Advanced financial risk management: tools and techniques for integrated credit risk and interest rate risk management
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| Main Authors: | , , |
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| Format: | Book |
| Language: | English |
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Singapore
Wiley
2013
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| Edition: | 2. ed. |
| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | XXXIV, 839 S. Ill., graph. Darst. |
| ISBN: | 9781118278543 |
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| 245 | 1 | 0 | |a Advanced financial risk management |b tools and techniques for integrated credit risk and interest rate risk management |c Donald R. Van Deventer ; Kenji Imai ; Mark Mesler |
| 250 | |a 2. ed. | ||
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| 300 | |a XXXIV, 839 S. |b Ill., graph. Darst. | ||
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| adam_text | Titel: Advanced financial risk management
Autor: Van Deventer, Donald R
Jahr: 2013
Contents
Introduction: Wan Street Lessons from Bubbles xxi
Key Fallacies in Risk Management xxiii
Selected Events in the Credit Crisis xxviii
PART ODE
Risk Management: Definitions and Objectives
CHAPTHH
A Risk Management Synthesis: Market Risk, Credn Risk, Uqufctty Risk,
and Asset and Liabity Management 3
Risk Management: Definitions and Objectives 6
Advances in Integrated Risk Management and Institutional
Barriers to Progress 8
Measuring the Trade-Offs between Risk and Return 11
When Bad Things Happen to Good People 11
U.S. Savings and Loan Crisis 12
Long-Term Capital Management 13
The 2006-2011 Credit Crisis 13
A Thousand Cuts 13
CHAPTBÍ2
Risk, Return, Performance Measurement, and Capital Regulation 15
Practical Quantification of Risk 15
Perils and Pitfalls in the Measurement of Risk: The Impact
of Selection Bias 16
Biases in Return vs. a Relative Benchmark 17
Historical Value at Risk: Selection Bias Again 18
Monte Carlo-Based Value at Risk 19
Expected Losses on Tranches of Collateralized Debt Obligations 19
Measuring Return: Market vs. Accounting Returns 20
Introduction to Transfer Pricing: Extracting Interest Rate Risk
in a Financial Accounting Context 20
Bank of America, 1973 -1979 21
First Interstate, 1982-1987 24
Performance Measurement and Capital Regulation 26
Perspectives on Measuring Risk: One Source of Risk or Many
Sources of Risk? 26
Interest Rate Risk Management Evolution 27
Equity Risk Management Evolution 28
Vi CONTENTS
Option Risk Management Evolution 28
Credit Risk Management Evolution 28
Managing Risk and Strategy, Business by Business 29
Risk and Strategy Management in a Complex Financial Institution 29
What Causes Financial Institutions to Fail? 31
The Role of Capital in Risk Management and Business Strategy 32
Capital-Based Risk Management in Banking Today: Pros and Cons 35
History of Capital-Based Regulations in Commercial Banking 37
PARTIM)
Risk Management Techniques for Interest Rate Analytics
CHAPTK3
Merest Rate Risk Introduction and Overview 45
Background Information on Movements in the U.S. Treasury
Yield Curve 46
A Step-by-Step Approach to Analyzing Interest Rate Risk 55
The Interest Rate Risk Safety Zone 58
CHAPTHI4
Fixed tacóme Mathematics: The Basic Tools 59
Modern Implications of Present Value 59
Price, Accrued Interest, and Value 60
Calculation of Accrued Interest 60
Present Value 61
The Basic Present Value Calculation 61
Example 62
Calculating the Value of a Fixed Coupon Bond with
Principal Paid at Maturity 62
Calculating the Coupon of a Fixed Coupon Bond with
Principal Paid at Maturity When the Value Is Known 62
Example 63
The Value of an Amortizing Loan 63
Calculating the Payment Amount of an Amortizing Bond
When the Value Is Known 63
Risk Management Implications 64
Calculating the Value of a Floating-Rate Bond or Loan with
Principal Paid at Maturity 64
Example 65
Risk Management Implications 65
Compound Interest Conventions and Formulas 66
Future Value of an Invested Amount Earning at a Simple Interest
Rate of y Compounded m Times per Year for « Periods 66
Future Value of an Invested Amount Earning at a Simple Interest
Rate of y Compounded Continuously for n Years 66
Example 67
Present Value of a Future Amount If Funds Are Invested at a
Simple Interest Rate of y Compounded m Times per
