ERM Committee Reviews Financial Risk Management Texts
In 2001, the CAS Advisory Committee on Enterprise Risk Management (ERM) identified the measurement of financial risk as an element of the ERM framework that was of immediate interest to CAS members. To help meet this continuing education need, the ERM Committee has identified and reviewed a set of four financial risk management texts. These texts cover a broad spectrum, from a high-level overview to detailed technical manuals.
The Practice of Risk Management
by Goldman Sachs and SBC Warburg Dillon Read
Euromoney Publications PLC, 1998, $225
The Practice of Risk Management provides a high-level, practical guide to implementing the theory of risk management at leading securities firms. It is accessible to technical and nontechnical audiences, and focuses on structure, process and implementation, politics, coordination, and communication. It describes how recent financial disasters have set the stage for the risk management culture now mandatory in well-run financial institutions. The book also discusses measurement techniques (with an eye to market risk), the challenges of implementing an effective risk management function, and the influence of risk management on regulatory and reporting requirements.
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by Michel Crouhy, Dan Galai, and Robert Mark
McGraw-Hill, 2000, $70
This mid-level text provides a comprehensive reference for the entire financial risk management field, including policies, methodologies, data, and infrastructure. The authors are highly respected practitioners with vast experience across the entire range of financial risk management. They cover risk integration, regulatory policy (e.g., the Basel Committee proposals), capital attribution and performance measurement, credit risk, and model risk. They also delve into operational risk, a critical area where traditional data-driven quantification techniques often fail. Their sections on modeling credit risk are worth the price of the book alone, as they effectively distill the essentials of the many approaches into a few chapters.
FRM Handbook 2001/2002
by Philippe Jorion
Wiley/GARP Risk Management Library, 2001, $150)
Jorion's textbook is specifically written for the Global Association of Risk Professionals (GARP) Financial Risk Manager (FRM) designation exam. The author is one of the most respected academics in the field. The FRM examination focuses on analytical skills, general knowledge, and intuitive capability acquired through experience in capital markets. General behavior and risks of various markets and financial instruments, regulation, and credit risk concepts are also covered. The handbook provides step-by-step guidance through the entire FRM syllabus, with clear, concise explanatory chapters and example problems. The FRM syllabus covers topics similar to those found in Risk Management but is focused on problem solving and quantitative analysis. See www.garp.com for more on the FRM exam.
Market Models: A Guide to Financial Data Analysis
by Carol Alexander
John Wiley & Sons, 2001, $95
Alexander describes the use of financial market models by investment risk managers and investment analysts. The author has created a text that balances theory and practice, building a bridge between the academic and practitioner. It is a graduate- or advanced undergraduate-level textbook that presumes extensive prerequisite knowledge of math, probability and statistics, regression, time series, and finance. It includes a CD-ROM (with detailed examples, graphs, and spreadsheets) that provides hands-on experience to complement the text. The text covers the pricing and hedging of options using GARCH (generalized autore-gressive conditional heteroscedasticity) models, modeling of portfolio market risk via factor models, and an econometric approach to modeling relationships between financial asset prices, including concepts of cointegration and co-movement. The book also contains six excellent detailed technical appendices covering the statistical theory and methods of topics such as regression analysis, statistical inference, and maximum likelihood estimation.
The ERM Committee hopes you will find value in these texts and that you provide members with information on emerging topics within the ERM field.