The Practice of Risk Management

The first book of its kind to describe the firmwide risk management landscape in two leading financial institutions - SBC Warburg Dillon Read and Goldmans Sachs. In 20 chapters is covers: the context of risk management, risk management in the real world, and the changing world of risk management. It details: risk reports, risk capital management, stress test reports, hot spots reports, best replicating portfolio reports and implied view reports. It also examines capital allocation and capital investment and a general framework of measuring risk adjusted performance is presented. With a preface by Gerald E. Corrigan.

Developments in banking and finance over the past 25 years can be described as revolutionary. Increasingly sophisticated technology and communications have been the catalysts for a huge surge of innovation in the financial arena that has brought vast benefits but also new and extraordinarily complex elements of risk. These developments have meant new challenges for risk managers in financial institutions and for those charged with the official supervision of such institutions.

Large losses incurred recently by some of the world's top institutions have shown just how great these risks can be. Thus The Practice of Risk Management: Implementing Processes for Managing Market Risk could not have come at a more timely moment. This book provides a practical guide to implementing the theory of risk management on a day-to-day basis in financial firms, focusing particularly on managing market risk, where the techniques of risk management are currently most developed.

The Practice of Risk Management is designed to be accessible to both the technical and the non technical reader and allows selective reading without detracting from the overall message.

The book is divided into four sections. The first places risk management in context, both in the current world and historically, as well as defining market risk. It also provides an overview of the important events which have shaped its development and led it to be recognised as a core competence for financial firms. The second explores the various issues associated with compiling an effective toolkit for measuring a firm's exposure to market risk. The third describes the practical challenges of implementing and sustaining a risk management function for market risk, particularly highlighting the crucial importance of instilling a risk management culture throughout a firm. The Practice of Risk Management finally considers how developments in risk management theory and practice are influencing the wider environment within which firms operate.