Year for n Periods 67
Contents__________________________________________________________________________¡X
Present Value of a Future Amount If Funds Are Invested at a Simple
Interest Rate of y Compounded Continuously for n Years 67
Compounding Formulas and Present Value Factors P(t) 67
Yields and Yield-to-Maturity Calculations 68
The Formula for Yield to Maturity 68
Yield to Maturity for Long or Short First Coupon Payment Periods 69
Calculating Forward Interest Rates and Bond Prices 69
Implied Forward Interest Rates on Zero-Coupon Bonds 69
Example 70
Implied Forward Zero-Coupon Bond Prices 70
Present Value of Forward Fixed Coupon Bond 70
Implied Forward Price on a Fixed Coupon Bond 71
Implied Forward Coupon on a Fixed Coupon Bond 71
Other Forward Calculations 71
Summary 71
CRAPTER5
YieW Curve Smoothing 73
Example A: Stepwise Constant Yields and Forwards vs. Nelson-Siegel 77
Deriving the Form of the Yield Curve Implied by Example A 79
Fitting the Nelson-Siegel Approach to Sample Data 81
Example D: Quadratic Yield Splines and Related Forward Rates 85
Deriving the Form of the Yield Curve Implied by Example D 86
Example F: Cubic Yield Splines and Related Forwards 94
Deriving the Form of the Yield Curve Implied by
Example F Assumptions 95
Example H: Maximum Smoothness Forward
Rates and Related Yields 101
Deriving the Parameters of the Quartic Forward Rate Curves
Implied by Example H Assumptions 104
Comparing Yield Curve and Forward Rate Smoothing Techniques 111
Ranking 23 Smoothing Techniques by Smoothness of the
Forward Rate Curve 112
Ranking 23 Smoothing Techniques by Length of the
Forward Curve 112
Trading Off Smoothness vs. the Length of the Forward Rate Curve 112
The Shimko Test for Measuring Accuracy of Smoothing Techniques 116
Smoothing Yield Curves Using Coupon-Bearing Bond Prices as Inputs 116
Appendix: Proof of the Maximum Smoothness Forward Rate Theorem 117
CHAPTBtS
Introduction to Heath, Jarrow, and Morton Interest Rate Modefng 123
Objectives of the Example and Key Input Data 124
Key Implications and Notation of the HJM Approach 129
Pseudo-Probabilities 131
The Formula for Zero-Coupon Bond Price Shifts 132
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 2 132
CONTENTS
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 4 134
Valuation in the HJM Framework 137
Valuation of a Zero-Coupon Bond Maturing at Time T = 4 139
Valuation of a Coupon-Bearing Bond Paying Annual Interest 140
Valuation of a Digital Option on the One-Year U.S. Treasury Rate 140
Conclusion 140
CHAPTHI7
HJM eiterest Rate Modeing with Rate and Maturity-Oepeodent Volatility 14Z
Objectives of the Example and Key Input Data 142
Key Implications and Notation of the HJM Approach 146
Pseudo-Probabilities 147
The Formula for Zero-Coupon Bond Price Shifts 147
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 2 149
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 4 150
Valuation in the HJM Framework 153
Valuation of a Zero-Coupon Bond Maturing at Time T = 4 155
Valuation of a Coupon-Bearing Bond Paying Annual Interest 156
Valuation of a Digital Option on the One-Year U.S. Treasury Rate 158
Conclusion 158
GHAPTHI8
HJM Merest Rate Modeing with Two Risk Factors 161
Probability of Yield Curve Twists in the U.S. Treasury Market 161
Objectives of the Example and Key Input Data 162
Introducing a Second Risk Factor Driving Interest Rates 163
Key Implications and Notation of the HJM Approach 167
Pseudo-Probabilities 171
The Formula for Zero-Coupon Bond Price Shifts with
Two Risk Factors 171
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 2 173
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 3 174
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 4 175
Valuation in the HJM Framework 178
Valuation of a Zero-Coupon Bond Maturing at Time T = 4 183
Valuation of a Coupon-Bearing Bond Paying Annual Interest 184
Valuation of a Digital Option on the One-Year
U.S. Treasury Rate 185
Replication of HJM Example 3 in Common Spreadsheet Software 186
Conclusion 189
Contents______________________________________________________________________xj
CHAPTBI9
HJM interest Rate Modeling with Three Risk Factors 190
Probability of Yield Curve Twists in the U.S. Treasury Market 190
Objectives of the Example and Key Input Data 191
Risk Factor 1: Annual Changes in the One-Year U.S.
