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Risk Management for Institutional Investors:
Fulfilling Fiduciary and Strategic Responsibilities
By Richard Horwitz and David Tyson, Capital Market Risk Advisors; Published by Risk Books, Nov 2013
More about the book
Risk Management for Institutional Investors: Fulfilling Fiduciary and Strategic Responsibilities addresses how board members, directors, trustees, and members of the C-suite overseeing a pension or endowment fund can properly manage and mitigate risk. It details on a practical level how the necessary data can be collected and reported to this governing board within the broad framework of current risk management practices.
This holistic executive report will include discussions of risk appetite, risk governance, board risk communication, and board risk training, and will address how highly technical and granular data can be synthesized so that it can be reported to a board that may only meet for three hours every three months, in turn informing the decisions the institutional investors make.
Risk Budgeting, Second Edition:
Risk Appetite and Governance in the Wake of the Financial Crisis
Edited by Leslie Rahl, Capital Market Risk Advisors
More about the book
- This fully updated and revised second edition of the best-selling guide Risk Budgeting expands upon the first edition, continuing to provide a road map for more effective risk allocation and better return per unit of risk taken. This edition reflects in particular the growing focus on risk appetite and governance in the risk budgeting environment.
Hedge Fund Transparency:
Unraveling the Complex and Controversial Debate
By Leslie Rahl, Capital Market Risk Advisors
More about the book
The only title that focuses solely on hedge fund transparency and offers a balanced perspective that appreciates both the needs of institutional investors and hedge fund managers.
Presents clear insight on why hedge fund transparency is an issue, as well as offers solutions
- Includes "perspectives" based on interviews with numerous eminent practitioners from both sides of the investor/hedge fund debate
- Service providers including consultants, prime brokers, third party marketers, capital introducers, systems providers, lawyers and accountants, will additionally acquire an enhanced insight into the needs of both investors and hedge funds in order to tailor their services to the market needs
- The press and the regulators can also achieve enhanced understanding of this complex and controversial subject
- Written by the best-selling author and practitioner Leslie Rahl, who is the chair of the Investor Risk Committee of the IAFE Committee on Hedge Fund
- Transparency and is uniquely placed to advise on and explain the issues for all concerned participants
A New Approach to Investing
Edited by Leslie Rahl, Capital Market Risk Advisors; Published by Risk Books, November 2000
More about the book
A practical and authoritative introduction to the concept of risk unit allocation as an alternative and more effective decision-making process for long-term investors.
Make an informed decision about how to implement and execute a "risk unit allocation" investment policy
- Analysis of techniques to assess how risk might impact long-term Investment returns
- Introduces methods to allocate assets based on the "risk unit" exposures - in individual asset classes and on a portfolio basis, to meet long-term pension obligations and investment return objectives
- Investigates ways to use VAR to accommodate a long-term investment horizon
- Contributions from leading experts drawn from consultancies; large institutional investors; pension plans; investment banks and academia
- Leslie Rahl has donated her proceeds from the sale of the book to the Fischer Black Memorial Foundation.
Hedge Fund Risk Fundamentals:
Solving the Risk Management and Transparency Challenge
By Richard Horwitz, Capital Market Risk Advisors
More about the book
In the constantly evolving hedge fund marketplace, nothing is more central--but in many ways, more amorphous and elusive--than risk. Yet there remains no standard for analyzing and measuring risk within this highly secretive, largely unregulated field, leaving the thousands of hedge funds--and the tens of thousands of hedge fund investors--in dangerously dim light. The industry has not solved the "transparency" challenge--communicating risk to investors without disclosing proprietary information.In the constantly evolving hedge fund marketplace, nothing is more central--but in many ways, more amorphous and elusive--than risk. Yet there remains no standard for analyzing and measuring risk within this highly secretive, largely unregulated field, leaving the thousands of hedge funds--and the tens of thousands of hedge fund investors--in dangerously dim light. The industry has not solved the "transparency" challenge--communicating risk to investors without disclosing proprietary information.
