Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk, 2nd Edition

Contents

Foreword

Preface

Acknowledgments

About the Author

CHAPTER 1

Introduction

1.1 Lessons from a Crisis

1.2 Financial Risk and Actuarial Risk

1.3 Simulation and Subjective Judgment

CHAPTER 2

Institutional Background

2.1 Moral Hazard—Insiders and Outsiders

2.2 Ponzi Schemes

2.3 Adverse Selection

2.4 The Winner's Curse

2.5 Market Making versus Position Taking

CHAPTER 3

Operational Risk

3.1 Operations Risk

3.1.1 The Risk of Fraud

3.1.2 The Risk of Nondeliberate Incorrect Information

3.1.3 Disaster Risk

3.1.4 Personnel Risk

3.2 Legal Risk

3.2.1 The Risk of Unenforceable Contracts

3.2.2 The Risk of Illegal Actions

3.3 Reputational Risk

3.4 Accounting Risk

3.5 Funding Liquidity Risk

3.6 Enterprise Risk

3.7 Identification of Risks

3.8 Operational Risk Capital

CHAPTER 4

Financial Disasters

4.1 Disasters Due to Misleading Reporting

4.1.1 Chase Manhattan Bank/Drysdale Securities

4.1.2 Kidder Peabody

4.1.3 Barings Bank

4.1.4 Allied Irish Bank (AIB)

4.1.5 Union Bank of Switzerland (UBS)

4.1.6 Société Générale

4.1.7 Other Cases

4.2 Disasters Due to Large Market Moves

4.2.1 Long-Term Capital Management (LTCM)

4.2.2 Metallgesellschaft (MG)

4.3 Disasters Due to the Conduct of Customer Business

4.3.1 Bankers Trust (BT)

4.3.2 JPMorgan, Citigroup, and Enron

4.3.3 Other Cases

CHAPTER 5

The Systemic Disaster of 2007–2008

5.1 Overview

5.2 The Crisis in CDOs of Subprime Mortgages

5.2.1 Subprime Mortgage Originators

5.2.2 CDO Creators

5.2.3 Rating Agencies

5.2.4 Investors

5.2.5 Investment Banks