In Financial Risk Management: From Metrics to Human Conduct, Frantz Maurer delivers a thorough and practical review of the core methods used by professionals in the real world to reduce the risk of financial misconduct. Starting with the key points of banking regulation, the author then describes in simple terms the most extensively used risk metrics in the banking industry. Readers can fully grasp and implement the techniques discussed within without a strong background in probabilities or statistics. The last part of the book focuses on conduct risk markers and show how to implement a conduct risk index that benchmarks the conduct of natural risk-takers like traders.
The author describes how to marry this simple approach to financial risk with a conduct risk index that benchmarks the conduct of natural risk-takers, like traders.
Readers will also find: - Step-by-step guidance on how to apply common risk indicators to real-world situations - Actionable advice for improving the resilience of financial institutions against individual misconduct and misbehavior
A holistic and non-quantitative approach to a subject of critical importance, Financial Risk Management: From Metrics to Human Conduct will earn a place in the libraries of risk managers, compliance professionals, and master's level students in business administration and finance.
Table of Contents
Foreword ix
Acknowledgements xi
List of Acronyms and Symbols xiii
Introduction xvii
Part One Navigating Banking Regulation
Chapter 1 A Brief History of the Basel Framework 3
Chapter 2 The Basel I Regulatory Framework and the Cooke Ratio 7
Chapter 3 Amendment to the Basel I Framework to Incorporate Market Risks 15
Chapter 4 Implementation of the Basel II Framework 21
Chapter 5 A Guided Tour of the Basel III Framework 29
Chapter 6 Climate- Related Financial Risks 41
Part Two The Financial Risk Measurement Landscape
Chapter 7 Historical Approach to Risk 47
Chapter 8 The Gaussian Framework 61
Chapter 9 A Brief Overview of Monte Carlo Simulation 75
Chapter 10 Risk Contribution 79
Chapter 11 Shortcomings of Risk Metrics 93
Chapter 12 Ex- Post Evaluation of a Risk Model: Backtesting 103
Chapter 13 A Forward- Looking Evaluation of Risk: Stress Testing 109
Part Three Getting Conduct Risk to Scale
Chapter 14 The Big Picture of Conduct Risk 119
Chapter 15 Markers of Conduct Risk 123
Chapter 16 Worked Example 7: Building a Conduct Risk Score 127
Chapter 17 Fostering a Culture of Appropriate Conduct Outcomes 137
Chapter 18 Worked Example 8: Calculating a Risk-Taker’s Conduct Risk Index 143
Chapter 19 Hot Questions Still Pending 159
Chapter 20 Understanding the Root Causes of Poor Conduct 163
Appendix 173
References 181
Contents 183
List of Figures 187
List of Tables 189
Index 191
