From the Authors - In this chapter we provide a non-mathematical discussion of various issues that form the background to the rest of the book. In Section 1.1 we begin with the nature of risk itself and how risk relates to randomness; in the financial context (which includes insurance) we ... click here for more details.
From the Authors - In this chapter we discuss essential concepts in quantitative risk management. We begin by introducing a probabilistic framework for modelling financial risk and we give formal definitions for notions such as risk, profit and loss, risk factors and mapping. Moreover, we discuss a number of examples ... click here for more details.
From the Authors - Financial risk models, whether for market or credit risks, are inherently multivariate. The value change of a portfolio of traded instruments over a fixed time horizon depends on a random vector of risk-factor changes or returns. The loss incurred by a credit portfolio depends on a ... click here for more details.
From the Authors - In this chapter we consider time series models for financial risk-factor change data, in particular differenced logarithmic price and exchange-rate series. We begin by looking more systematically at the empirical properties of such data in a discussion of so-called stylized facts. In Section 4.2 we review ... click here for more details.
From the Authors - In this chapter we look more closely at the issue of modelling the dependence among components of a random vector of financial risk factors using the concept of a copula. All readers are encouraged to read Section 5.1 in order to grasp the basic idea of ... click here for more details.
From the Authors - This chapter is devoted to a number of theoretical concepts in quantitative risk management that fall under the broad heading of aggregate risk. We understand aggregate risk as the risk of a portfolio, which could even be the entire position in risky assets of a financial ... click here for more details.
From the Authors - Broadly speaking, there are two main kinds of model for extreme values. The most traditional models are the block maxima models described in Section 7.1: these are models for the largest observations collected from large samples of identically distributed observations. A more modern and powerful group ... click here for more details.
From the Authors - Credit risk is the risk that the value of a portfolio changes due to unexpected changes in the credit quality of issuers or trading partners. This subsumes both losses due to defaults and losses caused by changes in credit quality, such as the downgrading of a ... click here for more details.
From the Authors - In this chapter we study credit risk models in continuous time and consider the pricing of credit derivatives in the framework of reduced-form models. Reduced-form models are popular in practice, since they lead to tractable formulas explaining the price of credit-risky securities in terms of economic ... click here for more details.
From the Authors - In the first half of this chapter (Section 10.1) we examine the Basel II requirements for the quantitative modelling of operational risk, discussing various potential approaches. On the basis of some industry data we highlight the possibilities and limitations of existing tools for the calculation of ... click here for more details.
