| Description |
1 online resource (1 volume) : illustrations |
| Bibliography |
Includes bibliographical references and index. |
| Contents |
Bubble Value at Risk: A Countercyclical Risk Management Approach -- Copyright -- Contents -- About the Author -- Foreword -- Preface -- Audience -- Overview of the Contents -- Additional Materials -- Acknowledgments -- Part One: Background -- Chapter 1: Introduction -- 1.1: The Evolution of Riskometer -- 1.2: Taleb's Extremistan -- 1.3: The Turner Procyclicality -- 1.4: The Common Sense of Bubble Value-at-Risk (BuVaR) -- Notes -- Chapter 2: Essential Mathematics -- 2.1: Frequentist Statistics -- 2.2: Just Assumptions -- i.i.d. and Stationarity -- Law of Large Numbers -- The Quest for Invariance -- PDF and CDF -- Normal Distribution -- Central Limit Theorem -- 2.3: Quantiles, VaR, and Tails -- 2.4: Correlation and Autocorrelation -- Correlation -- Autocorrelation -- 2.5: Regression Models and Residual Errors -- 2.6: Significance Tests -- How to Compute t-Ratio for Regression -- Hypothesis Testing -- Stationarity Tests -- 2.7: Measuring Volatility -- 2.8: Markowitz Portfolio Theory -- 2.9: Maximum Likelihood Method -- 2.10: Cointegration -- 2.11: Monte Carlo Method -- 2.12: The Classical Decomposition -- 2.13: Quantile Regression Model -- 2.14: Spreadsheet Exercises -- Notes -- Part Two: Value at Risk Methodology -- Chapter 3: Preprocessing -- 3.1: System Architecture -- 3.2: Risk Factor Mapping -- Rationale for Risk Factor Mapping -- Market Risks and Nonmarket Risks -- Risk Dimensions -- Risk Factor Universe -- 3.3: Risk Factor Proxies -- 3.4: Scenario Generation -- Different Returns -- Negative Rates -- 3.5: Basic VaR Specification -- The Case for Mean Adjustment -- Notes -- Chapter 4: Conventional VaR Methods -- 4.1: Parametric VaR -- Weakness of pVaR -- 4.2: Monte Carlo VaR -- Weakness of mcVaR -- 4.3: Historical Simulation VaR -- Weaknesses of hsVaR -- 4.4: Issue: Convexity, Optionality, and Fat Tails -- Convexity -- Optionality -- Fat Tails. |
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4.5: Issue: Hidden Correlation -- 4.6: Issue: Missing Basis and Beta Approach -- Basis Risks -- Beta Approach -- 4.7: Issue: The Real Risk of Premiums -- 4.8: Spreadsheet Exercises -- Notes -- Chapter 5: Advanced VaR Methods -- 5.1: Hybrid Historical Simulation VaR -- 5.2: Hull-White Volatility Updating VaR -- 5.3: Conditional Autoregressive VaR (CAViaR) -- 5.4: Extreme Value Theory VaR -- Classical EVT -- Peaks-over-Thresholds (POT) Method -- 5.5: Spreadsheet Exercises -- Notes -- Chapter 6: VaR Reporting -- 6.1: VaR Aggregation and Limits -- 6.2: Diversification -- 6.3: VaR Analytical Tools -- The Tail Profile -- Component VaR -- Incremental VaR -- 6.4: Scaling and Basel Rules -- Basel Rules -- Time Scaling -- Quantile Scaling -- 6.5: Spreadsheet Exercises -- Notes -- Chapter 7: The Physics of Risk and Pseudoscience -- 7.1: Entropy, Leverage Effect, and Skewness -- 7.2: Volatility Clustering and the Folly of i.i.d. -- 7.3: "Volatility of Volatility" and Fat Tails -- 7.4: Extremistan and the Fourth Quadrant -- 7.5: Regime Change, Lagging Riskometer, and Procyclicality -- The Lagging Nature of VaR -- Hardwired Procyclicality -- 7.6: Coherence and Expected Shortfall -- 7.7: Spreadsheet Exercises -- Notes -- Chapter 8: Model Testing -- 8.1: The Precision Test -- 8.2: The Frequency Back Test -- 8.3: The Bunching Test -- 8.4: The Whole Distribution Test -- 8.5: Spreadsheet Exercises -- Notes -- Chapter 9: Practical Limitations of VaR -- 9.1: Depegs and Changes to the Rules of the Game -- 9.2: Data Integrity Problems -- 9.3: Model Risk -- Pricing Model Risk -- Strategies and Futuristic Information -- 9.4: Politics and Gaming -- Notes -- Chapter 10: Other Major Risk Classes -- 10.1: Credit Risk (and CreditMetrics) -- Step 1: Defining Various States of the World -- Step 2: Revaluation of Loan Portfolio -- Step 3: Building Correlation -- 10.2: Liquidity Risk. |
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What Exactly Is Liquidity Risk? -- Liquidity-Adjusted VaR or L-VaR -- A Possible Add-On Formula -- Taking Probability into Account -- 10.3: Operational Risk -- 10.4: The Problem of Aggregation -- The Danger of Adding Apples to Oranges -- Adding across Different Forecast Horizons -- 10.5: Spreadsheet Exercises -- Notes -- Part Three: The Great Regulatory Reform -- Chapter 11: Regulatory Capital Reform -- 11.1: Basel I and Basel II -- 11.2: The Turner Review -- Fundamental Theoretical Issues -- Avoiding Procyclicality in Basel II -- 11.3: Revisions to Basel II Market Risk Framework (Basel 2.5) -- Incremental Risk Charge -- Banking Book Treatment of Securitized Credit Products -- Stressed VaR -- Counterparty Credit Risk: CVA VaR -- 11.4: New Liquidity Framework -- 11.5: The New Basel III -- 11.6: The New Framework for the Trading Book -- 11.7: The Ideal Capital Regime -- Notes -- Chapter 12: Systemic Risk