By Louis Esch, Robert Kieffer, Thierry Lopez
- Applies hazard administration ideas to asset administration - displaying how glossy danger size thoughts may help in portfolio administration.
- Integrates threat administration and asset & legal responsibility administration (ALM), describing strategies for measuring structural stability sheet dangers.
- Clearly and accessibly written
- CD-Rom containing examples from the textual content.
- Foreword from Philippe Jorion
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Additional info for Asset and risk management: Risk oriented finance
Bonds issued by the private sector (although particular attention will be paid to rating here). Generally speaking, the counterparty receiving the collateral is clearly less exposed in terms of counterparty risk. There is, however, a credit risk on the collateral itself: the issuer risk (inherent in the bill) and the liquidity risk (associated with the bill). The risks linked to the collateral must be ‘monitored’, as both the product price variation 4 Interested readers should consult the Bank for International Settlements, BIS Quarterly Review, Collateral in Wholesale Financial Markets, Basle, September 2001, pp.
The residual ε corresponds to the difference between reality (the effective price p) and the valuation model (the function f ). Where the price valuation model is a linear model (as for equities), the risk factors combine together to give, through the Central Limit Theorem, a distribution for the variable p that is normal (at least in the ﬁrst approximation), and is therefore deﬁned by the two mean-variance parameters only. On the other hand, for some types of assets such as options, the valuation model ceases to be linear.
8 Selecting a portfolio √ The square root of the second, σ (R) = var(R), is the standard deviation, which is a measurement of risk. A portfolio, like any isolated security, will therefore be represented by a mean-variance couple. This couple depends on the expected return level and variance on return for the various assets in the portfolio, but also on the correlations between those assets. A portfolio will be ‘ideal’ for an investor (that is, efﬁcient), if, for a given expected return, it has a minimal variance or if, for a ﬁxed variance, it has a maximum expected return.
Asset and risk management: Risk oriented finance by Louis Esch, Robert Kieffer, Thierry Lopez