Treasury Spot Rate 192
Alternative Specifications of the Interest Rate Volatility Surface 200
Key Implications and Notation of the HJM Approach 201
Pseudo-Probabilities 205
The Formula for Zero-Coupon Bond Price Shifts with
Three Risk Factors 205
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 2 206
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 3 208
Building the Bushy Tree for Zero-Coupon Bonds
Maturing at Time T = 4 208
Valuation in the HJM Framework 217
Valuation of a Zero-Coupon Bond Maturing at Time T = 4 219
Valuation of a Coupon-Bearing Bond Paying Annual Interest 225
Valuation of a Digital Option on the One-Year
U.S. Treasury Rate 227
Conclusion 229
CHAPTER 10
Valuation, Uquklty, and Net Income 230
How Many Risk Factors Are Necessary to Accurately
Model Movements in the Risk-Free Yield Curve? 230
Revisiting the Phrase No Arbitrage 231
Valuation, Liquidity Risk, and Net Income 234
Risk-Neutral and Empirical Probabilities of Interest
Rate Movements 235
Monte Carlo Simulation Using HJM Modeling 236
Common Pitfalls in Interest Rate Risk Management 238
Pitfalls in the Use of One-Factor Term Structure Models 238
Common Pitfalls in Asset and Liability Management 243
Summarizing the Problems with Interpolated Monte Carlo
Simulation for Risk Analysis 246
CHAPTER 11 _
Interest Rate Mkonatchktj and Hedging 250
Political Factions in Interest Rate Risk Management 251
Pension Fund Considerations 251
Life Insurance Companies and Property and Casualty Insurance
Companies 252
Commercial Banks 253
Xi____________________________________________________________________CONTENTS
Making a Decision on Interest Rate Risk and Return:
The Safety Zone 254
Obvious Interest Rate Risk Decisions 255
Assessing the Risk and Return Trade-Offs from a
Change in Interest Rate Risk 255
CHAPTER 12
Legacy Approaches to Interest Rate Risk Management 257
Gap Analysis and Simulation Models 257
Measuring Interest Rate Risk: A Review 258
Legacy Rate Risk Tools: Interest Rate Sensitivity Gap Analysis 258
The Safety Zone 259
What s Wrong with Gap Analysis? 263
Legacy Rate Risk Tools: Multiperiod Simulation 264
Key Assumptions in Simulation 264
Data Aggregation in Simulation Modeling 266
Constraining the Model 266
Modeling the Maturity Structure of a Class of Assets 267
Periodicity of the Analysis 267
Exceptions to the Exact Day Count Trend 267
Legacy Rate Risk Tools: Duration and Convexity 267
Macaulay s Duration: The Original Formula 268
Using Duration for Hedging 270
Comparing a Duration Hedge with Hedging in the HJM Framework 271
Duration: The Traditional Market Convention 273
The Formula for Yield to Maturity 273
Yield to Maturity for Long or Short First Coupon Payment Periods 274
Applying the Yield-to-Maturity Formula to Duration 275
Modified Duration 276
The Perfect Duration Hedge: The Difference between the
Original Macaulay and Conventional Durations 278
Convexity and Its Uses 278
Convexity: A General Definition 279
Convexity for the Present Value Formula 280
Hedging Implications of the Convexity Concept 280
Conclusion 281
CHAPTER 13
Spedai Cases of Heath, Jarrow, and Morton Merest Rate Modeing 283
What Is an Academic Term Structure Model and Why
Was It Developed? 284
The Vocabulary of Term Structure Models 284
Ito s Lemma 286
Ito s Lemma for More Than One Random Variable 287
Using Ito s Lemma to Build a Term Structure Model 287
Duration as a Term Structure Model 288
Conclusions about the Use of Duration s Parallel Shift Assumptions 290
The Vasicek and Extended Vasicek Models 292
Contents________________________________________________________________Xi
The Merton Term Structure Model: Parallel Yield Curve Shifts 293
The Extended Merton Model 298
The Vasicek Model 300
The Extended Vasicek-Hull and White Model 303
Alternative Term Structure Models 303
Alternative One-Factor Interest Rate Models 304
Two-Factor Interest Rate Models 306
Chen s Three-Factor Term Structure Model 307
Reprising the HJM Approach 308
Appendix A: Deriving Zero-Coupon Bond Prices in the
Extended Merton/Ho and Lee Model 308
Appendix B: Deriving Zero-Coupon Bond Prices in the
Vasicek Model 310
Appendix C: Valuing Zero-Coupon Bonds in the Extended
Vasicek Model 313
CHAPTER 14
Estimating the Parameters of Interest Rate Models 316