Hedge Fund Risk Fundamentals is the first book to bring these issues to the forefront. With clarity, concision, and minimal math, Richard Horwitz lays out the key components and the cutting-edge processes in the field of hedge fund risk management today. Against that backdrop, he presents a groundbreaking utility destined to set the standard for transparency and risk management within the hedge fund universe.
You’ll learn why, when it comes to risk management, 1 + 1 = 1.41. For all of those perplexed by the difficulties of assessing risk in hedge fund investing, Horwitz’s concepts make for an invaluable road map and a demystifying resource that hedge funds and investors at all levels will find indispensable.
Value at Risk
"This book has become an industry standard for value at risk."
Leslie Rahl, president, CMRA
More about the book
- To accommodate sweeping global economic changes, the risk management field has evolved substantially since the first edition of Value at Risk, making this revised edition a must. Updates include a new chapter on liquidity risk, information on the latest risk instruments and the expanded derivatives market, recent developments in Monte Carlo methods, and more. Value at Risk, Second Edition, will help professional risk managers understand, and operate within, today's dynamic new risk environment.
How I Became a Quant
By Richard R. Lindsey and Barry Schachter
More about the book
"Quants"--those who design and implement mathematical models for the pricing of derivatives, assessment of risk, or prediction of market movements--are the backbone of today's investment industry. As the greater volatility of current financial markets has driven investors to seek shelter from increasing uncertainty, the quant revolution has given people the opportunity to avoid unwanted financial risk by literally trading it away, or more specifically, paying someone else to take on the unwanted risk.
How I Became a Quant reveals the faces behind the quant revolution, offering you the chance to learn firsthand what it's like to be a?quant today. In this fascinating collection of Wall Street war stories, more than two dozen quants detail their roots, roles, and contributions, explaining what they do and how they do it, as well as outlining the sometimes unexpected paths they have followed from the halls of academia to the front lines of an investment revolution.
Risk Management: The State of the Art
Edited by Stephen Figlewski and Richard M. Levich
More about the book
The articles in this volume examine the "State of the Art" in risk management from the standpoint of academic researchers, market analysts and practitioners, and government observers with
Risk Management: Where Are We Heading? Where Have We Been? Contributed by Leslie Rahl.
Helpful Web Resources
Associations & Organizations
- Alternative Investment Management Association (AIMA)
- Managed Funds Association (MFA)
- Securities Industry and Financial Markets Association (SIFMA)
- Financial Accounting Standards Board (FASB)
- Financial Stability Board
- Global Association of Risk Professionals (GARP)
- Global Risk Institute (GRI)
- International Association for Quantitative Finance (IAQF)
- International Swaps and Derivatives Association (ISDA)
- P.R.I.M.E. Finance
- Professional Risk Manager’s International Association (PRMIA)
- BIS Semiannual derivatives statistics
- Volume data for over-the-counter derivatives
- ISDA SwapsInfo
- Visualize over-the-counter derivatives data
- OCC Quarterly Report on Bank Derivatives Activities
- Quarterly report on bank and bank holding company derivative activities
- Bloomberg Markets Magazine
- Financial Times
- Matt Levine's Money Stuff
- A daily newsletter highlighting the latest news and developments in all things finance, delivered with a healthy dose of humor.
- The Wall Street Journal
- Federal Reserve Economic Data (FRED)
- NYU Stern Volatility Laboratory
- Research on risks in financial markets, with daily calculations of volatilities and correlations on a wide range of assets
- Coverage of financial industry, with a focus on risk management, derivatives, and complex finance
- Commodity Futures Trading Commission (CFTC)
- Federal Deposit Insurance Corporation (FDIC)
- Federal Housing Finance Agency (FHFA)
- Federal Reserve Board (Fed)
- Financial Industry Regulatory Authority (FINRA)
- National Futures Association (NFA)
- Office of the Comptroller of the Currency (OCC)
- U.S. Securities and Exchange Commission (SEC)
- Asset Securitization Report
- Coverage, analysis, and commentary on structured finance markets
- Structured Finance Industry Group
- Educational resources on structured finance and securitization
- The Journal of Structured Finance
- Quarterly academic journal on structuring and investing in structured finance.
