Risk Management & Derivatives:

Basic Resources for Students

Recent Reports on Best Practices and/or the Current Crisis

1. Final Report of the IIF Committee on Market Best Practices:
   Principles of Conduct and Best Practice Recommendations
   Financial Services Industry Response to the Market Turmoil of 2007-2008
   Institute of International Finance (IIF) - July 2008
2. Guidelines for Computing Capital for Incremental Risk in the Trading Book
   Basel Committee on Banking Supervision, consultative document - July 2008
3. Summary Report of Issues Identified in the Commission Staff's Examinations of Select Credit Rating Agencies United States Securities and Exchange Commission - July 2008
4. Financial Stability Forum (FSF) - April 2008
   Enhancing Market and Institutional Resilience Report
5. Interim Report of the IIF Committee on Market Best Practice - April 2008
6. Finanancial Stablity Report, Bank of England - April 2008
7. UBS Shareholder Report on Write-downs - April 2008
8. President's Working Group-Asset Managers' Committee - April 2008
   Best Practices for the Hedge Fund Industry
9. President's Working Group-Investors' Committee - April 2008
   Principles and Best Practices for Hedge Fund Investors
10. President's Working Group - March 2008
    Policy Statement on Financial Market Developments
11. Buy Side Risk Forum - February 2008
    Risk Principles for Asset Managers

Periodicals

1. Risk. (www.incisivemedia.com)
2. Derivatives Week. An Institutional Investor newsletter. (www.iiderivatives.com)
3. Swaps Monitor.
4. Derivatives Strategy. (www.derivativesstrategy.com).
5. Treasury & Risk Management.
6. Futures. (www.futuresmag.com)
7. Futures Industry. From the Futures Industry Association

Books: General Reference.

1. Dictionary of Financial Risk Management. Gary L. Gastineau. Frank J. Fabozzi Associates. 1996. A dictionary approach to Risk Management terms. Gastineau's mission is to supplement general business reference dictionaries and encyclopedias.
2. Encyclopedia of Banking and Finance. Charles J. Woelfel. Probus. 1998. This reference classic provides an exhaustive review of banking and finance topics, terms, systems, and issues.
3. Dictionary of Finance and Investment Terms. John Downes. Barron's. 1994. Covers stocks and bonds, banking, corporate finance, tax laws, and mutual funds. Also know as "the little blue book." A good value for $12.

Books: Value At Risk.

1. Value At Risk. Philippe Jorian. McGraw Hill. 1997. This text on value at risk has become an industry standard, and includes approaches to risk management, regulatory initiatives toward VaR, and steps toward implementing a safe risk management system.
2. An Introduction to VaR. Rod Beckstrom and Alyce Campbell. CATS Software Inc. 1995. This book offers a straightforward "workbook" approach to VaR, Riskmetrics, and Monte Carlo Modeling.
3. VaR: Understanding and Applying Value-at-Risk. Risk Publications. 1997. A collection of essays on VaR. Includes "VaR: Seductive but Dangerous" and "Report Card on Value at Risk: High Potential but Slow Starter" by Tanya Beder, and "Risk 2: Measuring the Risk in Value at Risk" by Philippe Jorian.

Books: Derivatives.

1. Derivatives Handbook: Risk Management and Control. Robert J. Schwartz and Clifford W. Smith Jr. John Wiley. 1997. Includes discussions of risk and regulation in the derivatives markets, credit derivatives, report card on VAR, hedge accounting, firm-wide risk management, and a section devoted to case studies on derivatives.
2. The Handbook of Derivatives & Synthetics Innovations, Technologies, and Strategies in the Financial Markets. Robert A. Klein and Jess Lederman. Probus. 1994. A collection of essays by the top experts in the field on the derivatives market. Includes chapters by Leslie Rahl (What Makes a Good OTC Counterparty?) and Tanya Beder (Performance Measurement for Derivatives).
3. Derivatives Risk and Responsibility: The Complete Guide to Effective Derivatives Management and Decision-Making. Robert A. Klein and Jess Lederman. Irwin. 1996. Includes overviews of derivatives management, strategies and techniques, accounting, and taxation, and legal and regulatory issues.
4. The Handbook of Derivatives Instruments. Atsuo Konishi, and Ravi E. Dattatreya. Irwin. 1996. A collection of essays. Includes "Ten Important Risk Management Steps for End-Users" by Leslie Rahl and Tanya Beder, and "Introduction to Interest Rate Swaps" by Ravi E. Dattatrya, Raj E.S. Venkatesh, and Vijaya Venkatesh.
5. Managing Derivative Risks: The Use and Abuse of Leverage. Lillian Chew. Wiley. 1996. A former editor of Risk Magazine cuts through the complexity, and offers a non-technical approach to the risks of derivative instruments. Actual case studies from the early 1990s are presented.
6. Advanced Interest Rate and Currency Swaps. Ravi E. Dattatreya and Kensuke Hotta. Probus. 1994. This text covers a variety of topics, including risk/reward trade-off with differential swaps, hedging, and indexing.
7. Exotic Options: A Guide to Second Generation Options. Peter G. Zhang. World Scientific. 1997. This text covers trading in the OTC market, Asian options, vanilla barrier options, exotic barrier options, and other options.

