This chapter provides a valuable explanation of measuring economic capital for counterparty credit risk. The uncertainty of the future credit exposure to a counterparty complicates the calculation of credit risk associated with a counterparty agreement. Various methods for measuring counterparty credit exposure, economic capital for a loan or ... click here for more details.

Due to the deregulation of electricity in the United States and Europe, interest in the electricity derivatives market is growing quickly. Pricing of electricity derivatives, however, must take into account the unique features of electricity, particularly the storability and distribution limitations. This chapter describes power options and discusses ... click here for more details.

This reading successfully outlines the complicating issues that arise in applying credit risk management tools from the financial industry to the energy industry. Credit risk generally and credit risk models from the financial industry are summarized. The authors argue that credit risk management practices in the energy industry ... click here for more details.

***From the book*** In this chapter we have looked at physical purchase and sale agreements indexed to a floating market price, and have met the most basic linear instruments that may be used to mitigate the price risk inherent in such arrangements. While we have seen numerous illustrations of how futures, ... click here for more details.

***From the book*** For the purpose of this report we have considered market risk to encompass commodity, foreign exchange and interest rate risks, and have defined it as exposure to uncertainty in these traded markets. In this guide we have looked at how market players may be exposed to these sources ... click here for more details.

This chapter provides an effective overview of the operational risk capital requirements in the Basel II Accord, with particular attention on the advanced measurement approach, and discusses the various considerations for selecting one approach versus another. Loss profiling, key risk indicators and operational value-at-risk analysis are also explained. ... click here for more details.

Extreme value theory (EVT) is an important concept for financial risk management, as it attempts to define and model the tail of return distributions. This chapter explains two EVT approaches, namely the block maxima approach and the peaks-over-threshold approach with a good balance between mathematical definition and intuitive explanation ... click here for more details.

*** From the book *** In its generalised meaning, a loan portfolio contains risky assets that are subject to credit risk owing to the probable occurrence of default. In view of this, it is very important for the bank to come up with some means of quantifying the unanticipated change in ... click here for more details.

*** From the book *** Building on our earlier discussion of the concept of expected loss, the primary goal in this chapter is, first, to quantify the unanticipated risk of loss of a single risky asset in the event of default. This unanticipated risk of loss is represented by a ... click here for more details.