The Essentials of Risk Management, Second Edition

The definitive guide to quantifying risk vs. return--fully updated to reveal the newest, most effective innovations in financial risk management since the 2008 financial crisis Written for risk professionals and non-risk professionals alike, this easy-to-understand guide helps you meet the increasingly insistent demand to make sophisticated assessments of companies' risk exposure. It provides the latest methods for: Measuring and transferring credit risk Increasing risk-management transparency Implementing an organization-wide Enterprise risk Management (ERM) approach Michel Crouhy is head of research and development at NATIXIS and the founder and president of the NATIXIS Foundation for Quantitative Research. Dan Galai is the Abe Gray Professor of Finance and Business Administration at the School of Business Administration, the Hebrew University in Jerusalem. Robert Mark is the Founding Chief Executive Officer of Black Diamond Risk which provides corporate governance, risk management consulting, risk software tools, and transaction services.

Table of Contents:
Foreword xi Introduction to the Second Edition:Reforming Risk Management for the Post-Crisis Era xv 1. Risk Management: A Helicopter View 1 1.1 Typology of Risk Exposures 23 2. Corporate Risk Management: A Primer 45 3. Banks and Their Regulators:The Post-Crisis Regulatory Framework 67 3.1 Basel I 117 3.2 The 1996 Market Risk Amendment 125 3.3 Basel II and Minimum Capital Requirements for Credit Risk 131 3.4 Basel 2.5: Enhancements to the Basel II Framework 137 3.5 Contingent Convertible Bonds 143 4. Corporate Governance and Risk Management 151 5. A User-Friendly Guide to the Theory of Risk and Return 183 6. Interest Rate Risk and Hedging with Derivative Instruments 203 7. Measuring Market Risk: Value-at-Risk,Expected Shortfall, and Similar Metrics 233 8. Asset/Liability Management 265 9. Credit Scoring and Retail Credit Risk Management 305 10. Commercial Credit Risk and the Ratingof Individual Credits 333 10.1 Definitions of Key Financial Ratios 363 11. Quantitative Approaches to CreditPortfolio Risk and Credit Modeling 365 11.1 The Basic Idea of the Reduced Form Model 407 12. The Credit Transfer Markets—and Their Implications 411 12.1 Why the Rating of CDOs byRating Agencies Was Misleading 467 13. Counterparty Credit Risk: CVA, DVA, and FVA 471 14. Operational Risk 499 15. Model Risk 529 16. Stress Testing and Scenario Analysis 555 16.1 The 2013 Dodd-Frank Severely Adverse Scenarios 581 17. Risk Capital Attribution andRisk-Adjusted Performance Measurement 583 Epilogue: Trends in Risk Management 609 Index 619

About the Author :
Dr. Dan Galai is the Abe Gray Professor of Finance and Business Administration at Hebrew University. He has been a visiting professor of Finance at INSEAD, and also has taught at UCLA and the University of Chicago where he received his Ph.D. He has consulted for the Chicago Board of Exchange and the American Stock Exchange. He has published numerous articles in leading business and finance journals and was the winner of the First Annual Pomeranze Prize for excellence in options research presented by the CBOE.