Recent Literature and Regulatory Guidance
Bank of England
- Financial Stability Report (November 2016)
- The Bank of England's stress testing of major UK banks in 2016 incorporated a misconduct cost stress, perhaps reflecting fines totaling to over $300 billion paid by banks for misconduct since the financial crisis in 2008. Looking forward to the 2017 stress tests, an additional biennial exploratory scenario (BES) will be added for the first time to probe the resilience of the system to risks that may not be precisely linked to the financial cycle.
- The UK leverage ratio framework will also be reviewed in 2017, with a recalibration of the standard to include the exclusion of central bank reserves from the exposure measure of the leverage ratio.
- Staff Working Paper No. 609: The role of collateral in supporting liquidity (August 2016)
- Yuliya Baranova, Zijun Liu, and Joseph Noss predict that a future period of stress could cause demand for high-quality collateral to spike while at the same time limiting its supply, thereby exacerbating market conditions. While the imbalance between supply and demand for collateral would likely eventually resolve itself as potential returns for collateral lenders increased, it could herald a costly breakdown in the network of intermediaries that facilitate collateral posting. The authors predict that the supply of collateral could be exhausted in the absence of additional central bank debt issuance when the VIX index rises above 44 for a sustained period of about three months, and warn that higher collateral requirements might considerably lower that VIX threshold.
Basel Committee on Banking Supervision
- Twelfth progress report on adoption of the Basel regulatory framework (April 2017)
- A little more than two thirds of Basel member jurisdictions have implemented rules surrounding the standardized approach for measuring counterparty credit risk (SA-CCR) and bank exposures to central counterparties. Since credit risk exposures contribute directly to the Basel III capital requirements, the implementation of SA-CCR may in some cases drastically increase or decrease capital charges, particularly because of the framework’s somewhat limited recognition of risk offsets from margining.
- Global systemically important banks – revised assessment framework (March 2017)
- Basel’s revised assessment framework for global systemically important banks (G-SIB) includes a proposal to remove the current cap on the substitutability category (one of five categories in the methodology). Substitutability measures how replaceable a bank is in the event of failure, and relies on three factors: payments, asset custody and securities underwriting. Removal of the cap would primarily affect institutions with large custodial businesses, such as BNY Mellon, Citigroup, JP Morgan Chase, and State Street.
- Minimum capital requirements for market risk [finalized result of Basel’s fundamental review of the trading book] (January 2016)
- A fundamental review of the trading book (FRTB) led to the revised market risk framework, published in January 2016 and coming into effect in January 2019. One of the biggest questions moving forward is to what extent the new framework will impact capital requirements. The Basel Committee estimates that the revised framework will increase capital by 40% on average, but the impact of new rules surrounding internal models (for example, desk-level modelling approval is tied to a bank’s ability to correctly estimate P&L and there are limitations of modellable and non-modellable risk factors) is unclear.
Bank for International Settlement
- BIS Central Bank Hub
- BIS Committee Publications
- The sterling 'flash event' of 7 October 2016 (January 2017)
- The October 7 sterling flash event is an additional data point in what appears to be a series of flash events occuring in a broad range of fast, electronic markets. Such moves are likely amplified by derivatives hedging flows and stop-loss orders and the resultant withdrawals of liquidity, while transient, warrant further investigation into the resilience and liquidity in financial markets.
- Resilience and recovery of central counterparties: Further guidance on the PFMI (August 2016)
- With regulatory mandates for the central clearing of many more standard over-the-counter derivatives, central counterparties (CCPs) have become increasingly critical to the financial system in recent years. Thus, the financial resilience of CCPs and their ability to withstand both clearing member failures and other stress events are crucial for the mitigation of systemic risk. While CCP risk management has become increasingly robust, the potential directional biases in CCP clearing amongst dealers (as compared to transactions with end-users) may cause issues with the disposition of transactions in the event of a major dealer failure.
- The sterling 'flash event' of 7 October 2016 (January 2017)
- BIS Papers
- BIS Statistics and Additional Tools
- BIS Working Papers
- Redemption risk and cash hoarding by asset managers (January 2017)
- Bank networks: contagion, systemic risk and prudential policy (December 2016)
- The failure of covered interest parity: FX hedging demand and costly balance sheets (October 2016)
- Bank capital and funding cost constraints may limit the arbitrage opportunities presented by covered interest parity.
