Innovations in Risk Management

Introduction

Philippe Jorion

Section 1: Market Risk: VAR for Individual Assets

1 VAR Risk Measures vs Traditional Risk Measures: An Analysis and Survey

Guy Kaplanski and Yoram Kroll

2 Incorporating Volatility Updating into the Historical Simulation Method for Value-at Risk

John Hull and Alan White

3 Risk Estimation Using the Normal Inverse Gaussian Distribution

Johannes H Venter and Pieter L. de Jongh

4 Regulatory Evaluation of Value-at-Risk Models

Jose A. Lopez

5 Fallacies about the Effects of Market Risk Management Systems

Philippe Jorion

Section 2: Market Risk: VAR for Portfolios

6 Improving Grid-Based Methods for Estimating Value-at-Risk of Fixed-Income Portfolios

Michael S. Gibson and Matthew Pritsker

7 Optimization of Conditional Value-at-Risk

R. Tyrrell Rockafeller and Stanislav Uryasev

8 Using Value-at-Risk to Control Risk Taking: How Wrong Can You Be?

Xiongwei Ju and Neil D. Pearson

9 Evaluating Covariance Matrix Forecasts in a Value-at-Risk Framework

Jose A. Lopez and Christian A. Walter

10 Decomposing Portfolio Value-at-Risk: A General Analysis

Winfried J. Hallerbach

Section 3: Market Risk: Stress Tests

11 A Coherent Framework for Stress Testing

Jeremy Berkowitz

12 A stress Test to Incorporate Correlation Breakdown

Jongwoo Kim and Christopher C. Finger

13 A Methodology for Creating a Valid Correlation Matrix for Risk Management and Option Pricing Purposes

Riccardo Rebonato and Peter Jäckel

14 Forecasting Portfolio Risk in Normal and Stressed Markets

Vineer Bhansali and Mark B. Wise

Section 4: Liquidity Risk

15 Optimal Execution of Portfolio Transactions

Robert Almgren and Neil Chriss

Section 5: Credit Risk

16 Evaluation of Credit Risk of a Portfolio with Stochastic Interest Rate and Default Processes

Masaaki Kijima and Yukio Muromachi

17 Estimating Expected Losses and Liquidity Discounts Implicit in Debt Prices

Tibor Janosi, Robert Jarrow, and Yildiray Yildirim

18 Pricing Corporate Bonds with Dynamic Default Barriers

Cho-Hoi Hui, Chi-Fai Lo, and Shun-Wai Tsang

19 Incorporating Severity Variations into Credit Risk

Peter Buergisser, Alexandre Kurth and Armin Wagner

20 Evaluating Credit Risk Models Using Loss Density Forecasts

Hergen Frerichs and Gunter Löffler

Section 6: Risk Capital

21 Measuring Risk-Adjusted Performance

Michel Crouhy, Stuart Turnbull, and Lee Wakeman

INDEX

Philippe Jorion

Philippe Jorion is Professor of Finance at the Graduate School of Management at the University of California at Irvine, where he is currently Senior Associate Dean. He has taught at UC-Berkeley, Columbia University, Northwestern University, the University of Chicago, and the University of British Columbia. He has done extensive work in the area of financial risk management with derivative instruments, and is known as an expert on the topic of Value at Risk. Philippe has authored more than eighty publications including Financial Risk Management: Domestic and International Dimensions, Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County, Financial Risk Manager Handbook and Value at Risk: The New Benchmark for Managing Financial Risk. In addition, he is on the editorial board of a number of finance journals and is editor-in-chief of the Journal of Risk. Philippe’s work has received wide recognition, including the Smith Breeden Prize in 1999 and the Graham and Dodd Scroll Award in 2003. Philippe is a frequent speaker at academic and professional conferences and executive seminars. He holds an MBA and a PhD from the University of Chicago, and a degree in engineering from the Université Libre de Bruxelles.