دانلود کتاب Risk management and shareholders' value in banking : from risk measurement models to capital allocation policies

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Risk Management and Shareholders’ Value in Banking......Page 4
Contents......Page 10
Foreword......Page 22
Motivation and Scope of this Book: A Quick Guided Tour......Page 24
PART I INTEREST RATE RISK......Page 30
Introduction to Part I......Page 32
1.2 The gap concept......Page 38
1.3 The maturity-adjusted gap......Page 41
1.4 Marginal and cumulative gaps......Page 44
1.5 The limitations of the repricing gap model......Page 48
1.6.1 Non-uniform rate changes: the standardized gap......Page 49
1.6.2 Changes in rates of on-demand instruments......Page 52
1.6.3 Price and quantity interaction......Page 53
Selected Questions and Exercises......Page 54
Appendix 1A The Term Structure of Interest Rates......Page 57
Appendix 1B Forward Rates......Page 61
2.2 Towards mark-to-market accounting......Page 64
2.3.1 Duration as a weighted average of maturities......Page 68
2.3.2 Duration as an indicator of sensitivity to interest rates changes......Page 69
2.4 Estimating the duration gap......Page 71
2.5 Problems of the duration gap model......Page 74
Selected Questions and Exercises......Page 76
Appendix 2A The Limits of Duration......Page 78
3.2 The objectives of cash-flow mapping and term structure......Page 86
3.3 Choosing the vertices of the term structure......Page 87
3.4.1 The duration intervals method......Page 88
3.4.2 The modified residual life method......Page 89
3.4.3 The Basel Committee Method......Page 90
3.5.1 Structure of the methodology......Page 93
3.5.2 An example......Page 94
3.5.3 Clumping on the basis of price volatility......Page 96
3.6 Concluding comments......Page 97
Selected Questions and Exercises......Page 98
Appendix 3A Estimating the Zero-Coupon Curve......Page 100
4.2 Building an ITR system: a simplified example......Page 106
4.3 Single and multiple ITRs......Page 108
4.4.1 ITRs for fixed-rate transactions......Page 113
4.4.3 ITRs for transactions indexed at “non-market” rates......Page 114
4.5.1 Option to convert from fixed to floating rate......Page 117
4.5.2 Floating rate loan subject to a cap......Page 118
4.5.3 Floating rate loan subject to a floor......Page 119
4.5.5 Option for early repayment......Page 120
4.6 Summary: the ideal features of an ITR system......Page 122
Selected Questions and Exercises......Page 123
Appendix 4A Derivative Contracts on Interest Rates......Page 125
PART II MARKET RISKS......Page 132
Introduction to Part II......Page 134
5.2.1 A simplified example......Page 144
5.2.2 Confidence level selection......Page 150
5.2.3 Selection of the time horizon......Page 153
5.3.1 A more general example......Page 155
5.3.2 Portfolio VaR......Page 157
5.3.3 Delta-normal and asset-normal approaches......Page 161
5.4.1 Mapping of foreign currency bonds......Page 162
5.4.2 Mapping of forward currency positions......Page 164
5.4.3 Mapping of forward rate agreements......Page 168
5.4.4 Mapping of stock positions......Page 169
5.5 Summary of the variance-covariance approach and main limitations......Page 172
5.5.1 The normal distribution hypothesis......Page 173
5.5.2 Serial independence and stability of the variancecovariance matrix......Page 176
5.5.3 The linear payoff hypothesis and the delta/gamma approach......Page 177
Selected Questions and Exercises......Page 180
Appendix 5A Stockmarket Betas......Page 183
Appendix 5B Option Sensitivity Coefficients: “Greeks”......Page 186
6.2 Volatility estimation based upon historical data: simple moving averages......Page 192
6.3 Volatility estimation based upon historical data: exponential moving averages......Page 196
6.4 Volatility prediction: GARCH models......Page 201
6.5 Volatility prediction: implied volatility......Page 208
6.6 Covariance and correlation estimation......Page 210
Selected Questions and Exercises......Page 211
7.1 Introduction......Page 214
7.2.1 A first example: the VaR of a single position......Page 218
7.2.2 Estimation of a portfolio’s VaR......Page 222
7.2.3 A comparison between historical simulations and the variance-covariance approach......Page 224
7.2.4 Merits and limitations of the historical simulation method......Page 225
7.2.5 The hybrid approach......Page 227
