About the Book
What is it about?
“Risk Framework Design in Practice” gives practical, detailed information about the choices and tradeoffs in designing limits and controls to manage enterprise risk, written in accessible, non-quant-friendly language. With sections on market, credit and operational risk, covering public and private assets, it provides detailed information to tune risk metrics and assessments into what your organization needs. It is written for the full range of financial institutions—banks, broker/dealers, asset managers (both long only and levered hedge funds), pensions, insurers, endowments, foundations, and more. Contents by chapter include:
Foreword:
- How to tell a good risk culture from a bad one
Chapter 1: Overview of Enterprise Risk Limits
- Setting risk limits
- Lessons from risk governance gone wrong
- What does effective challenge look like?
- Difference in risk frameworks for banks, insurers, pensions, asset managers, endowments and foundations
- Governing risks of degree vs. binary risks
Chapter 2: Overview of Risks of Degree (Market and Credit Risk)
- How are risk metrics different than performance metrics?
- Why approaches to equity and fixed income metrics differ
- Understanding principal vs. agency risk governance
Chapter 3: The “Big Six” Market Risk Limits, Part I
- Notional and principal measures and limits; approaches to leverage measurement
- Exposure measures and limits for equity, fixed income, commodities, currencies and volatility; duration and delta adjustment
- Value at Risk, Economic Capital, Ex Ante Tracking Error and Earnings at Risk
Chapter 4: The “Big Six” Market Risk Limits, Part II
- Stress tests and scenario analysis
- Liquidity, concentration and market participation
- Stop losses and drawdown limits
Chapter 5: Credit Exposure and Potential Loss Limits
- Limiting comitments
- Credit spread exposure
- Credit default and ratings change exposure
- Interplay of market risk and counterparty risk for derivatives and securities lending
Chapter 6: Binary Risks (Operational Risk)
- Operational risk program design
- Compliance program design
Chapter 7: Model Risk Controls
- What makes a financial model high risk?
- What controls can be applied to manage model risk?
- Applying model risk management to non-banks
- Applying model risk management to AI
Chapter 8: Risk Governance for Private Assets
- Risk management frameworks for standalone private investment funds
- Incorporating private assets in multi-asset portfolios that include public assets
Who is it for?
- Risk management teams in financial institutions who are building a new risk framework, or renovating an existing one
- Students and early-career members of risk teams, to learn the details and history of risk frameworks–how they work, and work together
- Boards and C-suite executives, the initial chapters are helpful for assessing a company’s risk culture, and the quality of its risk management program
- Accounting and financial professionals who need to understand details about market and credit risk measures for use in the notes to financial statements
- Auditors and regulators, to improve understanding of the principles and norms in risk measurement and oversight, and to clearly distinguish “risks of degree” from “binary risks” as they challenge the quality of risk programs