Financial Risk Management

I started to take a serious interest in financial risk management in the mid-1990s. This interest emerged, in part, because I was struggling with the issue of how to assess bank capital adequacy and the answer, I felt (and I now believe wrongly), was to be found in the emerging area of financial risk measurement.  This led me to a long but interesting detour from my earlier work ...

 

I won’t begin to summarise this stuff here ....

 

Books

Measuring Market Risk.  Second edition. Chichester and New. York: John Wiley and Sons, Spring 2005. Hardback. 390 pp. A traditional Chinese language edition was published by the Taiwan Academy of Banking and Finance in Taipei in 2008.

[Note: for those who wish to download the MATLAB files used for the book, they are available for download here.]

Measuring Market Risk. Chichester and New York: John Wiley and Sons, September 2002. 370 pp. Hardback.

An Introduction to Market Risk Measurement. Chichester and New York: John Wiley and Sons, September 2002. 284 pp. Paperback.

Beyond Value at Risk: The New Science of Risk Management. Chichester and New York: Wiley and Sons. Wiley Frontiers in Finance Series. March, 1998. 274 pp. Hardback and paper back.

Articles and Talks on Risk Measures

Extreme Global Equity Market Risk.” (J. Cotter and K. Dowd), Journal of Derivatives and Hedge Funds, Vol. 17, No. 4, 2011, pp. 312-325.

After VaR: The Theory, Estimation, and Insurance Applications of Quantile-based Risk Measures.” (K. Dowd and D. Blake). Journal of Risk and Insurance. Volume 73, No. 2, June 2006, pp. 193-228. 

“Probable Maximum Loss: An Almost Ideal Risk Measure?” Financial Engineering News, No. 54, March-April 2007.

“Estimating Expected Tail Loss.”  Financial Engineering News, April 2002, p. 3. Reprinted in Financial Engineering News, No. 50, July/August 2006, pp. 7, 10.

“The State of Risk Measurement.”  Financial Engineering News, No. 48, March-April 2006, pp. 17-18.

“Estimating Risk Models.” In S. E. Satchell (Ed.) Quantitative Financial Risk Management: Fundamentals, Models and Techniques. London: Henry Stewart Talks, 2006.

“Measures of Financial Risk.” In S. E. Satchell (Ed.) Quantitative Financial Risk Management: Fundamentals, Models and Techniques. London: Henry Stewart Talks, 2006.

“Distortion Risk Measures.” Financial Engineering News, No. 44, July-August 2005, pp. 7, 12, 14.

“Estimating Risk Measures.”  Financial Engineering News. No. 43, May-June 2005, pp. 13, 16.

“Coherent Risk Measures.”  Financial Engineering News, No. 41, January-February 2005, pp. 9-10.

“VaR vs. Expected Tail Loss.”  Derivatives Week, February 28, 2000, pp. 6-7. 

Articles on Value-at-Risk (VaR)

“Value-at-Risk.” In R. Cont (editor-in-chief) Encyclopedia of Quantitative Finance. New York: Wiley, pp. 1863-1866.

Efficient VaR: Using Past Forecast Performance to Generate Improved VaR Forecasts.” (K. Dowd and C. Blanco). Pp. 25-39 in G. Gregoriou (ed.) The VaR Implementation Handbook: Financial Risk and its Applications in Asset Management, Measurement and Modeling. New York: McGraw-Hill, 2009.

Retrospective Assessment of Value-at-Risk.”  Chapter 9 in M. Ong (ed.) Risk Management: A Modern Perspective, pp. 183-202. San Diego: Elsevier. 2006.

“Subadditivity and VaR.”  Financial Engineering News. No. 40, November 2004, pp. 7, 10.

“Estimating VaR with Copulas.” (K. Dowd and P. Fackler) Financial Engineering News, No. 39, September-October 2004, pp. 9, 21.

“Value-at-Risk.” Pp. 1740-1748 in Encyclopedia of Actuarial Science, Volume 3, edited by J. L. Teugels and B. Sundt. Chichester: John Wiley, 2004.

