Risk Management. Module 3, January-February 2008
Last-year materials
Lecture
notes and slides
Additional materials: Tables from Berkowitz&O’Brien
(2002), Basel
vs RiskMetrics requirements to market risk measurement, Tables on credit risk
Data for the project on market
risk:
·
Data on most liquid Russian stocks in 1/1999-3/2007: basic information (id, name, # issued stocks,
dividends) and trading data (daily close prices
and trading volumes, in rubles)
·
Macroeconomic
data, including Euro and dollar exchange rates, oil price, MIACR (interbank
credit rates), money balances, RTS, MICEX,
·
The daily NAVs of Russian mutual funds (PIFs) can be
downloaded from http://www.investfunds.ru/; the latest
end-of-quarter portfolio should be reported in the fund’s website.
·
It is recommended to use
o
RTS or S&P-RUX
as stock market index
o
Cbonds as bond index,
o
AKM or RUX industry indices as local equity risk
factors,
o MSCI stock indices as international
equity factors
Cases
·
Risk management at PIMCO. Description of measurement and
management of fixed-income risks.
·
Kuprianov,
1995, Case studies of large losses in derivative markets. Metallgesellschaft and Barings.
·
Digenan
et al., 1995, Metallgesellschaft AG: A Case Study.
·
Krapels,
2001, Re-examining the Metallgesellschaft Affair and its Implication for Oil
Traders.
·
Orange County case by
Philippe Jorion
·
Jorion,
2000, Risk management lessons from Long-Term Capital Management, European Financial Management 6, 277-300. Analysis of LTCM failure.
·
Coy and Woolley, Failed wizards of Wall
street, 1998, Business Week. Discussion of strategies pursued by LTCM and
other arbitrageurs.
Surveys
·
West, 2004, Risk
measurement for financial institutions. General survey.
·
Alexander,
2003, The present and future of financial risk management, ISMA Center
Discussion Papers in Finance 2003-12. The first part of the paper discusses
the recent trends in risk management.
Market risk
·
Berkowitz and
O’Brien, 2002, How accurate are Value-at-Risk models at commercial banks? Journal of Finance 57(3), 1093-1111. Backtesting of VaR, comparison
with GARCH.
·
Christoffersen
and Diebold, 1999, How relevant is volatility forecasting for financial risk
management. Model-free procedure for assessing volatility forecastability
across different horizons.
·
Ahmed,
2001, Forecasting correlation among equity mutual funds, Journal of Banking and Finance 25, 1187-1208. Good survey of
different methods to estimate future correlations.
·
Hawkins, 1997, Risk
analysis techniques, GARP FRM exam review class notes. Survey of VaR
methods, including sample exam questions and answers.
Liquidity risk
·
Bekaert,
Harvey, and Lundblad, 2003, Liquidity and expected returns: lessons from
emerging markets.
Credit risk
·
Bharath
and Shumway, 2004, Forecasting Default with the KMV-Merton Model. Comparing
the default forecasting quality of the KMV model with a simpler approach.
·
Vassalou
and Xing, 2004, Default Risk in Equity Returns, Journal of Finance 59(2), 831-868. Studying relation between
default risk and other (e.g, size and book-to-market) equity risks.
Additional sources
o
RiskMetrics technical document
(1996), evolution of a
standard (its update, 1999), and practical guide (1999)
o
CreditGrades technical document
(description of the structural model, 2002), CreditMetrics technical document
(1997)
·
Moody’s KMV white
papers on credit risk
·
FRM 1997 exam problems with answers
·
Risk management links on the web
·
Articles on credit
risk from Tavakoli Structured Finance