7.2.6 Bootstrapping and path generation......Page 230
7.2.7 Filtered historical simulations......Page 231
7.3 Monte Carlo simulations......Page 234
7.3.1 Estimating the VaR of a single position......Page 236
7.3.2 Estimating portfolio VaR......Page 238
7.3.3 Merits and limitations of Monte Carlo simulations......Page 243
7.4 Stress testing......Page 247
Selected Questions and Exercises......Page 250
8.2 An example of backtesting: a stock portfolio VaR......Page 254
8.3 Alternative VaR model backtesting techniques......Page 261
8.3.1 The unconditional coverage test......Page 262
8.3.2 The conditional coverage test......Page 267
8.3.3 The Lopez test based upon a loss function......Page 270
8.3.4 Tests based upon the entire distribution......Page 272
Selected Questions and Exercises......Page 273
Appendix 8A VaR Model Backtesting According to the Basel Committee......Page 275
9.2 A summary overview of the different models......Page 280
9.3.1 Comparison among different risks......Page 282
9.3.2 Determination of risk taking limits......Page 286
9.3.3 The construction of risk-adjusted performance (RAP) measures......Page 287
9.4.1 VaR models disregard exceptional events......Page 289
9.4.3 VaR models are based upon unrealistic assumptions......Page 290
9.4.5 VaR models amplify market instability......Page 291
9.5.1 The Size of Losses......Page 292
9.5.2 Non-subadditivity......Page 294
9.6 An Alternative Risk Measure: Expected Shortfall (ES)......Page 297
Selected Questions and Exercises......Page 298
Appendix 9A Extreme Value Theory......Page 301
PART III CREDIT RISK......Page 304
Introduction to Part III......Page 306
10.2.1 The discriminant function......Page 316
10.2.2 Wilks’ Lambda......Page 321
10.2.3 Altman’s Z-score......Page 323
10.2.4 From the score to the probability of default......Page 324
10.2.5 The cost of errors......Page 325
10.2.6 The selection of discriminant variables......Page 326
10.3.1 The linear probabilistic model......Page 328
10.4.1 Neural networks......Page 330
10.4.2 Genetic algorithms......Page 333
10.5 Uses, limitations and problems of credit-scoring models......Page 336
Selected Questions and Exercises......Page 338
Appendix 10A The Estimation of the Gamma Coefficients in Linear Discriminant Analysis......Page 340
11.2 The approach based on corporate bond spreads......Page 342
11.2.2 Estimating the one-year probability of default......Page 343
11.2.3 Probabilities of default beyond one year......Page 344
11.2.4 An alternative approach......Page 347
11.2.5 Benefits and limitations of the approach based on corporate bond spreads......Page 349
11.3.1 An introduction to structural models......Page 350
11.3.2 Merton’s model: general structure......Page 351
11.3.3 Merton’s model: the role of contingent claims analysis......Page 353
11.3.4 Merton’s model: loan value and equilibrium spread......Page 355
11.3.6 The term structure of credit spreads and default probabilities......Page 357
11.3.7 Strengths and limitations of Merton’s model......Page 359
11.3.8 The KMV model for calculating V0 and σV......Page 361
11.3.9 The KMV approach and the calculation of PD......Page 363
11.3.10 Benefits and limitations of the KMV model......Page 366
Selected Questions and Exercises......Page 369
Appendix 11A Calculating the Fair Spread on a Loan......Page 371
Appendix 11B Real and Risk-Neutral Probabilities of Default......Page 372
12.1 Introduction......Page 374
12.2 What factors drive recovery rates?......Page 375
12.3.1 Market LGD and Default LGD......Page 376
12.3.2 Computing workout LGDs......Page 377
12.4 From past data to LGD estimates......Page 380
12.5 Results from selected empirical studies......Page 382
12.6 Recovery risk......Page 385
12.7 The link between default risk and recovery risk......Page 387
Selected Questions and Exercises......Page 391
Appendix 12A The Relationship between PD and RR in the Merton model......Page 393
13.1 Introduction......Page 398
13.2.1 Internal ratings and agency ratings: how do they differ?......Page 399
13.2.2 The assignment of agency ratings......Page 401
13.2.3 Rating assessment in bank internal rating systems......Page 405
13.3.1 The possible approaches......Page 408
13.3.2 The actuarial approach: marginal, cumulative and annualized default rates......Page 409
13.3.3 The actuarial approach: migration rates......Page 415