“Introduction to VaR Models.” (K. Dowd and D. Rowe) Chapter A.2 in C. O. Alexander and E. Sheedy (eds) The Professional Risk Managers’ Handbook: A Comprehensive Guide to Current Theory and Best Practices. Volume 3, pp. 75-113. PRMIA Professional Risk Manager. 2004.

Long-term Value at Risk.” (K. Dowd, D. Blake and A. J. G. Cairns) Journal of Risk Finance, Volume 5, No. 2 (Winter/Spring 2004),  pp. 52-57.

“Estimating VaR with Order Statistics.”  Journal of Derivatives, Vol. 8, No. 3, Spring 2001, pp. 23-30.

Estimating Value-at-Risk: A Subjective Approach.” Journal of Risk Finance, Vol. 1, No. 4, Summer 2000, pp. 43-46.

“Aproximación del Valor de Riesgo a Través de la Teoría del Valor Extremo.” (J. R. Aragonés, C. Blanco and K. Dowd) Analisis Financiero, No. 82, Tercer Cuatrimestre, 2000, pp. 78-85.

“Extrapolating VaR by the Square-Root Rule.” (D. Blake, A. J. G. Cairns and K. Dowd). Financial Engineering News, August 2000, pp. 3, 7.

Assessing VaR Accuracy.”  Derivatives Quarterly, Vol. 6, No 3, Spring 2000, pp. 61-63.

“Risk Management and Value at Risk: An Introduction.”  Global Treasury News, July 1st 1999.

“The Extreme Value Approach to VaR – An Introduction.”  (In four parts) Financial Engineering News. August 1999, pp. 1, 2, 6; October 1999, pp. 1, 2; December 1999, pp. 1, 5.

“A VaR Approach to Risk-Return Analysis.” Journal of Portfolio Management, Vol. 25, Summer 1999, pp. 60-67.

“Financial Risk Management.”  Financial Analysts Journal, Vol. 55, No. 4, July/August 1999, pp. 65-71.

“Confidence Intervals for VaR.” (D. Chappell and K. Dowd) Financial Engineering News, March 1999, pp. 1-2.

“VaR – Valueless against Risk.”  The Financial Regulator, Vol. 3, No. 2, March 1999, pp. 37-39.

VAR by Increments.” ‘Risk’ Special Report on Enterprise-Wide Risk Management (November 1998), pp. 31-32.

Articles on Spectral Risk Measures

“Spectral Risk Measures: Properties and Limitations.” (K. Dowd, J. Cotter and G. Sorwar) Journal of Financial Services Research, Volume 34, No.1 (August 2008), pp. 61-75.

Exponential Spectral Risk Measures” (K. Dowd and J. Cotter) ICFAI Journal of Financial Economics, Vol. 5, No. 4, pp. 57-66, December 2007.

“Spectral Risk Measures.”  Financial Engineering News. No. 42, March-April 2005, pp. 11-12.

Articles on Stress Testing

Stress Tests, Market Risk Measures and Extremes: Bringing Stress Tests to the Forefront of Market Risk Management.” (J. R. Aragonés, C. Blanco and K. Dowd). Pp. 17-33 in D. Rösch and H. Scheule (eds) Stress Testing for Financial Institutions: Applications, Regulations and Techniques. London: Risk Books, 2009.

“Stress Test.” (C. Blanco, K. Dowd, and R. Mark) Futures and Options World, March 2005, pp. 58-62.

Incorporating Stress Tests into Market Risk Modeling.” (J. R. Aragonés, C. Blanco and K. Dowd)  Derivatives Quarterly, Vol. 7, No 3, Spring 2001, pp. 44-49.

Articles on Extreme Value Theory

How Unlucky is 25-Sigma?” (K. Dowd, J. Cotter, C. G. Humphrey and M. Woods) Journal of Portfolio Management, Volume 34 (Number 4), 2008, pp.76-80.

Extreme Spectral Risk Measures: An Application to Futures Clearinghouse Margin Requirements.” (J. Cotter and K. Dowd) Journal of Banking and Finance, Volume 30, 2006, pp. 3469-3485.

“Extreme Value VaR (2).” (J. R. Aragonés, C. Blanco and K. Dowd) Derivatives Week, March 20, 2000, pp. 8-9.