Revisiting the Meaning of No Arbitrage 316
A Framework for Fitting Term Structure Models 316
Fitting Zero-Coupon Bond Prices and Volatility Parameters Jointly 317
Steps in Fitting the Interest Rate Volatility Assumptions 318
Example 1: Fitting Interest Rate Volatility When
Six Callable Bonds Are Observable 318
Example 2: The Consequences of Fewer Inputs 329
Example 3: The Case of One Input 329
Interest Rate Parameter Fitting in Practical Application 330
PART THREE
Risk Management Techniques for Credit Risk Analytics
CHAPTER 15
An htroouctfon to Credtt Risk: Using Market Signals in Loan
Pricing and Performance Measurement 335
Market Prices for Credit Risk 335
Critical Sources of Market Data on Credit Risk 336
Bond Prices 336
Credit Default Swap Prices 337
First to Default Swaps 337
Collateralized Debt Obligations 338
Interest Rate Swap Prices 338
Equity Prices 338
Increased Accuracy in Pricing 339
Increased Clarity in Corporate Strategy 339
Increased Sophistication in Risk Management 340
Increased Precision in Measuring the Safety and
Soundness of Financial Institutions 340
Credit Default Swaps: The Dangers of Market Manipulation 341
Xjv CONTENTS
Daily Nondealer Trading Volume for 1,090 Reference Names 347
Credit Default Swap Trading Volume in Municipals and
Sub-Sovereigns 352
Credit Default Swap Trading Volume in Sovereign Credits 353
Implications of CDS Trading Volume Data 357
CHAPTER 16
Reduced Form Credt Models and Credit Model Testing 359
The Jarrow-Turnbull Model 359
The Jarrow-Turnbull Framework 360
The Jarrow Model 361
Zero-Coupon Bond Prices in the Jarrow Model 363
The Jarrow Model and the Issue of Liquidity in the Bond Market 364
The Jarrow-Merton Put Option as a Risk Index
and a Practical Hedge 364
Fitting the Jarrow Model to Bond Prices, Credit Derivatives
Prices, and Historical Default Databases 365
Fitting the Jarrow Model to Debt Prices 365
Fitting to Current Price Data and Historical Price Data 366
Fitting the Jarrow Model to Credit Derivatives Prices 366
Fitting the Jarrow Model to a Historical Database of Defaults 366
Fitting the Jarrow Model to Retail, Small Business, and
Governmental Counterparties 370
Correlations in Default Probabilities 372
The Jarrow and Jarrow-Turnbull Models: A Summary 373
Tests of Credit Models Using Historical Data 374
An Introduction to Credit Model Testing 375
Misunderstandings about Credit Model Testing 376
The Two Components of Credit Model Performance 378
Measuring Ordinal Ranking of Companies by Credit Risk 379
The Predictive ROC Accuracy Ratio: Techniques and Results 380
The Predictive Capability of the Jarrow-Chava Reduced
Form Model Default Probabilities 380
Measuring the Predictive ROC Accuracy Ratio 381
Reduced Form Model vs. Merton Model Performance 381
Consistency of Estimated and Actual Defaults 383
Recent Results from North America 383
The Falkenstein and Boral Test 383
Performance of Credit Models vs. Naïve Models of Risk 386
ROC Accuracy Ratios for Merton Model Theoretical
Version vs. Selected Naive Models 387
Tests of Credit Models Using Market Data 388
Testing Credit Models: The Analogy with Interest Rates 388
Market Data Test 1: Accuracy in Fitting Observable
Yield Curves and Credit Spreads 388
Market Data Test 2: Tests of Hedging Performance 389
Market Data Test 3: Consistency of Model Implications
with Model Performance 390
Contents___________________________________________________________________________XV
Market Data Test 4: Comparing Performance with Credit
Spreads and Credit Default Swap Prices 391
Appendix: Converting Default Intensities to Discrete
Default Probabilities 391
Converting Monthly Default Probabilities to Annual Default
Probabilities 392
Converting Annual Default Probabilities to Monthly Default
Probabilities 392
Converting Continuous Instantaneous Probabilities of
Default to an Annual Default Probability or Monthly
Default Probability 392
Converting Continuous Default Probability to an
Annual Default Probability 393
Converting Continuous Default Probability to a
Monthly Default Probability 393
Converting an Annual Default Probability to a Continuous
Default Intensity 393
Converting a Monthly Default Probability to a Continuous
Default Intensity 394
CHAPTER 17
Crem Spread Fitting and Modeing 396