13.4.1 Some qualitative criteria......Page 417
13.4.2 Quantitative criteria for validating rating assignments......Page 418
13.4.3 The validation of the rating quantification step......Page 425
Selected Questions and Exercises......Page 427
14.1 Introduction......Page 430
14.2.1 The choice of the risk horizon......Page 431
14.2.2 The choice of the confidence level......Page 434
14.3 The migration approach: CreditMetrics™......Page 435
14.3.1 Estimating risk on a single credit exposure......Page 436
14.3.2 Estimating the risk of a two-exposure portfolio......Page 441
14.3.3 Estimating asset correlation......Page 447
14.3.4 Application to a portfolio of N positions......Page 449
14.3.5 Merits and limitations of the CreditMetrics™ model......Page 451
14.4 The structural approach: PortfolioManager™......Page 452
14.5.1 Estimating conditional default probabilities......Page 455
14.5.2 Estimating the conditional transition matrix......Page 456
14.6 The actuarial approach: CreditRisk+™......Page 457
14.6.1 Estimating the probability distribution of defaults......Page 458
14.6.2 The probability distribution of losses......Page 459
14.6.3 The distribution of losses of the entire portfolio......Page 461
14.6.4 Uncertainty about the average default rate and correlations......Page 463
14.6.5 Merits and limitations of CreditRisk+™......Page 467
14.7 A brief comparison of the main models......Page 468
14.8 Some limitations of the credit risk models......Page 471
14.8.2 The assumption of independence between exposure risk and default risk......Page 472
14.8.4 The impossibility of backtesting......Page 473
Selected Questions and Exercises......Page 475
Appendix 14A Asset correlation versus default correlation......Page 478
15.2 Loan pricing......Page 480
15.2.1 The cost of the expected loss......Page 481
15.2.2 The cost of economic capital absorbed by unexpected losses......Page 482
15.3 Risk-adjusted performance measurement......Page 486
15.4 Setting limits on risk-taking units......Page 488
15.5 Optimizing the composition of the loan portfolio......Page 490
Selected Questions and Exercises......Page 491
Appendix 15A Credit Risk Transfer Tools......Page 493
16.1 Introduction......Page 502
16.3 Estimating pre-settlement risk......Page 503
16.3.1 Two approaches suggested by the Basel Committee (1988)......Page 504
16.3.2 A more sophisticated approach......Page 506
16.3.3 Estimating the loan equivalent exposure of an interest rate swap......Page 508
16.3.4 Amortization and diffusion effect......Page 513
16.3.5 Peak exposure (PE) and average expected exposure (AEE)......Page 518
16.3.6 Further approaches to LEE computation......Page 522
16.3.7 Loan equivalent and Value at Risk: analogies and differences......Page 523
16.4 Risk-adjusted performance measurement......Page 524
16.5.1 Bilateral netting agreements......Page 525
16.5.2 Safety margins......Page 529
16.5.4 Credit triggers and early redemption options......Page 530
Selected Questions and Exercises......Page 533
PART IV OPERATIONAL RISK......Page 534
Introduction to Part IV......Page 536
17.1 Introduction......Page 540
17.2.1 OR risk factors......Page 541
17.2.2 Some peculiarities of OR......Page 543
17.3 Measuring OR......Page 546
17.3.2 Mapping business units and estimating risk exposure......Page 547
17.3.3 Estimating the probability of the risky events......Page 548
17.3.4 Estimating the losses......Page 551
17.3.5 Estimating expected loss......Page 553
17.3.6 Estimating unexpected loss......Page 556
17.3.7 Estimating Capital at Risk against OR......Page 558
17.4 Towards an OR management system......Page 562
17.5 Final remarks......Page 564
Selected Questions and Exercises......Page 566
Appendix 17A OR measurement and EVT......Page 568
PART V REGULATORY CAPITAL REQUIREMENTS......Page 572
Introduction to Part V......Page 574
18.1 Introduction......Page 576
18.2.1.1 Tier 1 capital......Page 578
18.2.1.2 Supplementary capital (Tier 2 and Tier 3)......Page 581
18.2.2 Risk weights (w)......Page 583
18.3 Shortcomings of the capital adequacy framework......Page 584
18.3.4 Disregard for portfolio diversification......Page 585
Selected Questions and Exercises......Page 588
Appendix 18A The Basel Committee......Page 592
19.2.1 Origins of the requirements......Page 594
19.2.2 Logic and scope of application......Page 595
19.2.3 The “building blocks” approach......Page 596
