Value at Risk: The New Benchmark for Managing Financial Risk by Philippe Jorion

By Philippe Jorion

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This ebook is a milestone that just about each finance expert in a quantitative division must have an appreciation about.

Since its unique ebook, price in danger has develop into the regular in possibility administration. Now in its 3rd version, this foreign bestseller addresses the basic alterations within the box that experience happened around the globe in contemporary years.Philippe Jorion presents the most up-tp-date details had to comprehend and enforce VAR-as good as deal with more recent dimensions of monetary threat. Featured updates include:
• An elevated emphasis on operational risk
• utilizing VAR for built-in danger administration and to degree financial capital
• functions of VAR to threat budgeting in funding management
• dialogue of latest risk-management strategies, together with severe price idea, important parts, and copulas
• large assurance of the lately finalized Basel II capital adequacy principles for advertisement banks, built-in during the book

A significant new function of the 3rd variation is the addition of brief questions and workouts on the finish of every bankruptcy, making it even more uncomplicated to ascertain development. certain solutions are published at the significant other site the website comprises different fabrics, together with extra questions that direction teachers can assign to their students.

Jorion leaves no stone unturned, addressing the development blocks of VAR from computing and backtesting types to forecasting probability and correlations. He outlines using VAR to degree and regulate possibility for buying and selling, for funding administration, and for enterprise-wide probability administration. He additionally issues out key pitfalls to monitor out for in risk-management systems.

The value-at-risk process keeps to enhance all over the world criteria for coping with quite a few sorts of danger. Now greater than ever, pros can depend upon worth in danger for complete, authoritative suggestions on VAR, its program, and its results-and to maintain sooner than the curve.

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Additional resources for Value at Risk: The New Benchmark for Managing Financial Risk (3rd Edition)

Sample text

Why are VAR limits more advisable than limits based on notional amount, on sensitivity, and on leverage? This page intentionally left blank CHAPTER 2 Lessons from Financial Disasters High-tech banking and finance has its place, but it’s not all it’s cracked up to be. I hope this sounds like a warning, because it is. —Gerald Corrigan, president of the Federal Reserve Bank of New York (1992) T he derivatives losses of the early 1990s have led to much trepidation about these instruments. In 1994, for example, the magazine Fortune ran a cover depicting derivatives as “lurking alligators,” presumably ready to bite you.

3 billion. The conglomerate, Germany’s fourteenth-largest industrial group with 58,000 employees, nearly went bankrupt following losses incurred by its American subsidiary, MG Refining & Marketing (MGRM), in the futures market. MGRM’s problems stemmed from its idea of offering long-term contracts for oil products. The marketing of these contracts was successful because customers could lock in fixed prices over long periods. By 1993, MGRM had entered into contracts to supply customers with 180 million barrels of oil products over a period of 10 years.

Finally, volatility risk measures exposure to movements in the actual or implied volatility. CHAPTER 1 The Need for Risk Management 23 Market risk is controlled by limits on notionals, exposures, VAR measures, and independent supervision by risk managers. Market risk is the main subject of this book. 2 Liquidity Risk Liquidity risk is usually treated separately from the other risks discussed here. It takes two forms, asset liquidity risk and funding liquidity risk. Asset-liquidity risk, also known as market/product-liquidity risk, arises when a transaction cannot be conducted at prevailing market prices owing to the size of the position relative to normal trading lots.

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