Risk Management in Banking

THE SEMINAL GUIDE TO RISK MANAGEMENT REVISED AND UPDATED

Now in its fourth edition, Risk Management in Banking is the industry′s seminal reference that offers a comprehensive review of all aspects in the field. The text covers a complete range of risk topics in banking including asset liability management, risk–based capital, value at risk, loan portfolio management, capital allocation, and other fundamental risk factors. All these topics are examined within the new mindset inspired by the financial crisis.

This practical guide contains the latest information on topics such as: ALM, Basel 3, liquidity analysis, market risk, credit risk, derivatives, structured products, securitizations, and more.

Risk Management in Banking Workbook (ISBN 9781118925652) reinforces the material from a practical perspective, featuring chapter–by–chapter sample questions and makes the material more accessible to both students and practitioners.

Visit www.wiley.com/go/Bessis for per–chapter slides and illustrative examples utilizing an easy–to–follow and modular approach for students, as well as Excel–based solutions from the Workbook′s questions.

In Risk Management in Banking, Fourth Edition professionals will discover an easily navigable resource that is filled with the research and practices that reflect the most recent changes in the field.

Foreword vii

Preface ix

About the Author xi

1 Risks and Risk Management 1

2 Banking Regulations Overview 13

3 Balance Sheet Management and Regulations 21

4 Liquidity Management and Liquidity Gaps 31

5 Interest Rate Gaps 43

6 Hedging and Gap Management 57

7 Economic Value of the Banking Book 67

8 Convexity Risk in Banking 81

9 Convexity Risk: The Case of Mortgages 91

10 Funds Transfer Pricing Systems 109

11 Returns, Random Shocks and Value–at–Risk 123

12 Portfolio Risk and Factor Models 135

13 Delta–normal VaR and Historical VaR 149

14 Extensions of Traditional VaR 159

15 Volatility 169

16 Simulation of Interest Rates 179

17 Market Risk Regulations 189

18 Credit Risk 199

19 Credit Risk Data 211

20 Scoring Models and Credit Ratings 221

21 Default Models 237

22 Counterparty Credit Risk 253

23 Credit Event Dependencies 263

24 Credit Portfolio Risk: Analytics 271

25 Credit Portfolio Risk: Simulations 283

26 Credit Risk Regulations 293

27 Capital Allocation and Risk Contributions 303

28 Risk–adjusted Performance Measures 315

29 Credit Derivatives 323

30 Securitizations 331

References 345

Index 351

JOËL BESSIS is Professor of Finance at HEC Paris, the leading French business school, where he conducts training in risk management throughout Europe, the US, and Asia. Over the course of his career Joël has developed a dual expertise as an academic and as a practitioner, holding permanent consulting assignments in corporations and later, in banks.