Población García Financial Risk Management

Identification, Measurement and Management
1. Auflage 2017
ISBN: 978-3-319-41366-2
Verlag: Springer Nature Switzerland
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 423 Seiten

Reihe: Progress in Mathematics

This book provides a quantitative overview of corporate risk management for both financial and non-financial organisations. It systematically explores a range of important risks, including interest rate risk, equity risk, commodity price risk, credit risk management, counterparty risk, operational risk, liquidity risk, market risk, derivative credit risk and country risk. Chapters also provide comprehensive and accessible analysis of risk-related phenomena and the corporate strategies employed to minimise the impacts of risk in each case.  Chapters begin with an explanation of basic concepts and terminology, before going on to present quantitative examples and qualitative discussion sections. The author leverages his lifetime's experience of working in risk management to offer this clear and empirical guide for scholars and practitioners researching financial stability. 

Francisco Javier Población García is a Principal Financial Stability Expert at the European Central Bank. He holds a master's degree in economics and finance and a PhD in banking and finance. He has previously worked at Oliver Wyman and Repsol YPF, and was a Bank Inspector at Banco de España, before joining the European Central Bank. He has also had significant experience in teaching university level courses in risk management.

Autoren/Hrsg.

Población García, Francisco Javier

Inhaltsverzeichnis

1;Preface;7
2;Contents;9
3;List of Figures;18
4;List of Tables;22
5;Part I: Introduction and Perspectives;24
5.1;1: Introduction;25
5.1.1;1.1 General Principles;25
5.1.1.1;1.1.1 Risk;26
5.1.1.2;1.1.2 The Purpose of Corporate Risk Management: The Natural Risk Profile;26
5.1.1.3;1.1.3 Cost-Benefit Analysis;29
5.1.1.4;1.1.4 Hedging Versus Trading;30
5.1.1.5;1.1.5 Accounting Recognition;31
5.1.1.6;1.1.6 Corporate Strategies: Systemic Risk Versus Idiosyncratic Risk;33
5.1.2;1.2 Individual and Savings Bank Risk Management;34
5.1.2.1;1.2.1 Individual Risk Management;34
5.1.2.2;1.2.2 Risk Management in Savings Banks;36
5.2;2: Risk Quantification;38
5.2.1;2.1 Basic Concepts;38
5.2.1.1;2.1.1 Long Positions and Short Positions;39
5.2.1.2;2.1.2 Derivative Assets;40
5.2.1.2.1;2.1.2.1 Greek Letters;46
5.2.1.3;2.1.3 Linear Exposure;47
5.2.1.4;2.1.4 Option Type Exposure;49
5.2.2;2.2 Types of Risk;51
5.2.2.1;2.2.1 Market Risk;51
5.2.2.1.1;2.2.1.1 Equity;51
5.2.2.1.2;2.2.1.2 Interest Rate;52
5.2.2.1.3;2.2.1.3 Exchange Rate;53
5.2.2.1.4;2.2.1.4 Commodities;54
5.2.2.2;2.2.2 Credit Risk;55
5.2.2.2.1;2.2.2.1 Counterparty Risk;56
5.2.2.3;2.2.3 Other Risks;57
5.2.2.3.1;2.2.3.1 Operational Risk;57
5.2.2.3.2;2.2.3.2 Liquidity Risk;58