Introduction to Credit Spread Smoothing 396
The Market Convention for Credit Spreads 397
A Better Convention for Credit Model-Independent Credit Spreads 398
Deriving the Full Credit Spread of a Risky Issuer 399
Credit Spread Smoothing Using Yield Curve-Smoothing Techniques 404
Setting the Scene: Smoothing Results for the Risk-Free Curve 404
A Naive Approach: Smoothing ABC Yields by Ignoring
the Risk-Free Curve 406
Fitting Credit Spreads with Cubic Splines 409
Maximum Smoothness Forward Credit Spreads 410
Comparing Results 411
Data Problems with Risky Issuers 413
The Case of LIBOR 413
Determinants of Credit Spread Levels 415
The Credit Risk Premium: The Supply and Demand for Credit 416
Conclusion 420
CHAPTER 18
Legacy Approaches to Credit task 421
The Rise and Fall of Legacy Ratings 421
Ratings: What They Do and Don t Do 422
Through the Cycle vs. Point in Time, a Distinction
without a Difference 423
Stress Testing, Legacy Ratings, and Transition Matrices 425
Transition Matrices: Analyzing the Random Changes in
Ratings from One Level to Another 426
XVi CONTENTS
Moral Hazard in Self-Assessment of Ratings Accuracy
by Legacy Rating Agencies 426
Comparing the Accuracy of Ratings and Reduced Form Default
Probabilities 429
Problems with Legacy Ratings in the 2006 to 2011 Credit Crisis 431
The Jarrow-Merton Put Option and Legacy Ratings 437
The Merton Model of Risky Debt 438
The Intuition of the Merton Model 439
The Basic Merton Model 441
Valuing Multipayment Bonds with the Merton Model of Risky Debt 444
Estimating the Probability of Default in the Merton Model 445
Implying the Value of Company Assets and Their Return Volatility a 446
Mapping the Theoretical Merton Default Probabilities to
Actual Defaults 447
The Merton Model When Interest Rates Are Random 447
The Merton Model with Early Default 447
Loss Given Default in the Merton Model 448
Copulas and Correlation between the Events of Default of
Two Companies 448
Back to the Merton Case 448
Problems with the Merton Model: Summing Up 449
Appendix 450
Assumptions 450
Using Ito s Lemma to Expand Changes in the Value of
Company Equity 450
CHAPTER 19
Valuing Credn Risky Bends 453
The Present Value Formula 453
Valuing Bonds with No Credit Risk 454
Simulating the Future Values of Bonds with No Credit Risk 454
Current and Future Values of Fixed Income Instruments:
HJM Background and a Straight Bond Example 455
Valuation of a Straight Bond with a Bullet
Principal Payment at Maturity 461
Valuing an Amortizing Loan 461
Valuing Risk-Free, Floating-Rate Loans 465
Valuing Bonds with Credit Risk 465
Simulating the Future Values of Bonds with Credit Risk 471
Valuing the Jarrow-Merton Put Option 472
CHAPTER 20
Credtt Derivatives and Coiata aiZBd Debt ««gâtions 473
Credit Default Swaps: Theory 474
Credit Default Swaps: Practice 477
Collateralized Debt Obligations: Theory 480
Collateralized Debt Obligations: A Worked Example of
Reduced Form Simulation 483
Contents_____________________________________________________________________________XVf
Collateralized Debt Obligations: Practice 486
The Copula Method of CDO Valuation: A Postmortem 487
Valuing the Jarrow-Merton Put Option 490
PART FOUR
Risk Management Applications: Instrument by Instrument
CHAPTER 21
European Options on Ronds 495
Example: European Call Option on Coupon-Bearing Bond 501
Example: Coupon-Bearing Bond with Embedded
European Call Option 503
European Options on Defaultable Bonds 509
HJM Special Case: European Options in the One-Factor
Vasicek Model 509
Options on Coupon-Bearing Bonds 511
The Jarrow-Merton Put Option 512
CHAPTER 22
Forward and Futures Contracts 513
Forward Contracts on Zero-Coupon Bonds 514
Forward Rate Agreements 520
Eurodollar Futures-Type Forward Contracts 524
Futures on Zero-Coupon Bonds: The Sydney
Futures Exchange Bank Bill Contract 527
Futures on Coupon-Bearing Bonds: Dealing with the
Cheapest to Deliver Option 528
Eurodollar and Euroyen Futures Contracts 529
Defaultable Forward and Futures Contracts 530
CHAPTER 23
European Options on Forward and Futures Contracts 531
Valuing Options on Forwards and Futures:
Notations and Useful Formulas 531
European Options on Forward Contracts on Zero-Coupon Bonds 532
European Options on Forward Rate Agreements 538