Commodity Futures Trading Commission
- CFTC Orders The Royal Bank of Scotland to Pay $85 Million Penalty for Attempted Manipulation of U.S. Dollar ISDAFIX Benchmark Swap Rates (February 2017)
- With this most recent enforcement action, the CFTC has imposed over $5.2 billion in penalties against banks and brokers with relationship to ISDAFIX, foreign exchange, and LIBOR benchmark issues. The settlement reinforces the importance of the integrity of derivatives benchmarks, which market participants rely upon to settle and to value a wide range of derivatives transactions.
- Supervisory Stress Test of Clearinghouses Report (November 2016)
- Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (May 2016)
European Central Bank
- The importance of being special: repo markets during the crisis (May 2017)
- How does risk flow in the credit default swap market? (March 2017)
- Is collateral eligibility priced? (February 2017)
- EU-wide stress testing
Federal Reserve Board
- Dealer Balance Sheets and Corporate Bond Liquidity Provision (May 2017)
- "We find that post-crisis regulation has had an adverse impact on bond-level liquidity."
- Measuring the Severity of Stress-Test Scenarios (May 2017)
- SR 17-3: Initial Examinations for Compliance with Minimum Variation Margin Requirements for Non-Cleared Swaps and Non-Cleared Security Based Swaps (February 2017)
- Federal Reserve Board releases scenarios for 2017 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises and issues instructions to firms participating in CCAR (February 2017)
- Federal Reserve releases results of supervisory bank stress tests (June 2016)
International Monetary Fund
- Collateral Reuse and Balance Sheet Space (May 2017)
- Measuring Concentration Risk - A Partial Portfolio Approach (August 2016)
- Fragilities in the U.S. Treasury Market : Lessons from the “Flash Rally” of October 15, 2014 (October 2015)
Office of the Comptroller of the Currency
- Semiannual Risk Perspective (Fall 2016)
- Strategic, credit, operational, and compliance risk remain top concerns. Risk governance over sales practices was highlighted in light of recent challenges in risk oversight and governance.
- Detecting Red Flags in Board Reports, A Guide For Directors (September 2013)
- Unique and Hard-to-Value Assets (August 2012)
- Supervisory Guidance on Model Risk Management (April 2011)
International Swaps and Derivatives Association
- ISDA SIMM Methodology, version R1.3 (April 2017)
- ISDA's SIMM is one potential solution for market participants who need to comply with recent CFTC margin regulations for uncleared over-the-counter derivative transactions. The SIMM applies agreed upon stress factors, which are updated from time to time to reflect contemporaneous market conditions, to derivative risk sensitivities (e.g., delta, vega). Market participants should be cognizant of the fact that although initial margin posting can perhaps mitigate systemic risk, it is likely insufficient to insulate individual market participants from counterparty credit losses.
- Variation Margin Big Bang Transition, Relief and Guidelines (March 2017)
- The deadline for compliance with new rules on variation margin was March 1, 2017, but slow repapering rates forced regulators to grant forebearance until September 2017. The new variation margin rules, which require updated collateral agreements, may lead to forced unwinds and market disruption if dealers are unable to repaper their collateral documentation before the deadline imposed by regulators. Indeed, end users without the necessary collateral agreements in place may lose their existing derivatives transactions or find it difficult to execute new transactions.
- Spectre of mass swap unwinds looms ahead of VM deadline (May 24, 2017)
- FSB asks whether CCPs could become shock-transmitters (May 11, 2017)
- CFTC counsel warns of threat to clearing portability (April 25, 2017)
U.S. Securities and Exchange Commission
- Risk Adjustment and Haircut Schedules (November 2016)
- Investment Adviser Due Diligence Processes for Selecting Alternative Investments and Their Respective Managers (January 2014)
- SEC EDGAR - access to more than 21 million corporate filings
- SEC Litigation Releases
- SEC Staff No Action, Interpretive, and Exemptive Letters