5.2.3;2.3 The Accounting Impact of Hedging;58
6;Part II: Market Risk;60
6.1;3: One-Dimensional Market Risk; Equity Risk;61
6.1.1;3.1 Basic Concepts;61
6.1.1.1;3.1.1 Terminology;62
6.1.2;3.2 Probabilistic Model;64
6.1.3;3.3 Value at Risk (VaR);69
6.1.3.1;3.3.1 Concept;69
6.1.3.2;3.3.2 Theoretical Calculation and Examples;73
6.1.3.3;3.3.3 Empirical VaR Calculation;76
6.1.3.3.1;3.3.3.1 Numerical Simulation (Monte Carlo Experiment);76
6.1.3.3.2;3.3.3.2 Historical Simulation;80
6.1.3.3.3;3.3.3.3 Concrete Simulation Scenarios;82
6.1.4;3.4 Incremental and Marginal Measures;85
6.1.4.1;3.4.1 General Ideas;85
6.1.4.2;3.4.2 Formal Definition;87
6.1.5;3.5 VaR Applications;89
6.1.5.1;3.5.1 Relationship to Risk-Return Approach;89
6.1.5.2;3.5.2 Diversification and Hedging;90
6.2;4: Multidimensional Market Risk;94
6.2.1;4.1 Basic Concepts;94
6.2.1.1;4.1.1 Cash Flow and Net Present Value;94
6.2.1.2;4.1.2 Multi-Period Measures Concept and Classification;95
6.2.2;4.2 Probabilistic Models;96
6.2.2.1;4.2.1 Time Series (Stochastic Processes);96
6.2.2.2;4.2.2 Intertemporal Volatility and Correlation;101
6.2.2.3;4.2.3 Temporal Aggregation and Considerations on Interest Rates;103
6.2.3;4.3 Risk Measures;103
6.2.3.1;4.3.1 Measures Without Discount: The CFaR;103
6.2.3.2;4.3.2 Measures with Discount: The NPVaR;105
6.2.4;4.4 Calculation Methodology;106
6.2.4.1;4.4.1 Analytical Estimation;106
6.2.4.1.1;4.4.1.1 Example of Analytical Calculation of the CFaR;107
6.2.4.1.2;4.4.1.2 The Analytical Estimation of NPVaR;109
6.2.4.2;4.4.2 Numerical Estimation (Simulation);110
6.2.4.3;4.4.3 Calculation Without an Explicit Model;116
6.2.5;4.5 Diversification and Hedging Considerations;117
6.3;5: Interest Rate Risk;119
6.3.1;5.1 Basic Concepts;119
6.3.1.1;5.1.1 Different Fixed-Income Instruments;120
6.3.1.2;5.1.2 Different Ways of Characterising the Interest Rate;121
6.3.1.3;5.1.3 The Risk Premium;122
6.3.1.4;5.1.4 Interest Rate Risk and Inflation;124
6.3.2;5.2 The Term Structure of Interest Rates;126
6.3.2.1;5.2.1 Term Structure Theories of Interest Rates;128
6.3.2.2;5.2.2 The Implicit Interest Rate, the Forward Interest Rate and IRR;133
6.3.3;5.3 Duration;134
6.3.3.1;5.3.1 Simple or Macaulay Duration and Modified Duration;134
6.3.3.2;5.3.2 Convexity;137
6.3.3.3;5.3.3 Portfolio Immunisation;140
6.3.4;5.4 The VaR for Fixed Income;143
6.3.5;5.5 Interest Rate Derivatives;146
6.3.5.1;5.5.1 Interest Rate Futures;146
6.3.5.2;5.5.2 Forward Rate Agreement (FRA) and Interest Rate Swap (IRS);147
6.3.5.3;5.5.3 Cap, Floor and Collar;148
6.3.6;5.6 Structured Bonds;151
6.4;6: Exchange Rate Risk;153
6.4.1;6.1 Basic Concepts;153
6.4.1.1;6.1.1 Exchange Rate Markets;154
6.4.1.2;6.1.2 Types of Exposure with Exchange Rate Risk;157
6.4.2;6.2 Denomination Currency Versus Exposure Currency;159
6.4.2.1;6.2.1 Estimation of Exposure Currency;162
6.4.3;6.3 VaR in the Exchange Rate;166
