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The Shape of risk: a new look at risk management

Author: Fishkin, Charles Publisher: Palgrave, 2006.Language: EnglishDescription: 400 p. : Graphs ; 25 cm.ISBN: 1403932883Type of document: BookBibliography/Index: Includes bibliographical references and index and glossary
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
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Print HD61 .F57 2006
(Browse shelf)
001191661
Available 001191661
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Includes bibliographical references and index and glossary

Digitized

The Shape of Risk A New Look at Risk Management Contents List of figures List of exhibits Foreword by Charles Smithson Preface Part I PRINCIPLES I Risk:A Shape to be Drawn Overview Introduction What is risk? Types of risk What is risk management? Visual thinking as a source of connection Types of models in finance Familiar shapes Components of firm-wide risk Braids of risk Ribbons of risk Sets of risk Particles of risk Risk as a process The risk prism The value of images Learning to observe Conclusion "A shape to be drawn": the discovery of the structure of DNA Summary, questions, and next steps Looking ahead to the next chapter: Defining risks Further reading Key terms 2 Definitions: Categories and Choices Overview Introduction Types of risk: another look xvii xix xxiii xxv I 3 3 3 4 5 6 7 8 10 10 13 13 14 14 I6 17 17 21 22 23 25 26 26 28 29 29 30 30 viii CONTENTS Challenges Applying the definitions Identification Categorization Ranking Evaluation Benefits Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Risk managers Further reading Key terms 3 Risk Managers: Map Makers Overview Introduction The new risk manager Qualities of risk managers Wide range of roles Credit risk manager Market risk manager Operational risk manager Technology risk manager Risk transfer manager Business continuity manager Everyone is a risk manager Conclusion Summary, questions, and next steps Looking ahead to the next chapters: Credit, market, and operational risk Further reading Key terms 4 Credit Risk:A Traditional Challenge Overview Introduction Definition of credit risk An industrial company and its banker The different participants Key principles Nature of credit risk Hedge fund credit risk Conclusion 32 36 36 36 37 37 39 42 43 44 44 45 47 47 47 48 49 52 52 53 54 55 55 56 56 57 57 58 58 59 61 6I 62 62 62 64 67 70 70 75 CONTENTS ix Summary, questions, and next steps Looking ahead to the next chapter: Market risk Further reading Key terms 5 Market Risk:A New Challenge Overview Introduction Defining market risk Seeking market risk Questions about market risk The diverse nature of market risk Market risk program Struggling with market risk Examples of problems Value at risk Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Operational risk Further reading Key terms 6 Operational Risk: Everyman Overview Introduction The challenges of operational risk Defining operational risk Examples of operational risk Sources of operational risk Managing operational risk Mergers and operational risk Everyman and operational risk Portraits of risk Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Governance Further reading Key terms 7 Governance:Taking Action Overview Introduction Defining governance 75 76 76 77 79 79 80 80 82 85 86 88 90 91 93 100 100 102 102 102 103 103 103 104 106 107 109 110 113 115 117 118 119 120 120 121 123 123 123 124 x CONTENTS Governance in practice Bank credit exposure New product offering Challenges of governance Additional examples Components of sound governance Warning signs Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Getting started Further reading Key terms Part II CHALLENGES 8 Initial Steps:Thinking, Planning, Doing Overview Introduction Qualities of a risk program Why get started? Advocacy Skepticism Incremental progress Dialogue Inventory Working group Benchmarking Common language Policy framework Top risks External risk events External consultants Charter Influences on success Additional steps Manageable tasks Suggestions What to avoid Conclusion Creating the SEC's risk management program Summary, questions, and next steps Looking ahead to the next chapter: Separation of duties Further reading Key terms 127 127 127 128 130 131 132 134 134 136 136 136 137 139 139 139 140 141 142 143 145 145 145 146 146 147 147 147 147 148 148 149 150 151 152 153 154 155 163 165 165 166 CONTENTS xi 9 Separation of Duties:The Front, Middle, and Back Office Overview Introduction Singular intensity of purpose Right the first time The need for differences Blurry lines Complexities of the problem The right balance Conclusion Summary, questions, and next steps Looking ahead to the next chapter: People Further reading Key terms I O People:The Silent Risk Overview Introduction Challenges facing risk managers Roles of employees Relations with the front office Managing