Description: This book explains how to understand financial risk and how the severity and frequency of losses can be controlled. Divided into four parts, it begins by introducing the basics of risk management and the behavior of financial instruments. The next section focuses on regulatory capital standards and models, addressing value-at-risk (VaR) models, portfolio credit risk, tranching, operational risk, and the Basel accords. The author then deals with asset/liability management (ALM) and liquidity management. The last part explores structured finance and a variety of new trading instruments, including inflation-linked products, sophisticated equity basket options, and convertible bonds.
Review Quotes:
"David Murphy has used his extensive knowledge to provide a comprehensive guide to market, credit, and operational risk. Written at a fairly nontechnical level, the text is accessible to those with only a basic knowledge of financial mathematics, option theory, and financial markets. Murphy focuses on practical problems, presenting numerous examples and exercises. Stressing intuition rather than detailed mathematical analysis, he brings readers a clear insight to the current challenges facing professionals today.
This up-to-date treatment of risk is a welcome change from many other texts currently available. The contents are extremely comprehensive and, most importantly, relevant to the profession. It is not easy to select highlights, but the chapter on credit risk and credit risk capital models stands out. It covers all the latest concepts including securitization, tranching, CDOs, structuring, index products, and more. And notably this is one of the few texts that deals with liquidity risk properly, even though it is one of the most challenging areas of risk management today.
Few professionals with experience equal to Murphy's have the time or the ability to provide accounts as detailed and accessible as this. I urge risk managers, traders, regulators, financial consultants, researchers, teachers, and students of risk management to read this book."
--Professor Carol Alexander, Chair of Risk Management and Director of Research, University of Reading, UK