6.4.4;6.4 Exchange Rate Derivatives;167
6.4.5;6.5 Exchange Rate Hedging under Uncertainty in Cash Flows;168
6.4.6;6.6 Relationship between Interest Rate and Exchange Rate;169
6.5;7: Price Risk in Commodities;172
6.5.1;7.1 Basic Concepts;172
6.5.1.1;7.1.1 Storage Costs;173
6.5.1.2;7.1.2 Convenience Yield;174
6.5.1.3;7.1.3 The Forward Curve;175
6.5.1.4;7.1.4 Seasonality;177
6.5.2;7.2 Commodity Price Dynamics;179
6.5.2.1;7.2.1 Mean Reversion;179
6.5.2.2;7.2.2 Factorial Models;180
6.5.3;7.3 VaR Calculation for Commodities;184
6.5.4;7.4 Risk Management in Commodities;184
6.6;8: Market Risk Hedging;187
6.6.1;8.1 Basic Concepts;187
6.6.1.1;8.1.1 Hedging Costs and Profits;187
6.6.1.2;8.1.2 The Residual Risk;189
6.6.2;8.2 Types of Hedging;190
6.6.3;8.3 Hedging Instruments;194
6.6.3.1;8.3.1 Derivative Assets;194
6.6.3.1.1;8.3.1.1 Payment System Design;195
6.6.3.1.2;8.3.1.2 Derivative Asset Valuation;198
6.6.3.1.3;8.3.1.3 Risk Management in Derivatives;202
6.6.3.2;8.3.2 Embedded Derivatives;203
6.6.4;8.4 Hedge Accounting;206
6.6.4.1;8.4.1 General Issues;206
6.6.4.1.1;8.4.1.1 Held-to-Maturity Investment Accounting;206
6.6.4.1.2;8.4.1.2 Derivative Accounting;207
6.6.4.2;8.4.2 Types of Hedge Accounting;211
6.6.4.3;8.4.3 Embedded Derivatives Accounting;213
7;Part III: Credit Risk;215
7.1;9: Credit Risk: Measurement;216
7.1.1;9.1 Basic Concepts;216
7.1.1.1;9.1.1 Credit Risk Versus Market Risk;217
7.1.1.2;9.1.2 The Credit Event;218
7.1.1.2.1;9.1.2.1 Default Definition in Banking Regulation;220
7.1.2;9.2 Measuring Credit Risk;221
7.1.2.1;9.2.1 Probability of Default (PD);222
7.1.2.1.1;9.2.1.1 Estimates from Historical Data (Credit Scoring/Rating);222
7.1.2.1.1.1;Banks´ Regulatory Requirements for PD Calculation;229
7.1.2.1.2;9.2.1.2 Estimates from Bond Prices;234
7.1.2.1.3;9.2.1.3 Estimates from Share Prices and Volatility;238
7.1.2.2;9.2.2 Loss Given Default (LGD);240
7.1.2.2.1;9.2.2.1 Banks´ Regulatory Requirements for LGD Calculation;243
7.1.2.3;9.2.3 Exposure at Default (EAD);246
7.1.2.3.1;9.2.3.1 Banks´ Regulatory Requirements for EAD Calculation;247
7.1.3;9.3 Expected Loss Versus Unexpected Loss;248
7.2;10: Credit Risk: Validation;250
7.2.1;10.1 Basic Concepts;250
7.2.2;10.2 Qualitative Validation;251
7.2.3;10.3 Quantitative Validation;251
7.2.3.1;10.3.1 Discriminatory Power;251
7.2.3.1.1;10.3.1.1 Rating/Scoring Systems: Probability of Default (PD);251
7.2.3.1.1.1;ROC Curve;254
7.2.3.1.1.2;CAP Curve;257
7.2.3.1.2;10.3.1.2 LGD and EAD;258
7.2.3.2;10.3.2 Parameters;259
7.2.3.2.1;10.3.2.1 Predictive Power: Back-Testing;259
7.2.3.2.1.1;PD;259
7.2.3.2.1.2;LGD and EAD;261
7.2.3.2.2;10.3.2.2 Benchmarking;262
7.3;11: Credit Risk Management;264
7.3.1;11.1 Basic Concepts;264
7.3.2;11.2 Traditional Management;265
7.3.2.1;11.2.1 Retail and Corporate Portfolios;266
7.3.2.1.1;11.2.1.1 The Retail Portfolio;266
7.3.2.1.2;11.2.1.2 The Corporate Portfolio;267
