The Essentials of Risk Management, Chapter 7 - From Value-at-Risk to Stress TestingHere is a chapter from The Essentials of Risk Management, a practical, non-ivory tower approach that is necessary to effectively implement a superior risk management program. Written by three of the leading figures with extensive practical and theoretical experience in the global risk management and corporate governance arena, this straightforward guidebook features such topics as governance, compliance and risk management; how to implement integrated risk management; measuring, managing and hedging market, and more. |
Common terms and phrases
99 percent confidence aggregate Alternative price analytic variance-covariance approach Approach Pros assess bank bond business line calculation call option changes confidence interval credit spreads crisis currency Daily Trading Revenues derivative economic capital example exchange rate extreme events fat tails fat-tailed distribution Figure 7-3A Greeks histogram Historical Distribution historical replication Historical Simulation Approach horizon implied volatilities individual stocks interest rates interest-rate level of confidence limit log-normal distribution market risk maximum loss measure of risk measures of market methodology million Monte Carlo simulation normal distribution NOTIONAL AMOUNT percent confidence level percentile portfolio returns portfolio values position or portfolio Pros and Cons regulators regulatory capital REPLICATION SCENARIO risk exposure risk management risk measures risk-factor returns scenario analysis senior management Senior Risk Committee stock price stress categories stress shocks stress testing TABLE testing and scenario tion trading desk U.S. DM U.S. dollar U.S. euro forward Value-at-risk vega volatilities and correlations volatility risk