk measurement tools and techniques
  • Use of Value at Risk (VaR) for assessment of market risk for trading operations
  • Asset/liability management (ALM) techniques, transfer pricing, and managing market and liquidity risk
  • The many available methods for analyzing portfolios of credit risks
  • Using RAROC to compare the risk-adjusted profitability of businesses and price transactions

In addition, woven throughout The Fundamentals of Risk Measurement are principles underlying the regulatory capital requirements of the Basel Committee on Banking Supervision, and what banks must do to understand and implement them. The requirements are defined, implications of the New Capital Accord are presented, and the major steps that a bank must take to implement the New Accord are discussed. The resulting thumbnail sketch of the Basel Committee, and specifically the New Capital Accord, is valuable as both a ready reference and a foundation for further study of this important initiative.

Risk is unavoidable in the financial industry. It can, however, be measured and managed to provide the greatest risk-adjusted return, and limit the negative impacts of risk to a bank’s shareholders as well as potential borrowers and lenders. The Fundamentals of Risk Management provides risk managers with an approach to risk-taking that is both informed and prudent, one that shows operations managers how to control risk exposures as it allows decision-making executives to direct resources to opportunities that are expected to create maximum return with minimum risk. The result is today’s most complete introduction to the business of risk, and a valuable reference for anyone from the floor trader to the officer in charge of overseeing the entire risk management operation.

Product Details

ISBN-13: 9780071736886
Publisher: McGraw-Hill Education
Publication date: 07/18/2002
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 415
File size: 12 MB
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About the Author

Chris Marrison, Ph.D., is a veteran risk management consultant with experience in trading risk, credit risk, business control, asset/liability management, emerging markets, and project finance. A former managing principal with The Capital Markets Company and senior engagement officer with Oliver Wyman & Co., Dr. Marrison has been a Royal Air Force officer and a technical consultant on major engineering projects in the United States, Bulgaria, and Brazil, and has given risk management advice to banks and governments throughout North America, Europe, Asia, and Africa.

Table of Contents

Chapter 1: The Basics of Risk Management Chapter 2: Risk Measurement at the Corporate Level: Economic Capital and RAROC Chapter 3: Review of Statistics MARKET RISK SECTION Chapter 4: Background on Traded Instruments Chapter 5: Market Risk Measurement Chapter 6: The Three Common Approaches for Calculating Value at Risk Chapter 7: Value at Risk Contribution Chapter 8: Testing VaR Results to Ensure Proper Risk Measurement Chapter 9: Calculating Capital for Market Risk Chapter 10: Overcoming VaR Limitations Chapter 11: The Management of Market Risk ASSET/LIABILITY MANGEMENT SECTION Chapter 12: Introduction to Asset Liability Management Chapter 13: Measurement of Interest Rate Risk for ALM Chapter 14: Funding Liquidity Risk in ALM Chapter 15: Funds Transfer Pricing and the Management of ALM Risks CREDIT RISK SECTION Chapter 16: Introduction to Credit Risk Chapter 17: Types of Credit Structure Chapter 18: Risk Measurement for a Single Facility Chapter 19: Estimating Parameter Values for Single Facilities Chapter 20: Risk Measurement For A Credit Portfolio: Part One Chapter 21: Risk Measurement For A Credit Portfolio: Part Two Chapter 22: Risk Adjusted Performance and Pricing for Loans Chapter 23: Regulatory Capital for Credit Risk OPERATING RISK SECTION Chapter 24: Operating risk INTEGRATED RISK SECTION Chapter 25: Inter-risk Diversification and Bank-Level RAROC

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The Fundamentals of Risk Measurement 5 out of 5 based on 0 ratings. 1 reviews.
Guest More than 1 year ago
I was gladly impressed by C. Marrison¿s Book when I was looking for a good introduction on risk, that could help me in my work. I am involved in advising organizations who fund projects in developing countries. Therefore to find a plain English yet carefully crafted step by step explanation of risk and how to measure it and manage it was a boon for people like me. Chapter 3 was particularly useful since I am not up to date in this kind of statistical tools. Although I am not precisely a banker who needs an in depth working knowledge of risk management and risk measurement, this type of thorough introduction in a single readable volume provides a very useful set of tools to understand and untangle the complex world of risk taking through funding. So much so in the face of growing concern over big and not so big corporations doctoring their accounting data, and the uncertainties of international funding of projects in third world countries.