 “Extreme Value VaR.” (J. R. Aragonés, C. Blanco and K. Dowd) Derivatives Week, March 6, 2000, pp. 7-8.

“How Useful is Extreme Value Theory?”  Derivatives Strategy, Vol. 4, No. 11 (November 1999), pp. 50-52.

“The Extreme Value Approach to VaR – An Introduction.”  (In four parts) Financial Engineering News. August 1999, pp. 1, 2, 6; October 1999, pp. 1, 2; December 1999, pp. 1, 5.

Articles on Portfolio Risk Management

Copulas and Coherence: Portfolio Analysis in a Non-Normal World.” Journal of Portfolio Management. Vol. 30, Fall 2005, pp. 123-127.

“Rejoinder to Huang.” Journal of Portfolio Management, Spring 2004, Volume 30, No. 3, p. 127.

Sharpe Thinking.” ‘Risk’ Risk Management for Investors Special Report, June 2001, pp. S34-S37. This article was subsequently reprinted in B. Scherer (ed.) Portfolio Management published by Risk Books (London), pages 199-207.

“Adjusting for Risk: An Improved Sharpe Ratio.” International Review of Economics and Finance,Vol. 9 (2000): 209-222.

“Improving the Sharpe Ratio.”  Financial Engineering News, April 2000, pp. 3, 7.

“A VaR Approach to Risk-Return Analysis.” Journal of Portfolio Management, Vol. 25, Summer 1999, pp. 60-67.

“Financial Risk Management.” Financial Analysts Journal, Vol. 55, No. 4, July/August 1999, pp. 65-71.

VAR by Increments.” ‘Risk’ Special Report on Enterprise-Wide Risk Management (November 1998), pp. 31-32.

Articles on General Financial Risk Management

Risk Management in the UK Insurance Industry: The Changing State of Practice.” (K. Dowd, D. L. Bartlett, M. Chaplin, P. Kelliher and C. O’Brien) (2008) International Journal of Financial Services Management, Vol. 3, No.1, pages 5-23.

“Risk Management vs. Statistics: Correlation Volatility and the Principle of Prudence.” Financial Engineering News, No. 53, January-February 2007, pp. 15, 20.

“The Invisible Problem of Risk Blindness.” Financial Engineering News, No. 52, November-December 2006, pp. 27, 34.

“Taking the Long-Term View.” Financial Engineering News, No. 51, September-October 2006, pp. 27, 30.

“Market Risk Measurement and Management for Energy Firms.” (J. R. Aragones, C. Blanco, K. Dowd and R. Mark)Chapter 6 in P. C. Fusaro (ed.) The Professional Risk Manager’s Guide to Energy and Environmental Markets Risk Management, pp. 69-82. PRMIA Publications, Wilmington DE, 2006.

“Best Practices in Credit Risk Management for Energy and Commodity Derivatives.” (C. Blanco, R. Mark, K. Dowd, and W. Murdoch) Chapter 7 in P. C. Fusaro (ed.) The Professional Risk Manager’s Guide to Energy and Environmental Markets Risk Management, pp. 83-96. PRMIA Publications, Wilmington DE, 2006.

“Liquidity Risk Measurement and Management for Energy Firms.” (C.Blanco, R. Mark, K. Dowd and K. Kremke)Chapter 10 in P. C. Fusaro (ed.) The Professional Risk Manager’s Guide to Energy and Environmental Markets Risk Management, pp. 135-146. PRMIA Publications, Wilmington DE, 2006.

“The Ghost at the Banquet: Managing Model Risk.” (J. R. Aragonés, C. Blanco and K. Dowd) Futures and Options World. September 2005.

“Market Risk: An Interview with Kevin Dowd.” Channel, Volume 2, Issue No. 1, 2005, pp. 20-23.

“A Liquid Diet” (C. Blanco, K. Dowd and R. Mark) Futures and Options World, June 2005, pp. 43-46.

“Art or Science?” (C. Blanco, K. Dowd, and R. Mark) Futures and Options World, May 2005, pp. 50-53.

“Russian Roulette.” (C. Blanco, K. Dowd and R. Mark) Futures and Options World, April 2005, pp. 45-48.

