Chap010_7thEd_SLIDES

Chap010_7thEd_SLIDES - Ch-10 Market Risk Overview10-1This...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Ch-10 Market Risk Overview10-1This chapter discusses the nature of market risk and appropriate measuresRiskMetrics (delta normal)Historic or back simulationMonte Carlo simulationLinks between market risk and capital requirementsTrading Risks10-2Trading exposes banks to risksLate 2006 through mid-2009: housing prices plummeted, affecting mortgage lending industry 2007: Bear Stearns hedge funds losses in subprime mortgage market2007-2008: Bankruptcy of Lehman BrothersMerrill Lynch bought by BOAWAMU acquired by J.P. Morgan ChaseImplications10-3Emphasizes importance of:Measurement of exposureControl mechanisms for direct market risk and employee created risksHedging mechanismsOf interest to regulators Market Risk10-4Market risk is the uncertainty resulting from changes in market prices Affected by other risks such as interest rate risk and FX riskCan be measured over periods as short as one dayUsually measured in terms of dollar exposure amount or as a relative amount against some benchmarkMarket Risk Measurement10-5Important in terms of:Management informationSetting limitsResource allocation (risk/return tradeoff)Performance evaluationRegulationBIS and Fed regulate market risk via capital requirements leading to potential for overpricing of risksAllowances for use of internal models to calculate capital requirementsCalculating Market Risk Exposure10-6Generally concerned with estimated potential loss under adverse circumstancesThree major approaches of measurement:JPM RiskMetrics (or variance/covariance approach)Historic or Back SimulationMonte Carlo SimulationRiskMetrics Model...
View Full Document

This note was uploaded on 11/10/2011 for the course ECON 4620 taught by Professor Victorwakeling during the Fall '11 term at Kennesaw.

Page1 / 24

Chap010_7thEd_SLIDES - Ch-10 Market Risk Overview10-1This...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online