Cart
Free Shipping in the UK
Proud to be B-Corp

Risk Management in Turbulent Times Gilles Beneplanc (Region leader, Europe, Middle East, and Africa, Region leader, Europe, Middle East, and Africa, Mercer LLC)

Risk Management in Turbulent Times By Gilles Beneplanc (Region leader, Europe, Middle East, and Africa, Region leader, Europe, Middle East, and Africa, Mercer LLC)

Summary

The risk management models used by banks and insurance companies are designed for when financial markets behave smoothly and efficiently. However, large risks materialize very often, and financial markets periodically go through bubbles and crashes. This book provides a road map of the most popular models of risk management and shows how they can be adapted to "turbulent times".

Risk Management in Turbulent Times Summary

Risk Management in Turbulent Times by Gilles Beneplanc (Region leader, Europe, Middle East, and Africa, Region leader, Europe, Middle East, and Africa, Mercer LLC)

The subprime crisis has shown that the sophisticated risk management models used by banks and insurance companies had serious flaws. Some people even suggest that these models are completely useless. Others claim that the crisis was just an unpredictable accident that was largely amplified by the lack of expertise and even naivety of many investors. This book takes the middle view. It shows that these models have been designed for "tranquil times", when financial markets behave smoothly and efficiently. However, we are living in more and more "turbulent times": large risks materialize much more often than predicted by "normal" models, financial models periodically go through bubbles and crashes. Moreover, financial risks result from the decisions of economic actors who can have incentives to take excessive risks, especially when their remunerations are ill designed. The book provides a clear account of the fundamental hypotheses underlying the most popular models of risk management and show that these hypotheses are flawed. However it shows that simple models can still be useful, provided they are well understood and used with caution.

Risk Management in Turbulent Times Reviews

With its mention of insurance-linked securities and catastrophe bonds, and its various references to catastrophe-insurance risks such as earthquakes and terrorism, Risk Management in Turbulent Times is a highly topical addition to the literature on risks and catastrophes. * Gordon Woo, The Mathematical Intelligencer *

About Gilles Beneplanc (Region leader, Europe, Middle East, and Africa, Region leader, Europe, Middle East, and Africa, Mercer LLC)

Gilles Beneplanc is the Head of Europe, Middle East, and Africa region for the Mercer consulting firm. Jean-Charles Rochet is Professor of Mathematics and Economics at the University of Toulouse.

Table of Contents

INTRODUCTION ; I RISK MANAGEMENT: WHAT MUST BE CHANGED ; 1 Lessons From recent Financial Crises ; 1.1 The Basic Goals of Risk Management ; 1.2 When Risk Management Fails ; 1.3 What Should Be Done? ; 2 Living in Turbulent Times ; 2.1 New and Larger Risks ; 2.2 Increased Management Accountability ; 2.3 Need for a Global Approach ; 3 The Need for a Proper Methodology ; 3.1 The Necessary Ingredients ; 3.2 Risk Mapping ; 3.3 Loss Control ; 3.4 Risk Allocation ; II WHAT IS BEHIND RISK MODELING ; 4 The Basic Tools of Risk Modeling ; 4.1 Assessing Probabilities: The Frequentist and Subjective Approaches ; 4.2 Bayesian updating ; 4.3 Estimating Loss Distributions ; 4.4 Combining Event Trees and Monte Carlo Methods ; 4.5 The Dangers of the Stationarity Assumption ; 5 Statistical Risk Measures ; 5.1 The Expectation or Mean ; 5.2 The Variance ; 5.3 Linear Correlation ; 5.4 Copulas ; 5.5 The Value at Risk ; 5.6 Mutualization and Diversification ; 5.7 The Dangers of Using Simple Risk Measures ; Appendix: Extreme Value Theory ; 6 Leverage and Ruin Theory ; 6.1 Leverage and Return on Equity ; 6.2 Economic Capital for a Bank ; 6.3 Economic Capital for an Insurance Company ; 6.4 The Limits of Ruin Theory ; III THE PERFECT MARKETS HYPOTHESIS AND ITS DANGERS ; 7 Risk Neutral Valuation ; 7.1 The Expected Present Value Criterion ; 7.2 The Magic of Perfect Markets ; 7.3 Complete Markets and Absence of Arbitrage Opportunities ; 7.4 A Binomial Example ; 7.5 The Mirages of the Perfect Markets World ; 8 The Case of Incomplete Markets: Relating Risk Premiums to Economic ; Fundamentals ; 8.1 Solving the St Petersburg Paradox ; 8.2 Certainty Equivalent ; 8.3 Markets for Exchanging Risks ; 8.4 The Limits of the Equilibrium Approach ; 9 Risk Management in a Normal World ; 9.1 The Mean-Variance Criterion ; 9.2 Portfolio Choice ; 9.3 The Diversification Principle ; 9.4 Efficient Portfolios and the Sharpe Ratio ; 9.5 The Capital Asset Pricing Model (CAPM) ; 9.6 Futures Contracts and Hedging ; 9.7 Capital Allocation and RaRoc ; 9.8 The Dangers of Viewing the World as <"Normal>" ; Appendix 1: Portfolio Choice with Several Risky Assets ; Appendix 2: Deriving the CAPM Formula ; IV RISK MANAGEMENT AND SHAREHOLDER VALUE ; 10 Why Market Imperfections Matter for Shareholder Value ; 10.1 Standards Methods for Assessing Shareholder Value ; 10.2 Why is the Shareholder Value Function Likely to Be Non Linear: A Simple Example ; 10.3 Incentive Problems Generate Financial Frictions ; 11 The Shareholder Value Function ; 11.1 A Target Level of Cash ; 11.2 A Model for Optimizing Liquidity Management ; 11.3 Liquidity and Shareholder Value ; Appendix 1: Stochastic Differential Calculus ; Appendix 2: Derivation of the Shareholders Value Function ; 12 Risk Management and the Shareholder Value Function ; 12.1 How Much Risk to Take? ; 12.2 Which Risks to Insure? ; 12.3 How Much Liquidity to Keep in Reserves? ; 12.4 How Much hedging to Perform? ; V WHAT TO DO IN PRACTICE? ; 13 The Different Steps of the Implementation ; 13.1 Estimating the Shareholder Value Function ; 13.2 A Unifying Metric for Risk Mapping: The Risk Value Mapping ; 13.3 The New Instruments of Risk Management ; 14 Learning from an Example ; 14.1 Presentation of Med Corp ; 14.2 Risk Analysis ; 14.3 Shareholder Value and RM for Med Corp ; 14.4 A Risk Transfer Policy for Med Corp ; 15 Conclusion: Some Simple Messages ; 15.1 Message # 1: Quantitative models are needed but they have to be used ; with precaution ; 15.2 Message # 2: Risk Management creates value for shareholders ; 15.3 Message # 3: Things to do in practice ; 15.4 Message # 4: Key Ingredients for a successful RM approach ; Index

Additional information

NPB9780199774081
9780199774081
0199774080
Risk Management in Turbulent Times by Gilles Beneplanc (Region leader, Europe, Middle East, and Africa, Region leader, Europe, Middle East, and Africa, Mercer LLC)
New
Hardback
Oxford University Press Inc
2011-09-08
224
N/A
Book picture is for illustrative purposes only, actual binding, cover or edition may vary.
This is a new book - be the first to read this copy. With untouched pages and a perfect binding, your brand new copy is ready to be opened for the first time

Customer Reviews - Risk Management in Turbulent Times