“Stress Test.” (C. Blanco, K. Dowd, and R. Mark) Futures and Options World, March 2005, pp. 58-62.

“An Integrated Framework.” (C. Blanco, K. Dowd and R. Mark) Futures and Options World, February 2005, pp. 50-55.

“The Risk Edge: Next Generation of Commodity Spread Models.” (C. Blanco, K. Dowd and C. Mammarelli) The Risk Desk, Volume V, February 2005.

Articles on Model Risk

Using Order Statistics to Estimate Confidence Intervals for Quantile-Based Risk Measures.” Journal of Derivatives, Spring 2010, Vol. 17, No. 3: pp. 9-14.

“Model Risk.” Pp. 87-91 in F. J. Fabozzi (ed.) Handbook of Finance, Volume 3. Wiley: Hoboken, NJ, 2008.

Using Order Statistics to Estimate Confidence Intervals for Probabilistic Risk Measures.” Journal of Derivatives, November 2006, Vol. 14, No. 2, Winter 2006, pp. 77-81.

“The Ghost at the Banquet: Managing Model Risk.” (J. R. Aragonés, C. Blanco and K. Dowd) Futures and Options World. September 2005.

Estimating VaR with Order Statistics.”  Journal of Derivatives, Vol. 8, No. 3, Spring 2001, pp. 23-30.

Estimating Value-at-Risk: A Subjective Approach.” Journal of Risk Finance, Vol. 1, No. 4, Summer 2000, pp. 43-46.

Assessing VaR Accuracy.”  Derivatives Quarterly, Vol. 6, No 3, Spring 2000, pp. 61-63.

“Confidence Intervals for VaR.” (D. Chappell and K. Dowd) Financial Engineering News, March 1999, pp. 1-2.

Articles on Backtesting Financial Risk Models

Back-Testing Market Risk Models.” Pp. 93-99 in F. J. Fabozzi (ed.) Handbook of Finance, Volume 3. Wiley: Hoboken, NJ, 2008.

A Moments-based Procedure for Evaluating Risk Forecasting Models.” Chapter 4 in G. Christodoulakis and S. Satchell (eds) Analytics of Risk Model Validation, pp. 45-59. Elsevier, 2008.

“Validating Multiple-Period Density Forecasting Models.” Journal of Forecasting, Volume 26, No. 4, July 2007, pp. 251-270.

Temporal Dependence in Multi-Step Density Forecasting Models.” Journal of Risk Model Validation. Volume 1, No. 1, Spring 2007, pp. 1-20.

“Guest Editorial: Journal of Risk Special Issue on Backtesting.” Journal of Risk Volume 9, Number 2 (January 2007), pp. v-vi.

Backtesting Risk Models within a Standard Normality Framework.” Journal of Risk, Volume 9, Number 2, Winter 2006, pp. 93-111.

“Everything You Need to Know About Backtesting.” Financial Engineering News, No. 45, September-October 2005, pp. 19, 22.

A Modified Berkowitz Back-test.”  Risk, Volume 17, No. 4 (April 2004), p. 86

A Bootstrap Back-test.”  Risk, Vol. 15, No. 10 (October 2002), pages 93-94.

Articles on Risk Disclosure

“Market Risk Reporting by the World’s Top Banks: Evidence on the Diversity of Reporting Practice and the Implications for International Accounting Harmonisation.” (M. Woods, C. G. Humphrey and K. Dowd). Revista de Contabilidad - Spanish Accounting Review, Vol. 11, Issue 2, pp. 9-42.

"See and be seen (1)" (C. G. Humphrey, M. Woods, and K. Dowd), Financial Services Focus, pp.8-12. ICAEW, London, June, 2009.

"Greater visibility  (II)" (C. G. Humphrey, M. Woods, and K. Dowd), Financial Services Focus, ICAEW, London, July/August, 2009.

“Crunch Time for Bank Audits? Questions of Practice and the Scope for Dialogue.”(M. Woods, C. G. Humphrey, K. Dowd and Y.-L. Liu) Managerial Auditing Journal (January 2009), Volume 24 (No. 2), pages 114-134.