7.3.2.2;11.2.2 Capital Requirements;268
7.3.2.2.1;11.2.2.1 Non-defaulted Assets;268
7.3.3;11.3 Hedging with Derivatives;272
7.3.4;11.4 Stress Test;275
7.4;12: Derivative Credit Risk (Counterparty Risk);279
7.4.1;12.1 Basic Concepts;279
7.4.2;12.2 OTC Markets Versus Organised Markets;280
7.4.2.1;12.2.1 OTC Markets;280
7.4.2.1.1;12.2.1.1 International Swaps and Derivatives Association: Framework;282
7.4.2.2;12.2.2 Organised Markets;283
7.4.2.2.1;12.2.2.1 The Clearing House;284
8;Part IV: Other Risks;288
8.1;13: Operational Risk;289
8.1.1;13.1 Basic Concepts;289
8.1.1.1;13.1.1 Definition of Operational Risk;289
8.1.2;13.2 Operational Risk Measurement;293
8.1.2.1;13.2.1 Loss Function;293
8.1.2.2;13.2.2 Databases;295
8.1.2.3;13.2.3 Approaches to Operational Risk Measurement;296
8.1.3;13.3 Operational Risk Mitigation Systems;297
8.1.3.1;13.3.1 Insurance;299
8.1.3.2;13.3.2 Financial Hedges;301
8.1.4;13.4 Approach to Operational Risk in Basel II: Determination of Regulatory Capital;302
8.2;14: Liquidity Risk;305
8.2.1;14.1 Basic Concepts;305
8.2.1.1;14.1.1 Types of Liquidity Risk and Its Relationships with Other Risks;306
8.2.2;14.2 Liquidity Risk Measurement;307
8.2.2.1;14.2.1 Static Measurement;308
8.2.2.2;14.2.2 Dynamic Measurement;309
8.2.2.3;14.2.3 Pricing Liquidity Risk;310
8.2.2.4;14.2.4 Methods to Assess Liquidity Risk: Liquidity Stress Test;311
8.2.3;14.3 Liquidity Risk Management;312
8.2.3.1;14.3.1 Liquidity Crisis;314
8.3;15: Country Risk;316
8.3.1;15.1 Basic Concepts;316
8.3.1.1;15.1.1 Country Risk in a Strict Sense;317
8.3.1.2;15.1.2 Country Risk in a Broad Sense;318
8.3.2;15.2 Variables Influencing Country Risk;320
8.3.3;15.3 Adjustments to the Cost of Capital: The Country Risk Premium;323
8.3.4;15.4 Regulatory Risk/Legal Risk;326
8.3.4.1;15.4.1 Regulatory Risk in OECD Countries;327
8.3.4.2;15.4.2 The Examples of Bolivia and Argentina;328
8.3.4.3;15.4.3 Risks in Accounting;329
8.3.5;15.5 Country Risk Management;330
9;Part V: Financial Implications of Risk;331
9.1;16: The CAPM;332
9.1.1;16.1 Basic Concepts;332
9.1.2;16.2 Portfolio Theory;333
9.1.2.1;16.2.1 Graphical Representation of Portfolios in the Mean: Standard Deviation Plan;335
9.1.2.2;16.2.2 Efficient Portfolios;339
9.1.2.2.1;16.2.2.1 Analytic Derivation of the Efficient Portfolio Frontier;339
9.1.2.2.2;16.2.2.2 Analytic Derivation of the Minimum Variance Portfolio;345
9.1.2.2.3;16.2.2.3 The Introduction of the Risk-Free Asset: The Capital Market Line (CML);346
9.1.3;16.3 The CAPM;349
9.1.3.1;16.3.1 The Securities Market Line (SML);349
9.1.3.2;16.3.2 The Market Model;351
9.2;17: The WACC;354
9.2.1;17.1 Basic Concepts;354
9.2.2;17.2 WACC Calculation;356
9.2.2.1;17.2.1 The Risk Premium;358
9.2.3;17.3 The WACC of an Investment Project;359
9.2.3.1;17.3.1 Risk-Adjusted Cash Flows;360
9.3;18: Conclusions;361
10;Glossary of Terms;367
11;Bibliography;392
12;Index;397