Investment Risk Management

Recent market boom–busts have happened, and will continue to happen partly because apparently reputable institutions oversell risky or worthless investments.
Following Enron, Worldcom, Equitable Life and other scandals it is apparent that a new investment methodology is required to protect investors. Rather then relying on market reputation, investors need to be able to look past the sales hype to discover the true situation.
Operational risk management and a forensic investigation of investment provide the groundwork for such a methodology. Investment Risk Management explainswhy market boom–busts occur in the trade of worthless stockswhy regulators react slowly to investment scamswhen pension funds fail to protect their investorswhen investors pay for worthless ′professional′ serviceshow companies pay too much for management ′stars′whether Basel II and IAS accounting rules protect the investor
"Investment Risk Management can easily end up buried in technicalities while missing the context. There is a refreshing style linking theory with well–reported case histories that gives anyone accessibility to the subject. This is an ideal book for the growing band of ′Risk Professionals′ needing a broader understanding of their field. It takes you on a journey from the use of the Arc to BASEL II as methods of risk mitigation while transferring knowledge of valuable techniques on the way."
–Simon Lamoon, Programme Manager, M&G Limited, Retail Operations
"Yen Chong has advised banks and financial institutions in a wide variety of countries. As such, he has seen a lot of what he writes about in Investment Risk Management. He builds a strong case for investments in risk management. The stakes are high, as are the costs of risk management. After making a case for risk management, Mr Chong goes on to recommend strategies and tools for a balanced approach to avoiding, controlling or mitigating the inevitable financial risks all businesses face in today′s uncertain world."
–Prof. Charles Scott, Sellinger School of Business, Loyola College, Baltimore
"A useful guide covering many real–life case–studies where substantial financial loses occurred. Highlights how best practice risk management can assist in spotting early warning signs. Concentrates on realistic scenarios rather than complex mathematics."
–Dr Mamdouh Barakat, President and CEO, MBRM – MB Risk Management


Spis treści:
1 Introduction to Investment Risk.
Dream versus rude awakening.
Book structure.
2 The Beginning of Risk.
Risk and business.
Case study: The shark and its risk.
Case study: The ruin of Crédit Lyonnais (CL).
Case study: ABB engineering.
Investment scams.
Banking risk and sharks.
Risk management as a discipline.
Humans and risk.
Case study: High–street retail store losses.
Case study: Allied Irish Bank (AIB).
The state of the investment game.
Risk types.
Reputation risk.
Case study: Equitable Life.
Credit risk.
Market risk.
Operational risk.
Risk and damage.
Viable alternatives.
3 Investing under Risk.
Human behaviour and investment choice.
Portfolio management.
Value–at–Risk (VaR).
Monte Carlo simulation.
Collective use of mathematical tools.
Position keeping.
Investment managerial control.
The treasurer’s role.
Trading and risk management.
Investment risk experts.
Case study: A large UK PLC defined benefits pension fund.
Who controls whom.
4 Investing under Attack.
Investor disenchantment.
Risk–bearers and risk–takers.
Professional investor/shareholder.
Investment companies/fund managers.
Investment banks.
Auditors.
A look in the risk mirror.
Risk–aver se.
Risk–neutral.
Risk–takers.
Investor analysis.
Types of CEO – birds of a feather.
The CEO eagle – The M&A addict.
The CEO dodo – Risk–phobic.
The CEO ostrich – Risk–ignorant.
The CEO owl – Risk–acceptable.
The CEO magpie – Risk–seeking.
Company structure and risks.
Case study: The executive background check.
Risk vanities.
Pensions mis–selling.
Case study: Boo.com.
Corporate misgovernance.
Accuracy of corporate losses.
Classes of instruments and their risk components.
Derivatives.
Bonds.
Equities.
Investment as a project.
5 Investing under Investigation.
Instinct versus ability.
Checking corporate fundamentals.
Formulate a business plan.
Due diligence.
Risk support and methodology.
Investor cynicism.
Case study: LTCM.
6 Risk Warning Signs.
Prevailing risk attitudes.
Reputational risk.
Case study: Enron.
Airborne early warning (AEW).
International accounting standards (IAS).
Credit ratings.
The ratings procedure.
Business lines.
Law and risk management.
Case study: the UK Football League.
What the law covers.
Completeness of contract.
Case study: Merrill Lynch versus Unilever pension fund.
Sarbanes–Oxley Act for audit control.
Insurance.
Risk retention: self–insurance.
Case study: Insuring big oil projects.
Case study: the Names and Lloyds, London.
Sharing, transferring or mitigating risk.
Search for risk management.
Alternative theories.
Causality and managing investment risk.
Value–added chain.
Risk management to pick up the pieces.
Scenario analysis.
Case study: Business Continuity, lessons from September 11th.
Case study: Guaranteed annuity payments.
Stress testing.
Bayesian probability.
Artificial intelligence (AI) and expert systems.
Case study: Anti& #8211;money laundering.
Risk maps.
7 The Promise of Risk Management Systems.
Current state of systems.
Risk management methodology – RAMP.
Activity A: Analysis and project launch.
Activity B: Risk review.
Activity C: Risk management.
Activity D: Project close down.
Financial IT system support.
The Basel II Loss Database project.
Case study: Algorithmics systems in a bank.
Integration and straight–through processing (STP).
IT systems project failure.
Case study: IT overload.
Tying financial system functionality to promise.
Risk Prioritisation.
Giving the go–ahead.
Building risk management systems.
Finding the “best” risk management system.
The invitation to tender (ITT) process.
Business functionality requirements.
User’s functional priorities.
Business flirting – the user’s system specification.
Business flirting – the supplier’s reply.
Judging the ITT beauty show.
System priorities.
Project life cycle.
Risk management project plan.
A – Our risk strategy.
B – Risk review.
C – Risk management.
D – Project close down.
8 Realistic Risk Management.
Intentional damage.
Fraud, theft and loss.
Fraud perceived as the main criminal threat.
419 – not a number, but a way of life.
Operational risk in emerging markets.
Parachuting in the experts.
Case study: Chase Manhattan in Russia.
Unintentional damage.
Case study: Split capital investment funds.
Rogue staff.
Exposure to fraud at the top.
Exposure to fraud lower down the rung.
Case Study: Deutsche Morgan–Grenfell, 1996.
An operational risk perspective.
Operational risk protection: the “roof”.
Investment project growth.
Phase 1: High skill.
Phase 2: High performance.
Phase 3: Client growth.
Phase 4: Asset growth.
Case Study: Soros Quantum Fund and