19.3.1 The requirement for specific risk......Page 597
19.3.2 The requirement for generic risk......Page 598
19.4 Positions in equity securities: specific and generic requirements......Page 604
19.5 The requirement for positions in foreign currencies......Page 605
19.7.1 Criticism of the Basel Committee proposals......Page 607
19.7.2 The 1995 revised draft......Page 608
19.7.3 The final amendment of January 1996......Page 610
19.7.4 Advantages and limitations of the internal model approach......Page 611
19.7.5 The pre-commitment approach......Page 612
Selected Questions and Exercises......Page 614
Appendix 19A Capital Requirements Related to Settlement, Counterparty and Concentration Risks......Page 617
20.2 Goals and Contents of the Reform......Page 620
20.3.1 Risk Weighting......Page 622
20.3.2 Collateral and Guarantees......Page 625
20.4.1 Risk Factors......Page 626
20.4.2 Minimum Requirements of the Internal Ratings System......Page 629
20.4.3 From the Rating System to the Minimum Capital Requirements......Page 632
20.5 Pillar Two: A New Role for Supervisory Authorities......Page 641
20.6.2 The Reporting Obligations......Page 643
20.6.3 Other Necessary Conditions for Market Discipline......Page 644
20.7 Pros and Cons of Basel II......Page 645
20.8.1 The Impact on First Implementation......Page 648
20.8.2 The Dynamic Impact: Procyclicality......Page 652
Selected Questions and Exercises......Page 659
21.2 The capital requirement on operational risk......Page 662
21.2.1 The Basic Indicator Approach......Page 663
21.2.2 The Standardized Approach......Page 664
21.2.4 Advanced measurement approaches......Page 667
21.2.5 The requirements for adopting advanced approaches......Page 668
21.2.7 The role of insurance coverage......Page 673
21.3 Weaknesses of the 2004 Accord......Page 674
Selected Questions and Exercises......Page 676
PART VI CAPITAL MANAGEMENT AND VALUE CREATION......Page 680
Introduction to Part VI......Page 682
22.1 Introduction......Page 686
22.2.1 The definition of capital......Page 687
22.2.2 The relationship between economic capital and available capital......Page 690
22.2.3 Calculating a bank’s economic capital......Page 692
22.2.4 The relationship between economic capital and regulatory capital......Page 696
22.2.5 The constraints imposed by regulatory capital: implications on pricing and performance measurement......Page 700
22.2.6 The determinants of capitalization......Page 703
22.3 Optimizing regulatory capital......Page 704
22.3.1 Technical features of the different regulatory capital instruments......Page 705
22.3.2 The actual use of the various instruments included within regulatory capital......Page 709
22.4.1 Insurance capital......Page 714
22.4.2 Contingent capital......Page 716
Selected Questions and Exercises......Page 720
23.1 Introduction......Page 722
23.2 Measuring capital for the individual business units......Page 723
23.2.2 The model-based approach......Page 724
23.2.3 The Earnings-at-Risk (EaR) approach......Page 726
23.3.1 The concept of diversified capital......Page 731
23.3.2 Calculating diversified capital......Page 732
23.3.3 Calculating the correlations used in determining diversified capital......Page 739
23.4 Capital allocated and capital absorbed......Page 741
23.5 Calculating risk-adjusted performance......Page 744
23.6.1 A model for optimal capital allocation......Page 751
23.6.2 A more realistic model......Page 753
23.7 The organizational aspects of the capital allocation process......Page 755
Selected Questions and Exercises......Page 757
Appendix 23A The Correlation Approach......Page 759
Appendix 23B The Virtual Nature of Capital Allocation......Page 760
24.2 The link between Risk Management and Capital Budgeting......Page 764
24.3 Capital Budgeting in Banks and in Non-Financial Enterprises......Page 765
24.4.1 The method based on the dividend discount model......Page 768
24.4.2 The method based on the price/earnings ratio......Page 770
24.4.3 The method based on the Capital Asset Pricing Model (CAPM)......Page 771
24.4.4 Caveats......Page 773
24.5 Some empirical Examples......Page 774
24.6 Value Creation and RAROC......Page 779
24.7 Value Creation and EVA......Page 782
24.8 Conclusions......Page 785
Selected Questions and Exercises......Page 786
Bibliography......Page 788
Index......Page 800