Books: Risk Management.

1. Risk Budgeting a New Approach to Investing edited by Leslie Rahl, Capital Market Risk Advisors. 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.
2. Value at Risk by Phillipe Jorion an industry standard for value at risk.
3. The Handbook of Currency and Interest Rate Risk Management. Robert J. Schwartz and Clifford W. Smith Jr. New York Institute of Finance. 1990. This collection of essays includes "Ongoing Management of Transactions" by Tanya Beder. A glossary is included.
4. Managing Financial Risk. Clifford W. Smith, Jr, and Charles W. Smithson. Irwin. 1995. A comprehensive introduction to various risk management styles.
5. Financial Engineering: A Complete Guide to Financial Innovation. John F. Marshall and Vipul K. Bansal. Allyn & Bacon. 1992. A comprehensive industry-independent exploration of financial engineering, with discussions on identifying risk exposures, developing new products, applying equity and equity-related instruments and strategies for building hybrid securities.
6. Alpha: The Positive Side of Risk, Daring to Be Different. Marvin L. Damsma, Jon Lukomnik, Maarten L. Nederlof, and Thomas K. Philips. Investor's Press. 1996. This book offers advice to plan sponsors for maximizing the value of a pension plan's assets.
7. The Econometrics of Financial Markets. John Y. Campbell, Andew W. Lo, and A. Craig MacKinley. Princeton University Press. 1997. Each chapter examines statistical techniques within the context of a particular financial application.
8. Principles of Corporate Finance. Richard A. Brealey and Stewart C. Myers. Mc Graw-Hill. 1991. An introduction to the theory and practice of corporate finance, with extensive discussions of risk, return, valuing bonds and stocks, options, financial planning, and mergers and acquisitions.

Books: Classic Texts on Fixed Income Securities.

1. Inside the Yield Book: New Tools for Bond Market Strategy. Sidney Homer and Martin L. Leibowitz. Prentice-Hall. 1981. This classic text explores the relationship between coupon, maturity, price and yield.
2. The Handbook of Mortgage-Backed Securities. Frank J. Fabozzi. Probus. 1992. This exhaustive survey provides explorations of mortgage products, pass-through securities, prepayment forecasting, collateralized mortgage obligations, stripped mortgage-backed securities, valuation techniques, portfolio strategies, accounting and tax considerations.
3. The Money Market. Marcia Stigum. Dow Jones. 1990. A highly respected reference on the money markets, with discussions of mortgage, municipal, and treasury securities, in addition to a thorough discussion of fund flows, banks, financial intermediaries, market makers, and the treasury system.

Articles & Studies :

1. "Applying Risk Management Practices and Principles for Dealers and Institutional Investors to Corporate Treasuries." Leslie Rahl. NetExposure. Nov. 1997.
2. "Ten Commandments of Risk Management." Leslie Rahl. Treasury and Risk Management. July/August 1994.
3. "Lessons from the Derivative Losses of 1994." Leslie Rahl. Futures Industry - Caveat Emptor. Nov./Dec. 1994.
4. "Derivatives: A Director's Dream or Nightmare?" Leslie Rahl. Directorship; July/Aug. 1994.
5. "VaR: Seductive But Dangerous." Tanya Beder. Financial Analysts Journal 51 (1995). Pages: 12-24.
6. "Report Card on Value At Risk." Tanya Beder. Banking, Accounting, & Finance. Fall 1996.
7. "A Primer on Value at Risk." Mike Minnich. Capital Market Risk Advisors. 1998.
8. "Square Root of T." Frank Iacono and Dave Skeie. Derivatives Week. 10/4/96.
9. "An Internal Model-Based Approach to Market Risk Capital Requirement." Basle Committee on Banking Supervision. Basle, Switzerland: Basle Committee on Banking Supervision, 1995.
10. "The Pricing of Options and Corporate Liabilities." Fischer Black and Myron Scholes. Journal of Political Economy 81. pages: 637-659.
11. "A Framework for Voluntary Oversight." Derivatives Policy Group. New York, 1995.
12. "Derivatives: Practices and Principles." Group of Thirty. New York.1993.
13. "Public Disclosure and Risk Management Activities Involving Derivatives." International Swaps and Derivatives Association. New York. 1995.
14. "Asset Allocation with Hedged and Unhedged Foreign Stocks and Bonds." Philip Jorian. Journal of Portfolio Management. Summer 1989. Pages: 909-933.
15. "Risk 2: Measuring the Risk in Value At Risk." Financial Analysts Journal 52. 1996.
16. "Financial Engineering in Corporate Finance: An Overview. " John D. Finnerty. Financial Management 17. Winter 1988.
17. "Predicting Volatility in the Foreign Exchange Market." Philip Jorian. Journal of Finance 50. 1995. Pages: 507-528.
18. "Techniques for Verifying the Accuracy of Risk Measurement Models." Paul Kopiec. Journal of Derivatives 2. Dec. 1995. Pages: 73-84.
19. "Value At Risk: Implementing a Risk Management Standard." Chris Marshall and Michael Siegel. Journal of Derivatives 4, Spring 1997. Pages 91-110.
20. "Financial Innovation and Economic Performance." Robert Merton. Journal of Applied Corporate Finance. Winter 1992.
21. "The Lay Person's Introduction to Value At Risk." Barry Schachter. Financial Engineering News 1. August 1997.
22. "A Building Block Approach to the Credit Risk for OTC Derivatives." Clifford W. Smith, Jr. Working Paper, William E. Simon Graduate School of Business, University of Rochester. 1993.
23. "Risk Standards for Institutional Investment Managers and Institutional Investors." Risk Standards Working Group. 1996.
24. "Survey On Implementation of the Risk Standards." Prepared by Capital Market Risk Advisors.
25. "Credit Risk and Regulatory Capital." International Swaps and Derivatives Association. March 1998. (www.isda.org)

