Risk Model Validation (2nd Edition)

Risk Model Validation (2nd Edition)

Strategic Risk Management

Strategic Risk Management

Risk Transparency

This book is a valuable resource which will enable you to gain a competitive advantage in the increasingly important area of risk transparency and reporting. Learn how to dissect the form, content and subjective transparency of the information you provide to management and outside stakeholders; and also get guidance on instituting formats and processes for reporting on a regular basis.

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This report, written by highly-experienced industry expert Sanjay Sharma, investigates factors that can inhibit financial institutions and other entities from providing full disclosure of the risks underlying their strategies, portfolios and performance. The author surveys disclosure practices that are generally followed, with relevant examples and commentary on their effectiveness and weaknesses. Prescriptive chapters illustrate how to overcome the drawbacks of disclosure and will also touch upon the evolution of regulatory standards and emerging trends in the aftermath of the financial crisis.  

In the aftermath of the global financial crisis, the issue of risk transparency is at the forefront of the minds of management, investors and regulators alike. Questions are arising surrounding risk transparency as it relates to, or is provided by, exchanges and markets, central banks and regulators. Ensure you are fully informed and equipped to deal with these questions.

You will find no better guide to the practice of professional risk management today than Sanjay Sharma's new book, Risk Transparency. Dr. Sharma provides a step-by-step guide on how you can harness critical risk information to provide insight and actionable information to risk takers and senior management.

In a voice that is both engaging and authoritative, Dr. Sharma accompanies you on a joint quest to develop risk templates and disclosures that will empower decision makers.  Dr. Sharma becomes your co-pilot as you review all the critical components: Market, Credit, Liquidity, and Operational Risk.  There are also special chapters devoted specifically to Systemic Risk, Regulation, and Institutional Disclosure…

…Risk Transparency is chock-full of insights, helpful tips, and pitfalls to be avoided.   The author provides comparative presentations and side-by-side tabular and graphic formats and explains what works and how it works well.  He explains where your emphasis should be focused and how to best interact with senior management and risk takers.”

Donahoe, former Senior Risk Officer at Barclays Capital and RB

More Information
ISBN 9781906348809
Navision code MRTR
Publication date 24 Dec 2013
Size 155mm x 235mm
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Sanjay Sharma

Sanjay Sharma is the founder and chairman of GreenPoint Global, a risk advisory, education and technology services firm headquartered in New York. Founded in 2006, GreenPoint has over 380 employees with a global footprint and production and management teams located in the US, India and Israel. Between 2007 and 2016 Sanjay was the chief risk officer of Global Arbitrage and Trading Group and managing director in fixed income and currencies risk management at RBC Capital Markets in New York. His career in the financial services industry spans over two decades, during which he has held investment banking and risk management positions at Goldman Sachs, Merrill Lynch, Citigroup, Moody’s and Natixis.

Sanjay was the co-founder of the RBC/Hass Fellowship Program at the University of California at Berkeley and is an adjunct professor at EDHEC, Nice, in France, New York University’s Tandon School of Financial Engineering and at Fordham University, where he teaches a capstone course on FRTB implementation for their master’s programmes. He has also served as an advisor and a member of the board of directors of UPS Capital, and on the global board of directors for Professional Risk Managers’ International Association.

Sanjay is a frequent speaker at industry conferences and at universities, and is the author of Risk Transparency, published by Risk Books, as well as numerous papers. He holds a PhD in finance and international business from New York University and an MBA from the Wharton School of Business, and has undergraduate degrees in physics and marine engineering. Sanjay acquired his appreciation for risk first hand as a merchant marine officer at sea, where he served for seven years and received the chief engineer’s certificate of competency for ocean-going merchant ships.

1. Risk Transparency: An Overview

Foundational Framework
Barriers to Risk Transparency
Ensuring Transparency

2. Risk and Uncertainty: The Foundation of Transparency

Definitional Frameworks
Appendix 2.1: Risk and Uncertainty – a Case Study

3. Model Risk

Overview of Quantitative Models
Components of Quantitative Models
Model Implementation
Flaws and Limitations of Quantitative Models
Model Risk Components
Model Interpretation
Model Risk Management Framework
Model Transparency
Appendix 3.1: A Complete Mathematical Description of the Black–Scholes Model
Appendix 3.2: A Qualitative Description of Black–Scholes Model with Limitations, Assumptions Etc
Appendix 3.3: A Qualitative Description of the Cox–Ingersoll–Ross Model
Appendix 3.4: A Qualitative Description of a Mortgage Portfolio Cashflow Modelling Framework

4. Credit Risk

Credit Risk versus Market Risk
Credit Risk Transparency: Part I
Classification of Debt and Credit Sensitive Risk Assets
Quantification of Credit Risk
Credit Risk Transparency: Part II
Appendix 4.1: Structured Credit Portfolios and Securitisation
Appendix 4.2: Case Study of Transparency Associated with Collateralised Loan Obligations (CLOs)

5. Market Risk

Market Risk Measurement
Interest-rate and Other Risk Measures
Valuation Framework
Decomposition and Analysis of Revenue and Profitability

6. Liquidity Risk

Categorisation of Liquidity Risk
Asset–liability Management
Sound Liquidity Management Practices
Practical Considerations
Measurement of Liquidity
Basel III Liquidity Framework
Transparency of Liquidity Risk

7. Operational Risk

Definition of Operational Risk
Taxonomy and Framework for Operational Risk
Operational Risk Transparency – Part I
Management of Operational Risk
Operational Risk Transparency – Part II
Appendix 7.1: Development of Operational Risk Thresholds
Appendix 7.2: Sample Scenario Analysis – External Fraud

8. Value-at-Risk

Conceptual Foundations of VaR
Evolution of VaR as a Measure of Risk
Computational Overview
Dynamics and Limitations of VaR
Recommendations for Making VaR Transparent and Actionable

9. Stress Testing

Introduction and Historical Perspective
Stress Testing Framework
Scenario Creation
Reverse Stress Testing
Stress Testing of Specific Risks and Exposures
Systemic Stress Testing and Central Banks
Considerations for Stress-Test Design and Implementation
Appendix 9.1: Stress-Test Case Study
Appendix 9.2: Illustration of Interactive Stress-Testing and Reporting Framework
Appendix 9.3: Examples of Historical and Hypothetical Scenarios

10. Institutional Disclosure

Barriers to Institutional Transparency
Framework for Institutional Disclosure
Illustrative Disclosure Samples

11. Systemic Risk

Systemic Stability Versus Resilience
Systemic Risk as Negative Externality
Anatomy of a Systemic Risk Event
Measurement of Systemic Risk
Systemic Risk Transparency, Associated Challenges and Recommendations
Structure of a Systemic Transparency Framework
Appendix – 11.1: the 2008 Global Financial Crisis – a Case of Observable Vulnerabilities

12. Regulation

Overview of Financial Regulation
Goals of Financial Regulation
Goals of Regulatory Transparency
Organisation of Regulatory Bodies
Policy Formulation and Overview of Regulatory Standards
Challenges for Transparency Related to Regulatory Standards
Moral Hazard
Bank Capital
Unintended Consequences of Regulation
Multiplicity of Standards and Regulatory Bodies
Countercyclical Capital Buffers
Supervisory Transparency
Observation of and Transparency in Institutional Cultures