Extreme Risk Management: Revolutionary Approaches to Evaluating and Measuring Risk

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McGraw Hill Professional, Jun 28, 2010 - Business & Economics - 304 pages

A revolutionary new approach for detecting and managing inherent risk

The unprecedented turmoil in the financial markets turned the field of quantitative finance on its head and generated severe criticism of the statistical models used to manage risk and predict “black swan” events. Something very important had been lost when statistical representations replaced expert knowledge and statistics substituted for causation.

Extreme Risk Management brings causation into the equation. The use of causal models in risk management, securities valuation, and portfolio management provides a real and much-needed alternative to the stochastic models used so far. Providing an alternative tool for risk modeling and scenario-building in stress-testing, this game-changing book uses causal models that help you:

  • Evaluate risk with extraordinary accuracy
  • Predict devastating worst-case scenarios
  • Enhance transparency
  • Facilitate better decision making

TABLE OF CONTENTS

  • Plausibility vs. Probability: Alternative World Views
  • The Evolution of Modern Analytics
  • Risk Management Metrics and Models
  • The Future as Forecast: Assumptions Implicit in Stochastic Risk Measurement Models
  • An Alternative Path to Actionable Intelligence
  • Solutions: Moving Toward a Connectivist Approach
  • An Introduction to Causality: Theory, Models, and Inference
  • Risk Inference Networks: Estimating Vulnerability, Consequences, and Likelihood
  • Securities Valuation, Risk Measurement, and Portfolio Management Using Causal Models
  • Risk Fusion and Super Models: A Framework for Enterprise Risk Management
  • Inferring Causality from Historical Market Behavior
  • Sensemaking for Warnings: Reverse-Engineering Market Intelligence
  • The United States as Enterprise: Implications for National Policy and Security
 

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Contents

Two Worldviews
1
Chapter 2 The Evolution of Modern Analytics
8
Chapter 3 Natural Selection on Wall Street
23
Risk Management Metrics Models and Best Practice
32
Chapter 5 Systemic Risk and Systems Thinking
61
The Global Capital Markets as System
81
Chapter 7 Analytic Tradecraft and Model Risk
94
Probability Likelihood and Uncertainty
117
Theory Models and Inference
165
Estimating Vulnerability Consequences and Likelihood
175
Chapter 13 Securities Valuation Risk Measurement and Risk Inference Networks
189
A Framework for Enterprise Risk Management
206
Chapter 15 Inferring Causality from Historical Market Behavior
216
ReverseEngineering Market Intelligence
230
Implications for National Policy and Security
245
Notes
263

Chapter 9 An Alternative Path to Actionable Intelligence
144
Moving toward a Connectivist Approach
153
Index
279
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About the author (2010)

Christina Ray is senior managing director for Market Intelligence at Omnis Inc. She has over 25 years experience in quantitative finance and is the author of The Bond Market and Think Like a Trader, Invest Like a Pro.

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