Initiatives -- 12.1: Soros' Reflexivity, Endogenous Risks -- 12.2: CrashMetrics -- CrashMetrics for One Stock -- Extension to Multiasset/Multibenchmark Model -- Simple Illustration -- 12.3: New York Fed CoVaR -- Estimation of CoVaR -- 12.4: The Austrian Model and BOE RAMSI -- 12.5: The Global Systemic Risk Regulator -- 12.6: Spreadsheet Exercises -- Notes -- Part Four: Introduction to Bubble Value-at-Risk (BuVaR) -- Chapter 13: Market BuVaR -- 13.1: Why an Alternative to VaR? -- 13.2: Classical Decomposition, New Interpretation -- 13.3: Measuring the Bubble -- The Notion of Equilibrium -- Adaptive Moving Average -- Using Rank Filter -- 13.4: Calibration -- 13.5: Implementing the Inflator -- 13.6: Choosing the Best Tail-Risk Measure -- Coherence -- Responsiveness -- Stability -- 13.7: Effect on Joint Distribution -- 13.8: The Scope of BuVaR -- Price-Based Risk Factors -- Rates-Based Risk Factors -- Credit Spread Risk Factors. |
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Volatility-Based Risk Factors -- 13.9: How Good Is the BuVaR Buffer? -- 13.10: The Brave New World -- Hidden Conditions -- Beyond i.i.d. -- Living with Extremistan -- 13.11: Spreadsheet Exercises -- Notes -- Chapter 14: Credit BuVaR -- 14.1: The Credit Bubble VaR Idea -- 14.2: Model Formulation -- 14.3: Behavior of Response Function -- 14.4: Characteristics of Credit BuVaR -- 14.5: Interpretation of Credit BuVaR -- 14.6: Spreadsheet Exercises -- Notes -- Chapter 15: Acceptance Tests -- 15.1: BuVaR Visual Checks -- 15.2: BuVaR Event Timing Tests -- 15.3: BuVaR Cyclicality Tests -- 15.4: Credit BuVaR Parameter Tuning -- Notes -- Chapter 16: Other Topics -- 16.1: Diversification and Basis Risks -- 16.2: Regulatory Reform and BuVaR -- Cushioning Fat-Tail Losses -- Overtly Countercyclical -- Other Advantages -- 16.3: BuVaR and the Banking Book: Response Time as Risk -- 16.4: Can BuVaR Pick Tops and Bottoms Perfectly? -- 16.5: Postmodern Risk Management -- 16.6: Spreadsheet Exercises -- Note -- Chapter 17: Epilogue: Suggestions for Future Research -- Note -- About the Website -- Bibliography -- Index -- Descriptions of the Spreadsheets for the Book -- Website. |
| Summary |
Introduces a powerful new approach to financial risk modeling with proven strategies for its real-world applications The 2008 credit crisis did much to debunk the much touted powers of Value at Risk (VaR) as a risk metric. Unlike most authors on VaR who focus on what it can do, in this book the author looks at what it cannot. In clear, accessible prose, finance practitioners, Max Wong, describes the VaR measure and what it was meant to do, then explores its various failures in the real world of crisis risk management. More importantly, he lays out a revolutionary new method of measuring risks, Bubble Value at Risk, that is countercyclical and offers a well-tested buffer against market crashes. Describes Bubble VaR, a more macro-prudential risk measure proven to avoid the limitations of VaR and by providing a more accurate risk exposure estimation over market cycles Makes a strong case that analysts and risk managers need to unlearn our existing "science" of risk measurement and discover more robust approaches to calculating risk capital Illustrates every key concept or formula with an abundance of practical, numerical examples, most of them provided in interactive Excel spreadsheets Features numerous real-world applications, throughout, based on the author's firsthand experience as a veteran financial risk analyst |
| Subject |
Risk management -- Mathematical models.
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Risk assessment -- Mathematical models.
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Financial risk management -- Mathematical models.
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Asset-liability management -- Mathematical models.
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Gestion du risque -- Modèles mathématiques. |
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Évaluation du risque -- Modèles mathématiques. |
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Finances -- Gestion du risque -- Modèles mathématiques. |
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Gestion des actifs et des passifs -- Modèles mathématiques. |
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Asset-liability management -- Mathematical models |
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Risk assessment -- Mathematical models |
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Risk management -- Mathematical models |
| Other Form: |
Print version: Wong, Max C.Y. (Max Chan Yue). Bubble value at risk. Revised edition. Singapore : John Wiley & Sons Singapore Pte. Ltd., [2013] 9781118550342 (OCoLC)851388780 |
| ISBN |
9781118550373 |
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1118550374 |
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