In The Risk Modeling Evaluation Handbook, an international team of experts
evaluates the problematic risk-modeling methods used by large financial institutions and
breaks down how these models contributed to the decline of the global capital markets.
You will learn to identify the shortcomings of the most widely used risk models
and gain important strategies for properly implementing these models into their investing
portfolios.
This comprehensive resource includes examinations of model risk as applied to:
- Equity and fixed income investments
- Credit and credit derivatives investments and credit processes
- Carry trades, rating models, and the supervisory formula
- Valuation models, as well as VaR, Copula, GARCH, and EVT models
- Counterparty, market, and operational risk models
The Risk Modeling Evaluation Handbook provides expansive explanations of the types of
model risk that appear in risk measurement, risk management, and pricing, as well as
market-tested techniques for mitigating risk in loan, equity, and derivative portfolios.
This book will serve as the go-to guide for financial professionals looking to improve or
adjust their approach to modeling financial risk.
Greg N. Gregoriou is professor of finance in the School of Business
and Economics at the State University of New York (Plattsburgh). He is the author of 25
financial books.
Christian Hoppe is the head of credit solutions in the corporate banking
division of Commerzbank AG Frankfurt.
Carsten S. Wehn is head of market risk at DekaBank, Frankfurt.
TABLE OF CONTENTS
Section One: Introduction to Model
Risk
- The Problem of Systemic Risk as a Strong Case for the Lender of Last Resort
- Learning from Previous Financial Crises and the Necessity to Recognize Liquidity Shocks
and the Limits of Arbitrage
- Valuing Political Risk
Section Two: Model Risk Related to Equity and Fixed
Income Investments
- Analysts' Forecasts, Market Risk Premia, and Estimations of Expected Security Returns
- The Market-timing Ability of Australian Superannuation Funds
- Caring About Stylized Features of Asset Returns
- Price Transmissions and Market Risk in Financial Markets
- Volatility Asymmetry and Leverage
- The Effects of Different Parameter Estimation Methods on Option Pricing
- Effects of Benchmark Misspecification on Risk-adjusted Performance Measures
Section
Three: Model Risk Related to Credit and Credit Derivatives Instruments
- The Term Structure of Risk in Emerging Markets and Implications for the Carry-trade
- A Strategic Management Insight into Model Risk in Ratings
- Tranching a Securitization with the Supervisory Formula
- Model Risk in the Quantitative and Qualitative Credit Process
- Model Risk in Highly Correlated Credit Portfolios of Object Financing
Section Four: Model
Risk Related to Valuation Models
- Concepts to Validate Valuation Models
- Model Risk in the Context of Valuing Equity Derivatives
- Techniques for Mitigating Model Risk
Section Five: Limitations to Measure Risk
- Beyond VaR
- VaR Computation in a Non-stationary Setting
- Copula-VaR and Copula-VaR-GARCH Modeling
- Small-sample Properties of EVT Estimators
Section Six: Modeling Market Risk
for Risk Markets
- Model Risk in Counterparty Exposure Modeling
- Model Risk for Credit Risk Modeling
- Model Risk in Credit Portfolio Models
- Model Risk for Market Risk Modeling
- Evaluating the Adequacy of Market Risk Models
- Model Risk Related to Operational Risk Models
Section Seven: Economic Capital
and Asset Allocation
- Validation of Economic Capital Models
- Robust Asset Allocation Under Model Risk
- The Asset-liability Management Compound Option Model
528 pages, Hardcover
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