European Options on a Eurodollar Futures-Type Forward Contract 540
European Options on Futures on Coupon-Bearing Bonds 546
European Options on Money Market Futures Contracts 546
Defaultable Options on Forward and Futures Contracts 546
CHAPTER 24
Caps and Floors 543
Caps as European Options on Forward Rate Agreements 550
Forming Other Cap-Related Securities 550
Valuing a Cap 550
Valuing a Floor 554
Valuing a Floating Rate Loan with a Cap 557
XVJi CONTENTS
Value of a Loan with a Cap and a Floor 563
Variations on Caps and Floors 565
Measuring the Credit Risk of Counterparties on Caps and Floors 565
CHAPTER 25
Interest Rate Swaps and Swaptions 567
Interest Rate Swap Basics 567
Valuing the Interest Rate Swaps 568
The Observable Fixed Rate in the Swap Market 574
An Introduction to Swaptions 574
Valuation of European Swaptions 578
Valuation of American Swaptions 579
Defaultable Interest Rate Swaps and Swaptions 579
CHAPTER 26
Exotic Swap and Olitkms Structures 580
Arrears Swaps 580
Digital Option 586
Digital Range Notes 588
Range Floater 588
Other Derivative Securities 593
Credit Risk and Exotic Derivatives Structures 594
CHAPTER 27
American Fixed income Options 596
An Overview of Numerical Techniques for Fixed
Income Option Valuation 597
An Example of Valuation of a Callable Bond with a
Three-Factor HJM Bushy Tree 598
What Is the Par Coupon on a Callable Bond? 613
An Example of Valuation of a Rationally Prepaid
Amortizing Loan 613
Monte Carlo Simulation 615
Conclusions 618
Finite Difference Methods 618
Binomial Lattices 619
Trinomial Lattices 619
HJM Valuation of American Fixed Income Options
When Default Risk Is Present 620
CHAPTER 28
kvatiuia) Exercise of Fixed tacóme Options 622
Analysis of Irrationality: Criteria for a Powerful Explanation 623
The Transactions Cost Approach 624
Irrational Exercise of European Options 625
The Irrational Exercise of American Options 626
Contents__________________________________________________________________________________XJX
A Worked Example Using an Amortizing Loan with
Rational and Irrational Prepayment Behavior 626
Implied Irrationality and Hedging 636
Credit Risk and Irrational Prepayment Behavior 637
CHAPTER 29
Mortgage-Backed Securities and Asset-Backed Securities 639
Transactions Costs, Prepayments, Default, and Multinomial Logit 640
Legacy Prepayment Analysis of Mortgage-Backed Securities 643
Legacy Approaches: Prepayment Speeds and the
Valuation of Mortgages 643
Constant Prepayment Speeds Are Simply a Principal
Amortization Assumption 644
Legacy Approaches: Option-Adjusted Spread 645
Implications for OAV Spread, CMOs, and ARMs 647
Logistic Regression, Credit Risk, and Prepayment 648
Mortgage-Servicing Rights: The Ultimate Structured Product 648
An Introduction to the Valuation of Mortgage-Servicing Rights 649
Comparing Best Practice and Common Practice in
Valuing and Hedging Mortgage-Servicing Rights 650
Valuation Yield Curve for Cash Flows 650
Simulation of Random Movements in Yields 651
The Role of Home Prices in Defaults and Prepayments 652
Other Sources of Cash Flow Related to
Mortgage-Servicing Rights 653
Incorrect Hedging of Mortgage-Servicing Rights 653
Conclusion 654
CHAPTER 30
Nonmaturity Deposits 656
The Value of the Deposit Franchise 657
Total Cash Flow of Nonmaturity Deposits 658
Specifying the Rate and Balance Movement Formulas 659
The Impact of Bank Credit Risk on Deposit Rates and Balances 669
Case Study: German Three-Month Notice Savings Deposits 672
The Regulators View 673
Conclusion 674
CHAPTER 31
Foreign Exchange Markets 675
Setting the Stage: Assumptions for the Domestic and
Foreign Economies 675
Foreign Exchange Forwards 676
Numerical Methods for Valuation of Foreign Currency Derivatives 677
Legacy Approaches to Foreign Exchange Options Valuation 678
Implications of a Term Structure Model-Based FX Options Formula 680
The Impact of Credit Risk on Foreign Exchange Risk Formulas 681
XX CONTENTS
CHAPTER 32
Impact of Colateral en Valuation Models: The Example of
Home Prices in the Créait crisis 682
The Impact of Changing Home Prices on Collateral Values
in the Credit Crisis 682
Modeling Variations in Collateral Values 683
The Impact of Collateral Values on a Rationally Prepaid Mortgage 684
