Book description
A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk
Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools.
The book is accompanied by web-based tools, including example spreadsheets to illustrate many of the more complex topics in the book.
Table of contents
- Cover Page
- Title Page
- Copyright
- Dedication
- Contents
- Preface
- About the authors
- Abbreviations and acronyms
-
Part I: Liquidity and banking activity
- 1: Banks as lemons?
- 2: A journey into liquidity
- 3: Too big to fail
- 4: The new framework
-
5: Know thyself!
- 5.1 INTRODUCTION
- 5.2 SOME CHANGES ON THE LIABILITIES SIDE
- 5.3 THE ROLE OF LEVERAGE
- 5.4 THE ORIGINATE-TO-DISTRIBUTE BUSINESS MODEL
- 5.5 THE LIQUIDITY FRAMEWORK
- 5.6 STRESS-TESTING AND CONTINGENCY FUNDING PLAN
- 5.7 THE CEBS IDENTITY CARD
- 5.8 CONCLUSIONS
- 5.9 APPENDIX: THE CEBS IDENTITY CARD ANNEX(CEBS [ 98 ])
-
Part II: Tools to Manage Liquidity risk
- 6: Monitoring liquidity
-
7: Liquidity buffer and term structure of funding
- 7.1 INTRODUCTION
- 7.2 LIQUIDITY BUFFER AND COUNTERBALANCING CAPACITY
- 7.3 THE FIRST CAUSE OF THE NEED FOR A LIQUIDITY BUFFER: MATURITY MISMATCH
- 7.4 FUNDING ASSETS WITH SEVERAL LIABILITIES
- 7.5 ACTUAL SCENARIOS SEVERER THAN PREDICTED
- 7.6 THE TERM STRUCTURE OF AVAILABLE FUNDING AND THE LIQUIDITY BUFFER
- 7.7 NON-MATURING LIABILITIES
- 7.8 THE SECOND CAUSE OF THE LIQUIDITY BUFFER: COLLATERAL MARGINING
- 7.9 THE THIRD CAUSE OF THE LIQUIDITY BUFFER: OFF-BALANCE-SHEET COMMITMENTS
- 7.10 BASEL III REGULATION AND LIQUIDITY BUFFER
-
8: Models for market risk factors
- 8.1 INTRODUCTION
- 8.2 STOCK PRICES AND FX RATES
- 8.3 INTEREST RATE MODELS
- 8.4 DEFAULT PROBABILITIES AND CREDIT SPREADS
- 8.5 EXPECTED AND MINIMUM LIQUIDITY GENERATION CAPACITY OF AVAILABLE BONDS
- 8.6 FAIR HAIRCUT FOR REPO TRANSACTIONS AND COLLATERALIZED LOANS
- 8.7 ADJUSTMENTS TO THE VALUE OF ILLIQUID BONDS
- APPENDIX 8.A EXPECTATION VALUE OF THE BOND WITH SELLING PROBABILITY AND SPREAD
-
9: Behavioural models
- 9.1 INTRODUCTION
- 9.2 PREPAYMENT MODELLING
- 9.3 SIGHT DEPOSIT AND NON-MATURING LIABILITY MODELLING
- 9.4 CREDIT LINE MODELLING
- APPENDIX 9.A GENERAL DECOMPOSITION OF HEDGING SWAPS
- APPENDIX 9.B ACCURACY OF MORTGAGE RATE APPROXIMATION
- APPENDIX 9.C ACCURACY OF THE APPROXIMATED FORMULA FOR CORRELATED MORTGAGE RATE AND PREPAYMENT INTENSITY
- APPENDIX 9.D CHARACTERISTIC FUNCTION OF THE INTEGRAL
-
Part III: Pricing Liquidity risk
-
10: The links between credit risk and funding cost
- 10.1 INTRODUCTION
- 10.2 THE AXIOM
- 10.3 CASH FLOW FAIR VALUES AND DISCOUNTING
- 10.4 CRITIQUE OF DEBIT VALUE ADJUSTMENT
- 10.5 DVA FOR DERIVATIVE CONTRACTS
- 10.6 EXTENSION TO POSITIVE RECOVERY AND LIQUIDITY RISK
- 10.7 DYNAMIC REPLICATION OF DVA
- 10.8 RECAPITULATION OF RESULTS
- 10.9 ACCOUNTING STANDARD AND DVA
- 10.10 DISTINCTION BETWEEN PRICE AND VALUE
-
11: Cost of liquidity and fund transfer pricing
- 11.1 INTRODUCTION
- 11.2 PRINCIPLES OF TRANSFER PRICING
- 11.3 FUNDING AND BANKING ACTIVITY
- 11.4 BUILDING A FUNDING CURVE
- 11.5 INCLUDING THE FUNDING COST IN LOAN PRICING
- 11.6 MONITORING FUNDING COSTS AND RISK CONTROL OF REFUNDING RISK
- 11.7 FUNDING COSTS AND ASSET/LIABILITY MANAGEMENT
- 11.8 INTERNAL FUND TRANSFER PRICING SYSTEM
- 11.9 BEST PRACTICES AND REGULATION
- 12: Liquidity risk and the cost of funding in derivative contracts
- 13: A sort of conclusion: towards a new treasury?
-
10: The links between credit risk and funding cost
- References
- Index
Product information
- Title: Measuring and Managing Liquidity Risk
- Author(s):
- Release date: September 2013
- Publisher(s): Wiley
- ISBN: 9781119990246
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