Risk Management and Value Creation in ... - Arabictrader.com

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Index 325 actual, 225–226, 248 cumulative, 284 fixed, 249, 254 forward, 174 implied, 220, 223, 233–234 marginal, 174 multiperiod, 174 risk-neutral, 225–226, 229, 248 Procedure, iterative, 228, 230–233 Process: agency rating, 205 controlling, 27, 41, 278 implementation, 27 planning, 27 Wiener, 221, 225 work-out, 177 Product: life cycle, 206 risk-bundled, 279 Profit(s): accounting, 245 economic, 238–239, 244–247, 258, 277 Profitability, economic, 239, 241–242, 262–263 Profit and loss account (P&L), 25, 207–208, 214–215, 238 Profit, center, decentralized, 260 Prompt corrective action, 150 Property rights (theory), 75–76 Proposition, value-destroying, 33, 71, 277, 288 Provisions, 5, 148, 245, 285. See also Reserves, loan loss Proxy battle(s), 12 Put option. See Option(s), put PV. See Present value Quantile, 167, 188–189, 207–208, 218 Ranking, relative, 254, 258 RAPM. See Risk-adjusted performance measures RAROC. See Risk-adjusted return on capital RARORAC. See Risk-adjusted return on risk-adjusted capital Rate of return: appropriate, 1, 21, 241, 245 CAPM-determined, 270, 274 expected, 60, 223 required, 5, 21, 62, 77, 245, 249, 255, 268, 273 risk-free, 244, 252 standard deviation or volatility of, 36, 228, 244 Rate, risk-free, 155, 222–223, 225, 228–231, 233, 244, 248, 251– 252, 259, 266 Rating: analysis, 157 borrower or counterparty, 171–173 public or external agency, 156–157, 159, 163, 220, 223, 225, 233 Rationale(s) for risk management. See Risk management, rationale for Rationality, limited, 76 Reallocation, 213, 235 Recapitalization, 2, 132, 195 Recovery rate, 172–173, 176 Redistribution, 12, 72, 99, 155, 276, 278 Refinancing, 141, 223 Regulation, 5, 7, 22, 58, 74, 105, 123, 139, 143, 147, 157, 197 Regulators, 22, 33, 55, 81, 142–146, 149, 151, 154, 158, 191, 236, 287 Regulatory: capital. See Capital, regulatory requirements, 3–4, 25, 33, 56, 130, 145, 146, 162, 164, 194 rules. See Regulatory requirements safety net, 142 Rent(s), economic, 277, 281 Reorganization, 107 Repayment, 141–142, 158, 252, 275 Repercussion(s), systemic, 3 Reporting cycle, 214, 223 Reputation (loss of) 84, 88, 109–110, 157 Reserve(s): disclosed, 148 hidden, 161, 260
326 INDEX Reserve(s) (continued) loan loss, 140, 148, 161, 171, 202 undisclosed, 148 Reserve pool, 251, 253 Resource(s), allocation of, 62, 75 Restriction: binding, 144, 160, 162, 164, 198, 239–240 transfer, 26, 171 Restructuring, 1, 7, 10, 15, 151 of debt obligations, 173 Return(s): expected or mean, 25, 27, 60, 62, 64, 108, 142, 151–152, 158, 168–169, 186–189, 192–193, 195–196, 223, 229, 249, 251, 254 geometric daily, 194 weighted average asset, 234, 236 Return on: assets (ROA), 4, 151, 223, 230, 239, 249 economic capital, 241, 243 equity (ROE), 4–5, 32, 39, 228, 239–241, 243, 249–252, 267, 276, 290 invested (equity) capital, 240 regulatory capital, 240 risk-adjusted capital (RORAC), 243 Revenues, 109, 152, 197, 205–208, 239, 241, 260, 280–282 buffer function of, 161, 169 expected, 161, 205, 207, 243 marginal, 63 other, 243 Review cycle, 171, 214 Risk(s): (firm-) specific risk. See Risk(s), specific bad, 136 compensated, 27, 70, 134, 141– 142, 166, 267, 277 continuous, 25–26, 196, 197 discontinuous, 25, 166 downside, 23, 147, 168, 178, 219 enterprise-level, 29 financial, 3, 34, 41, 60, 100, 166, 196, 216 foreign exchange, 