Conclusions about the Impact of Collateral Values 693
CHAPTER 33
Pricing and Valuing Revolving Credit and Other Facilities 694
Analyzing Revolving Credit and Other Facilities 695
Fluctuating Credit Risk and Revolving Credit Drawdowns 696
Incorporating Links between Credit Quality and Line Usage 697
Is a Line of Credit a Put Option on the Debt of the Issuer? 697
CHAPTER 34
Modeing Common Stock and Convertible Bonds on a Default-Adjusted Basis 700
Modeling Equities: The Traditional Fund Management Approach 701
Modeling Equities: The Derivatives Approach 702
Modeling Equities: A Credit Risk-Adjusted Approach 703
Options on the Common Stock of a Company That Can Go Bankrupt 704
Convertible Bonds of a Company That Can Go Bankrupt 706
CHAPTER 35
Valuing Insurance Potetes and Pension ubfbatkms 708
Life Insurance: Mortality Rates vs. Default Probabilities 708
Cyclically in Default Probabilities and Mortality Rates 711
Valuing Life Insurance Policies 711
Pension Obligations 712
Property and Casualty Insurance 713
The Jarrow-Merton Put Option 714
PART UVE
Portfolo Strategy and Risk Management
CHAPTER 36
Value-at-Risk and RJsk Management Objectives Revisited at the
Portfofto and Company Level 719
The Jarrow-Merton Put Option as a Measure of Total Risk:
An Example 719
A Four-Question Pass-Fail Test for Financial Institutions
CEOs and Boards of Directors 723
Why Do These Four Questions Matter? 724
An Alphabet of 26 Extra-Credit Questions 724
Is Your Value-at-Risk from Value-at-Risk? 726
Contents______________________________________________________________________xxi
VaR vs. the Put Option for Capital Allocation 728
Why Are the VaR and Put Approaches So Different:
Self-Insurance vs. Third-Party Insurance 729
Calculating the Jarrow-Merton Put Option Value and
Answering the Key 4 + 26 Questions 731
Valuing and Simulating the Jarrow-Merton Put Option 732
What s the Hedge? 733
Liquidity, Performance, Capital Allocation, and
Own Default Risk 734
CHAPTER 37
Uqukfty Analysis and Management: Examples from the Credtt Crisis 735
Liquidity Risk Case Studies from the Credit Crisis 735
Case Studies in Liquidity Risk 736
Largest Funding Shortfalls 736
American International Group (AIG) 737
Consolidated JPMorgan Chase, Bear Stearns, and
Washington Mutual 744
State Street 746
Morgan Stanley 749
Dexia Credit Local New York Branch 751
Implications of the Credit Crisis History for Liquidity
Risk Management and Analysis 758
Types of Liquidity Events 758
Liquidity Risk and Credit Risk Linkages 759
Measuring Liquidity Risk as a Line of Credit in the
Jarrow-Merton Put Option Sense 760
Integrating Managerial Behavior and Market Funds Supply
in Liquidity Risk Measurement 761
Determining the Optimal Liquidity Strategy 763
Summing Up 763
CHAPTER 38
Performance Measurement Plus Alpha vs. Transfer Prong 765
Transaction-Level Performance Measurement vs. Portfolio-
Level Performance Measurement 766
Plus Alpha Benchmark Performance vs. Transfer Pricing 767
Why Default Risk Is Critical in Performance Measurement
of Equity Portfolios 768
Plus Alpha Performance Measurement in Insurance and Banking 769
Decomposing the Reasons for Plus or Minus Alpha in a Fixed
Income Portfolio 770
A Worked Example of Modern Fixed Income Performance Attribution 772
The Jarrow-Merton Put Option and Capital 780
Using the Jarrow-Merton Put Option for Capital Allocation 780
Introduction 780
Using the Jarrow-Merton Put Option Concept for Capital Allocation 780
XXl CONTENTS
Extending the Jarrow-Merton Capital Allocation
to a Multiperiod Framework 782
Summing Up 782
CHAPTER 89
Managing bisthitJenal Defautt Risk and Safety and Soundness 783
Step 1: Admitting the Possibility of Failure 783
Managing the Probability of Failure 785
Are Ratings a Useful Guide? 785
Are CDS Spreads a Useful Guide? 786
Using Quantitative Default Probabilities 787
Controlling the Probability of Failure through the Credit Cycle 789
Hedging Total Risk to Maximize Shareholder Value 790
Implications for Basel II, Basel III, and Solvency II 791
Simulating Your Own Probability of Default 792
CHAPTER 40
HfM natkm Technology Considerations 793
Common Practice in Risk Management Systems: Dealing with
Legacy Systems 793
Upgrading the Risk Infrastructure: The Request for Proposal Process 795