“The Value of Risk Reporting: A Critical Analysis of Value-at-Risk Disclosures in the Banking Sector.” (M. Woods, K. Dowd, and C.G. Humphrey) (2008) International Journal of Financial Services Management, Vol. 3, No. 1, pages 43-64.

Credibility at Risk? The Accounting Profession, Risk Reporting and the Rise of VaR.” Nottingham University Business School Centre for Risk and Insurance Discussion Paper 2004.III, February 2004.

Accounting for Value-at-Risk.”  Journal of Risk Finance, Vol. 2, No. 1, Fall 2000, pp. 51-58.

 

Other Articles

 

“Option Pricing Under Non-Normality: A Comparative Approach.” (S. Mozumdar, G. Sorwar and K. Dowd). Review of Quantitative Finance and Accounting, 2012, pp. 1-20.

“Estimating Financial Risk Measures for Options”, (G. Sorwar and K. Dowd), Journal of Banking and Finance, Vol. 34, Issue 8, August 2010, pp. 1982-1992.

Intra-Day Seasonality in Foreign Exchange Market Transactions.” (J. Cotter and K. Dowd) International Review of Economics and Finance, Vol. 19, Issue 2, 2010, pp. 287-294.

“Quantile-based tail risk estimation for equity portfolios”. (J. Cotter and K. Dowd) Pp. 297-313 in G. Gregoriou (Ed.) The VaR Modelling Handbook: Practical Applications in Alternative Investing, Banking, Insurance and Portfolio Management, New York: McGraw-Hill, 2009.

“Default Risk.” Pp. 476-481 in E. Melnick and B. Everitt (eds) Encyclopedia of Quantitative Risk Assessment and Analysis. Chichester: John Wiley and Sons, 2008.

The Tail Risks of FX Return Distributions: A Comparison of the Returns Associated with Limit Orders and Market Orders.” (J. Cotter and K. Dowd) Finance Research Letters, Volume 4, 2007, pp. 146-154

Temporal Aggregation of GARCH Volatility Processes: A (Partial) Rehabilitation of the Square-Root Rule.” (K. Dowd and P. Oliver) Journal of Accounting and Finance, Volume 5, Spring 2007, pp. 51-60.

“How to Become a Good Financial Engineer.” Financial Engineering News, No. 47, January-February 2006, pages 13, 16.

“Hedge Funds Losses, Credit Derivatives and Dr. Li’s Copula.” Financial Engineering News, No. 46, November-December 2005, pp. 1, 4.

“Evaluating Copulas.” Financial Engineering News, No. 46, November-December 2005, pp. 7, 10.

“Simulating DC Outcomes.” (K. Dowd, D. Blake and A. J. G. Cairns) Investment and Pensions Europe (October 2005), p. 29.

“An Informal Introduction to Copulas.”  Financial Engineering News, March-April 2004, pp.  15, 20.

“Stochastic Modeling: A Key Tool in Risk Management.” (K. Dowd and C. O’Brien) Practical Investors Journal, Volume 2 (Winter 2004), pp. 8-12.

“Enterprise Risk Management: A Better Option.” Chartered Financial Analyst Vol. 7, Issue No. 4, December 2001, pp. 28-29. 

“Estimating the Failure Probabilities of Financial Institutions: A Simple Approach.”  Journal of Risk Finance, Vol. 2, No. 4, Summer 2001, pp. 33-38.

“Hedge Fund Debacle: Fallout from the Bailout.” (K. Dowd and S. Lynn) CCH Focus on Banking, Vol. 2, Issue No. 3, November 3, 1999, pp. 4-5.

Risk Management Advice for Senior Managers.” Global Treasury News, May 28th 1999. Reprinted in Risk Management, November 2005, Issue No. 6, pp. 31-34, published by the Society of Actuaries.

“Remunerating Performance.”  Derivatives Strategy, Vol. 4, No. 2, February 1999, pp. 60-61.

“Enterprise-Wide Risk Management for Corporates.” The Treasurer: The Official Journal of the Association of Corporate Treasurers. September 1998, pp. 34-35. Also published in Global Treasury News, September 18th, 1998.