56, 165, 186, 271 good, 136 hedgable, 246, 271, 273, 277, 279, 281 idiosyncratic, 133, 265, 268 illiquid, 41, 135, 214, 246, 271, 273, 275, 279 interest rate, 114, 165, 186, 209, 246, 271, 281 liquid, 134, 165, 271, 273, 275, 277–278, 292 macroeconomic, 166, 215, 235 market (-wide), 24, 34, 64, 278 marketable, 32, 134, 271, 281 nonhedgable, 133, 272 nonmarketable or unmarketable, 133, 135, 268 nonsystematic or unsystematic. See Risk(s), specific perceived, 14, 121 political, 56, 165 specific, 24, 26, 34, 36–40, 42, 49, 60, 62–74, 82–84, 89–90, 103, 111–114, 133–135, 166, 168– 169, 210, 243, 265–266, 270– 271, 278–280, 288–289 systematic, 2–3, 5, 24, 34, 36–38, 40, 49, 60, 62–77, 89, 112, 133, 135–136, 168, 240, 254, 266, 275, 288, 290 total, 3, 5, 36, 62, 74, 84, 113, 132–137, 141, 151, 161, 164, 166, 168, 170, 187, 192, 194, 219, 236–238, 240, 242, 245, 261, 265, 267–274, 276, 279– 280, 283, 285, 288–291 tradable, 271 Risk absorption, 43, 150 Risk-adjusted performance measures (RAPM), 5, 7, 131, 241, 243– 244, 290 Risk-adjusted return on capital (RAROC), 5, 7, 136, 241, 242 adjusted, 255, 258 advantages of, 245–247 as acceptable proxy, 242, 247, 258, 267, 289, 291
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isk management and value creation i
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Copyright © 2002 by John Wiley & S
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preface From an empirical as well a
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acknowledgments No book is solely t
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x CONTENTS Goals of Risk Management
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xii CONTENTS Definition of RAROC 24
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xiv FIGURES Figure 5.5 Figure 5.6 F
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symbols ↑ ↓ α β i xvi Increas
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xviii SYMBOLS ln Natural logarithm
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abbreviations APT BIS bn bps CAPM C
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2 RISK MANAGEMENT AND VALUE CREATIO
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CHAPTER 2 Foundations for Determini
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Foundations for Determining the Lin
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Page 316 and 317: eferences Aguais, Scott D., and Ant
Page 318 and 319: References 295 Blanden, Michael (19
Page 320 and 321: References 297 and Abuses,” Journ
Page 322 and 323: References 299 Froot, Kenneth A., a
Page 324 and 325: References 301 risiken aus Handelsg
Page 326 and 327: References 303 Investments in Stock
Page 328 and 329: References 305 Institute of Technol
Page 330 and 331: References 307 Sharpe, William F. (
Page 332: References 309 Wall, L.D., and John
Page 335 and 336: 312 INDEX Approach (continued) top-
Page 337 and 338: 314 INDEX Capital: Tier-1, 139, 146
Page 339 and 340: 316 INDEX Credit: derivatives, 178,
Page 341 and 342: 318 INDEX Expectations: homogeneous
Page 343 and 344: 320 INDEX Incentive(s), 22, 33, 45,
Page 345 and 346: 322 INDEX Managers, poorly diversif
Page 347: 324 INDEX Overinvestment, 75, 79, 8
Page 351 and 352: 328 INDEX Risk, liquidity, 3, 165 R
Page 353 and 354: 330 INDEX Sharpe ratio, 244, 252 Sh
Page 355: 332 INDEX Value at risk (VaR) (cont
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