Risk Management and Shareholders’ Value in Banking

ANDREA RESTI, formerly an officer at one of Italy's largest banks, has worked on Basel II issues for the Centre for European Policy Studies (Brussels). A consultant to several major banks, as well as to the Bank of Italy, he has held courses on credit risk for GARP and PRMIA.
 
ANDREA SIRONI, formerly with Chase Manhattan Bank in London, has been a visiting scholar at the Stern School of Business (NYU) and at the Federal Reserve Board of Governors (Washington). He is currently Dean for International Affairs at Bocconi University (Milan) and a member of the Fitch Academic Advisory Board. .
 
The authors are both professors of Financial Markets and Institutions at Bocconi and have been teaching banking and finance for more than 15 years. Their publications comprise many articles in major international academic journals, as well as several risk management and banking textbooks, including a best-selling title on recovery risk

This book presents an integrated framework for risk measurement, capital management and value creation in banks. Moving from the measurement of the risks facing a bank, it defines criteria and rules to support a corporate policy aimed at maximizing shareholders' value.
 

Parts I - IV discuss different risk types (including interest rate, market, credit and operational risk) and how to assess the amount of capital they absorb by means of up-to-date, robust risk-measurement models. Part V surveys regulatory capital requirements: a special emphasis is given to the Basel II accord, discussing its economic foundations and managerial implications. Part VI presents models and techniques to calibrate the amount of economic capital at risk needed by the bank, to fine-tune its composition, to allocate it to risk-taking units, to estimate the "fair" return expected by shareholders, to monitor the value creation process. Risk Management and Shareholders' Value in Banking includes:
 
* Value at Risk, Monte Carlo models, Creditrisk+, Creditmetrics and much more
* formulae for risk-adjusted loan pricing and risk-adjusted performance measurement
* extensive, hands-on Excel examples provided in the enclosed CD
* a complete, up-to-date introduction to Basel II
* focus on capital allocation, Raroc, EVA, cost of capital and other value-creation metrics

Risk Management and Shareholders Value in Banking covers all main aspects of risk management, capital management and value creation for financial institutions; it is structured in a step by step, six part approach: Part One covers the measurement and management of the interest rate risk on all assets and liabilities of a banking institution.

Foreword.
 
Motivation and Scope of this Book: A Quick Guided Tour.
 
PART I INTEREST RATE RISK.
 
Introduction to Part I.
 
1 The Repricing Gap Model.
 
Selected Questions and Exercises.
 
Appendix 1A The Term Structure of Interest Rates.
 
Appendix 1B Forward Rates.
 
2 The Duration Gap Model.
 
Selected Questions and Exercises.
 
Appendix 2A The Limits of Duration.
 
3 Models Based on Cash-Flow Mapping.
 
Selected Questions and Exercises.
 
Appendix 3A Estimating the Zero-coupon Curve.
 
4 Internal Transfer Rates.
 
Selected Questions and Exercises.
 
Appendix 4A Derivative Contracts on Interest Rates.
 
PART II MARKET RISKS.
 
Introduction to Part II.
 
5 The Variance-Covariance Approach.
 
Selected Questions and Exercises.
 
Appendix 5A Stockmarket Betas.
 
6 Volatility Estimation Models.
 
Selected Questions and Exercises.
 
7 Simulation Models.
 
variance-covariance approach.
 
Selected Questions and Exercises.
 
8 Evaluating VaR Models.
 
Selected Questions and Exercises.
 
Appendix 8A VaR Model Backtesting According to the Basel Committee.
 
9 VaR Models: Summary, Applications and Limitations.
 
Selected Questions and Exercises.
 
Appendix 9A Extreme Value Theory.
 
PART III CREDIT RISK.
 
Introduction to Part III.
 
10 Credit-Scoring Models.
 
Selected Questions and Exercises.
 
Appendix 10A The Estimation of the Gamma Coefficients in Linear.
 
Discriminant Analysis.
 
11 Capital Market Models.
 
bond spreads.
 
Selected Questions and Exercises.
 
Appendix 11A Calculating the Fair Spread on a Loan.
 
Appendix 11B Real and Risk-Neutral Probabilities of Default.
 
12 LGD and Recovery Risk.
 
Selected Questions and Exercises.
 
Appendix 12A The Relationship Between PD and RR in the Merton Model.
 
13 Rating Systems.
 
Selected Questions and Exercises.
 
14 Portfolio Models.
 
default risk.
 
Selected Questions and Exercises.
 
Appendix 14A Asset Correlation Versus Default Correlation.
 
15 Some Applications of Credit Risk Measurement Models.
 
Selected Questions and Exercises.
 
Appendix 15A Credit Risk Transfer Tools.
 
16 Counterparty Risk on OTC Derivatives.
 
PART IV OPERATIONAL RISK.
 
Introduction to Part IV.
 
17 Operational Risk: Definition, Measurement and Management.
 
Selected Questions and Exercises.
 
Appendix 17A OR Measurement and EVT.
 
PART V REGULATORY CAPITAL REQUIREMENTS.
 
Introduction to Part V.
 
18 The 1988 Capital Accord.
 
Selected Questions and Exercises.
 
Appendix 18A The Basel Committee.
 
19 The Capital Requirements for Market Risks.
 
Selected Questions and Answers.
 
Appendix 19A Capital requirements Related to Settlement, Counterparty and Concentration Risks.
 
20 The New Basel Accord.
 
Selected Questions and Exercises.
 
21 Capital Requirements on Operational Risk.
 
Selected Questions and Exercises.
 
PART VI CAPITAL MANAGEMENT AND VALUE CREATION.
 
Introduction to Part VI.
 
22 Capital Management.
 
performance measurement.
 
Selected Questions and Exercises.
 
23 Capital Allocation.
 
Selected Questions and Exercises.
 
Appendix 23A The Correlation Approach.
 
Appendix 23B The Virtual nature of Ca

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