File Name: understanding market credit and operational risk .zip
In this chapter we describe the risk management challenges faced by financial institutions. The very nature of the banking business requires that financial firms become experts at risk assessment in order to manage their own inventories of risk, obtained during day-to-day business transactions with bank customers. Banks are exposed to interest rate risk, currency risk, liquidity risk, credit risk, and operational risk. The first step in a risk management program is accurate risk measurement.
Summary: This book presents a step-by-step approach for integrating market, credit, and operational risk management. While complying with New Basel Accord Guidelines for financial institutions around the world, the work involved in managing market, credit, and operational risk exposures - as well as the capital required to support such exposures - will change dramatically under the new Basel Accord guidelines. From analyses of the latest models and frameworks to case studies and examples of the devastating effects of unfocused or insufficient risk management, this in-depth examination reveals: building blocks for constructing an integrated, effective risk management framework; the three pillars of the Basel Accord - and what institutions must do to comply with each; and details behind financial disasters, from LTCM to Barings, and how they could have been prevented. While banks have an institutional interest in managing risk exposures, they also have a competitive interest in minimizing the capital required to offset those exposures. The effective management of risk is a front-and-center topic for financial institutions. Charged with meeting everything from the newly fluid realities of global markets to the inflexible requirements of the Basel Accords, institutions are finding they must replace formalized and normative approaches with new types of risk management. These programs must be detailed enough to address the risks of today's dynamic markets yet adaptable enough to meet the needs of individual institutions and their requirements - while at the same time allowing decision-makers to demonstrate their willingness and capability to effectively handle unseen risk and increase shareholder value.
Allen, Linda, –. Understanding market, credit, and operational risk: the value at risk approach / Linda Allen, Jacob Boudoukh, and Anthony Saunders.
His work has been published in academic journals such as The American Economic Review, and The Journal of Financial Economics , as well as practitioner journals such as Risk. Anthony Saunders is John M. Professor Saunders has published widely in top journals such as Journal of Finance.
The term operational risk management ORM is defined as a continual cyclic process which includes risk assessment , risk decision making, and implementation of risk controls, which results in acceptance, mitigation, or avoidance of risk. ORM is the oversight of operational risk , including the risk of loss resulting from inadequate or failed internal processes and systems; human factors ; or external events. Unlike other type of risks market risk, credit risk, etc. The U. Department of Defense summarizes the principles of ORM as follows: .
The text uses VaR techniques to analyze loans, derivatives, equity prices, foreign currencies and other financial instruments. Featuring comprehensive coverage of the BIS bank capital requirements, and including the latest proposals for the New Capital Accord, the book also describes the newest application of VaR techniques to operational risk measurement. The text examines the promise and the pitfalls of these risk measurement models, and makes recommendations for future research into this important area. His work has been published in academic journals such as The American Economic Review, and The Journal of Financial Economics , as well as practitioner journals such as Risk.
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