Paid Pilots as Final Proof of Concept 796
Keys to Success in Software Installation 797
Vendor Size: Larger Vendor or Small Vendor? 798
Being a Best Practice User 799
CHAPTER 41
Shareholder Value Creation and Destruction 800
Do No Harm 800
Measure the Need to Change 801
Rating Your Primary Risk System 803
Master the Politics and Exposition of Risk Management:
Shareholder Value Creation 803
Daily Management Reporting of Total Risk 805
Moving from Common Practice to Best Practice 806
The Senior Management Perspective 807
The Middle Management Perspective 807
The Working-Level Perspective 807
Getting Help to Create Shareholder Value 808
Postscript 808
Index 819
|
| any_adam_object | 1 |
| author | Van Deventer, Donald R. Imai, Kenji 1963- Mesler, Mark |
| author_GND | (DE-588)173094244 |
| author_facet | Van Deventer, Donald R. Imai, Kenji 1963- Mesler, Mark |
| author_role | aut aut aut |
| author_sort | Van Deventer, Donald R. |
| author_variant | d d r v ddr ddrv k i ki m m mm |
| building | Verbundindex |
| bvnumber | BV040352099 |
| classification_rvk | QK 620 |
| ctrlnum | (OCoLC)848188626 (DE-599)BVBBV040352099 |
| discipline | Wirtschaftswissenschaften |
| edition | 2. ed. |
| format | Book |
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| id | DE-604.BV040352099 |
| illustrated | Illustrated |
| indexdate | 2024-07-10T00:22:15Z |
| institution | BVB |
| isbn | 9781118278543 |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-025206137 |
| oclc_num | 848188626 |
| open_access_boolean | |
| owner | DE-11 DE-945 DE-1050 |
| owner_facet | DE-11 DE-945 DE-1050 |
| physical | XXXIV, 839 S. Ill., graph. Darst. |
| publishDate | 2013 |
| publishDateSearch | 2013 |
| publishDateSort | 2013 |
| publisher | Wiley |
| record_format | marc |
| spelling | Van Deventer, Donald R. Verfasser aut Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management Donald R. Van Deventer ; Kenji Imai ; Mark Mesler 2. ed. Singapore Wiley 2013 XXXIV, 839 S. Ill., graph. Darst. txt rdacontent n rdamedia nc rdacarrier Risikokapital (DE-588)4124067-4 gnd rswk-swf Finanzmanagement (DE-588)4139075-1 gnd rswk-swf Risikomanagement (DE-588)4121590-4 gnd rswk-swf Risikokapital (DE-588)4124067-4 s Finanzmanagement (DE-588)4139075-1 s Risikomanagement (DE-588)4121590-4 s b DE-604 Imai, Kenji 1963- Verfasser (DE-588)173094244 aut Mesler, Mark Verfasser aut Erscheint auch als Online-Ausgabe, EPUB 978-1-118-27855-0 Erscheint auch als Online-Ausgabe, MOBI 978-1-118-27856-7 Erscheint auch als Online-Ausgabe, PDF 978-1-118-27857-4 HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=025206137&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Van Deventer, Donald R. Imai, Kenji 1963- Mesler, Mark Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management Risikokapital (DE-588)4124067-4 gnd Finanzmanagement (DE-588)4139075-1 gnd Risikomanagement (DE-588)4121590-4 gnd |
| subject_GND | (DE-588)4124067-4 (DE-588)4139075-1 (DE-588)4121590-4 |
| title | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management |
| title_auth | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management |
| title_exact_search | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management |
| title_full | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management Donald R. Van Deventer ; Kenji Imai ; Mark Mesler |
| title_fullStr | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management Donald R. Van Deventer ; Kenji Imai ; Mark Mesler |
| title_full_unstemmed | Advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management Donald R. Van Deventer ; Kenji Imai ; Mark Mesler |
| title_short | Advanced financial risk management |
| title_sort | advanced financial risk management tools and techniques for integrated credit risk and interest rate risk management |
| title_sub | tools and techniques for integrated credit risk and interest rate risk management |
| topic | Risikokapital (DE-588)4124067-4 gnd Finanzmanagement (DE-588)4139075-1 gnd Risikomanagement (DE-588)4121590-4 gnd |
| topic_facet | Risikokapital Finanzmanagement Risikomanagement |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=025206137&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
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