Web Sites (also see our links section)

1. www.iafe.org: International Association of Financial Engineers.
2. www.isda.org: International Swaps and Derivatives Association (ISDA). Contains ISDA Market Survey, list of publications, conferences, recommended readings, and useful links.
3. www.jpmorgan.com/riskmanagement/riskmetrics/riskmetrics.html: Introduction to JP Morgan's RiskMetrics methodology. Also includes a link to CreditMetrics.
4. www.gloriamundi.org: Value at Risk Resources. Excellent bibliography of VAR books, articles, and research. Includes links to VAR software vendors, RiskMetrics publications, risk related rules and regulations, and conferences and courses.
5. www.financewise.com: FinanceWise. Index to risk management, syndicated finance, and equities related sites.
6. www.garp.com Global Association of Risk Professionals. Includes access to GARP's lecture series in Financial Management, events, review class, and bookstore. Also includes a robust list of links to risk management sources.
7. www.gsm.uci.edu/~jorion/oc/case.html: Philip Jorion's Orange County Case. Complete text of Orange County Value-at-Risk Case.
8. www.federalreserve.gov The Board of Governors of the Federal Reserve System. Includes the complete text of the beige book, numerous recent studies, and statistics, and links to the regional member banks, where you find additional goodies.
9. www.occ.treas.gov The Office of the Controller of the Currency.
10. www.aima.org Alternative Investment Management Association. Features full-text articles and regulatory reports.
11. www.amex.com The American Stock Exchange. Includes a Dictionary of Financial Terms, and discussion of accounting risk.
12. www.mscibarra.com Barra.Investment data, research, and market information.
13. www.cato.org/pubs/pas/pa-283.html: The Cato Institute. Full-text of a Cato policy analysis, titled "10 Myths About Financial Derivatives."
14. www.cboe.com The Chicago Board Options Exchange. Includes a discussion of the historical roots of the exchange, and description of various financial products developed by the CBOE.
15. www.cme.com The Chicago Mercantile Exchange. Includes a glossary of trading and market terms, current prices, and links to the Options Institute and Capital Markets division.
16. www.cfonet.com CFO Magazine and Treasury & Risk Management. Provides the full-text of selected articles.
17. www.cftc.gov Commodity Futures Trading Commission. Provides an overview of the Commodities Future Trading Commission.
18. www.sec.gov Securities and Exchange Commission. This is a direct link to the SEC, and Edgar documents. (hint: try to access this site before noon and before the West Coast wakes up. It receives heavy traffic mid-day.)
19. www.finweb.com Finweb. A financial and economics web-site created and maintained by James R. Garven, Ph.D. Includes links to economics and risk management journals, and working papers.
20. www.futuresmag.com Futures Magazine. Index to articles appearing in Futures Magazine.
21. www.hennesseegroup.com Hennessee Group. Contains the full-text of the most recent Hennessee Hedge Fund Review.
22. www.hfr.com: Hedge Fund Research. Allows free viewing of the latest performance report on the Hedge Fund Indexes.
23. anduin.eldar.org/~ben/scout/html/751.html Net Exposure. An independent electronic journal which is published on the Internet, and is free of charge.
24. www.numa.com NumaWeb. Includes extensive list of links to international futures and options exchanges, courses and conferences, calculators, derivatives bookshop, and a list of acronyms.
25. www.financialcalendar.com Financial Calendar from Swaps Monitor Publications.
26. www.bobsguide.com Includes a guide to treasury technology, derivatives, money markets, and capital markets.