the challenge Taking action Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Institutional knowledge Further reading Key terms I I Institutional Knowledge:The Knowledge Factory Overview Introduction What is information? What is knowledge? What do we need to know? Common problems Attempted efforts, neglected values The way forward Core institutional knowledge Conclusion Summary, questions, and next steps Looking ahead to the next chapter: New products I67 167 167 I68 169 170 170 173 174 175 176 177 178 178 179 179 179 180 I82 183 184 185 190 190 191 192 192 193 193 193 194 194 196 197 199 200 201 203 203 205 xii CONTENTS Further reading Key terms 12 New Products: Managing Innovation Overview Introduction Defining innovation Three market examples Mortgage-backed securities High-yield bonds OTC derivatives Lessons learned Defining "newness" New product process Common problems and solutions The risks of electronic markets Problems with the old system Solutions and steps Types of risk Pre-trade At trading Post trading Electronic trading in summary Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Measurement Further reading Key terms 13 Measurement: The Size of Risk Overview Introduction Questions Rationale Questions Types of risk Market risk Credit risk Operational risk Challenges Approaches Additional considerations Conclusion 205 205 207 207 207 208 209 210 211 211 212 214 215 215 216 217 218 219 221 221 222 222 223 223 225 225 226 227 227 228 229 233 234 235 235 236 236 237 238 239 240 CONTENTS xiii Summary, questions, and next steps Looking ahead to the next chapter: Data Further reading Key terms Part III APPLICATIONS 14 Data: Elements of Risk Overview Introduction What is risk data? Benefits of data Insight into risks Enhancing the risk dialogue Types of data Challenges Issues Problems Solutions Benefits Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Indicators Further reading Key terms 15 Indicators: Messages and Signals Overview Introduction Definitions Case study: Global Bank Hidden risks Specific indicators Introducing indicators Suggested approaches Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Technology Further reading Key terms 16 Technology: Multiple Dimensions Overview 241 242 242 243 245 247 247 247 248 250 250 251 252 254 255 256 256 257 257 258 259 259 259 261 261 261 261 264 265 268 269 271 272 273 274 274 274 275 275 xiv CONTENTS Introduction Definitions Uses of risk technology Benefits Role of judgment Applications Standard technology versus custom solutions Buy versus build Risks of buying Benefits of buying Evaluating systems Building custom technology Support, training, expertise The merits of IT Conclusion Summary, questions, and next steps Looking ahead to the next chapter: OTC derivatives Further reading Key terms Part IV PROCESSES 17 Derivatives: Trading Safely Overview Introduction Defining derivatives Using derivatives Terminology Participants Before trading Customer investigation Internal approvals At trading Post trading General reminders Broad principles Derivatives check list General reminders Before trading At trading Post trading Conclusion Summary, questions, and next steps 275 276 276 277 279 280 281 282 282 282 283 284 284 285 286 286 288 288 288 289 291 291 291 292 292 294 295 299 299 301 304 306 308 310 310 311 311 312 312 314 314 CONTENTS xv Looking ahead to the next chapter: Collateral Further reading Key terms 18 Collateral: Order and Complexity Overview Introduction Definition of collateral Choices Collateral calculations Challenges of collateral Examples University endowment Global theme park company Various risks Business risk Credit risk Market risk Operational risk The special case of initial collateral The portfolio implications of collateral Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Master agreements Further reading Key terms 19 Master Agreements: The Documentation Vortex Overview Introduction What are master agreements? Challenges of master agreements Credit and operational risks Solutions Benefits Implementing a logical plan The master agreement process step by step I Client dialogue 2 Request for draft 3 New customer review 4 Credit review 5 Draft request generated 6 Preparation of draft 315 316 316 317 317 317 318 319 320 322 323 323 324 327 327 327 329 329 331 335 336 336 337 337 338 339 339 339 340 342 343 344 345 346 346 347 347 348 348 348 349 xvi CONTENTS 7 Draft to customer 8 Customer comments 9 Final approvals 10 Final versions signed Conclusion Summary, questions, and next steps Looking ahead to the next chapter: Summing up Further reading Key terms 20 Summing Up and Looking Ahead Key propositions of risk management Further exploration A few final points Acknowledgments and personal reflections Glossary References and further reading Epilogue Index 349 349 349 349 350 350 351 35I 352 353 353 354 356 359 367 385 391 393

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