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Risk Management in Banking, 3rd Edition

ISBN: 978-0-470-68985-1
840 pages
December 2011
Risk Management in Banking, 3rd Edition (0470689854) cover image

Description

Never before has risk management been so important.

Now in its third edition, this seminal work by Joël Bessis has been comprehensively revised and updated to take into account the changing face of risk management.

Fully restructured, featuring new material and discussions on new financial products, derivatives, Basel II, credit models based on time intensity models, implementing risk systems and intensity models of default, it also includes a section on Subprime that discusses the crisis mechanisms and makes numerous references throughout to the recent stressed financial conditions. The book postulates that risk management practices and techniques remain of major importance, if implemented in a sound economic way with proper governance.

Risk Management in Banking, Third Edition considers all aspects of risk management emphasizing the need to understand conceptual and implementation issues of risk management and examining the latest techniques and practical issues, including:

  • Asset-Liability Management
  • Risk regulations and accounting standards
  • Market risk models
  • Credit risk models
  • Dependencies modeling
  • Credit portfolio models
  • Capital Allocation
  • Risk-adjusted performance
  • Credit portfolio management

Building on the considerable success of this classic work, the third edition is an indispensable text for MBA students, practitioners in banking and financial services, bank regulators and auditors alike.

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Table of Contents

About the Author.

Introduction.

Section 1: The Financial Crisis.

1 The 2007-2008 Financial Crisis.

Section 2: Business Lines, Risks, and Risk Management.

2 banking Business Lines.

2 Risks and Risk Management.

4 Risk Management.

Section 3: Financial Products.

5 Banking and Financial Products.

6 Essentials on Derivative Products.

7 Interest Rate Risk and Interest Rate Derivatives.

8 Foreign Exchange Risk and Foreign Exchange Derivatives.

9 Credit Derivatives.

Section 4: Valuation.

10 Distribution Functions.

11 Discrete and Continuous Returns.

12 Stochastic Processes.

13 Valuation and Pricing Risk.

14 Some Applications of Valuation Techniques.

Section 5: Risk Modeling.

15 Sensitivity.

16 Volatility.

17 The Value-at-Risk Measure.

18 VaR and Capital.

Section 6: Regulations.

19 Banking Regulations: Basel 1 and Market Risk.

20 Banking Regulations: The Basel 2 Accord.

21 Accounting Standards.

Section 7: Asset Liability Management (ALM).

22 Liquidity Management and Liquidity Gaps.

23 Interest Rate Gaps.

24 ALM and Hedging Policies.

25 Implicit Options Risk.

26 Economic Value of the Balance Sheet.

27 Economic Value and Convexity Risk.

Section 8: Funds Transfer Pricing Systems.

28 Funds Transfer Pricing Systems.

29 Economic Transfer Prices.

Section 9: Dependencies and Portfolio Risk.

30 Correlations and Covariances.

31 Conditional Probabilities.

32 Factor Models.

33 Dependencies and Copula Functions.

34 Simulations with Factor Models or the Copula Approach.

Section 10: Market Risk.

35 Delta-normal VaR.

36 Historical and Hypothetical Simulations.

37 Simulation of Interest Rates.

38 Back Tests, Benchmarks and Stress Tests.

Section 11: Credit Risk: Standalone.

39 Credit Risk Data.

40 Rating Systems.

41 Statistical and Scoring Models.

42 The Option Approach to Defaults and Migrations.

43 Default Probability and Default Intensity.

44 Credit Risk Potential Exposure.

45 Modeling Recoveries.

46 Credit Risk Valuation and Credit Spreads.

Section 12: Credit Portfolio Risk.

47 Credit Event Dependencies.

48 Example of Portfolio Loss Distribution.

49 Analytical Loss Distributions.

50 Simulation of Credit Portfolio Loss Distributions.

51 Credit Portfolio Models.

Section 13: Capital Allocation.

52 Economic Capital and Credit Risk VaR.

53 Capital Allocation and Risk Contributions.

54 Marginal Risk Contributions.

Section 14: Risk-adjusted Performance.

55 RaRoC and Shareholders' Value Added.

56 Economic Income Statements.

Section 15: Credit Portfolio Management.

57 Portfolio Analysis.

58 Securitization and Capital Management.

59 Credit Portfolio Management.

Section 16: Conclusion and Financial Reforms.

60 The Financial System and Reforms.

References.

Index.

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Author Information

Joël Bessis (Paris, France) graduated as an Engineer from Ecole Centrale in Paris, earned a Master in Business Administration at Columbia University in New York, and received a Ph. D. in Finance at the University of Paris Dauphine. Since 1980, he has been working as a Professor of Finance at Group HEC, the leading French business school. As an academic, Joel Bessis published various papers and books in the fields of corporate finance, industrial economics, and financial markets. He is a frequent speaker at professional conferences. Joel Bessis developed a dual expertise, as an academic and as a practitioner, holding permanent consulting assignments in corporations and, later, in banks. Joel Bessis worked over 15 years in this area for financial institutions. Joel Bessis has acquired experience in bank wide risk management in many well-known financial institutions. He has been a consultant to risk departments of several banking institutions in Europe. He held a permanent consultancy position for 7 years at Banque Paribas in the Risk Department and for two years at the European Bank for Development (EIB). On leave of absence from HEC Paris from 2000, he was Director of Research at FitchRatings in 2000–2001, Head of Validation at the Risk Department of Ixis, a Paris-based Investment Bank, and held the same position at “Groupe Caisse d’Epargne”, one the major French banks, until 2006. He is now Professor at HEC Paris and maintains consultancy assignments in Banks. He conducts executive training in risk management in Eastern Europe, US and Asia.
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