Modelling the Survival of Financial and Industrial Enterprises : Advantages, Challenges and Problems with the Internal-Ratings Base (IRB)

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ISBN: 9780333984666 | 0333984668
Cover: Trade Book
Copyright: 10/11/2002

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This book analyzes the use of modeling in charting the survival of financial and industrial enterprises. The author shows how to use models effectively, and goes on to consider the pitfalls that can occur. The book contains plenty of practical examples, making this a useful 'how to' guide.

List of Tables

List of Figures

Preface

xiii

Part One Understanding the Contribution of Science and of Models

Science and the Solution of Real-life Business Problems

(21)

Introduction

(2)

Thinking is the common ground between science and philosophy

(3)

Principles underlying scientific thought

(4)

What is meant by the scientific method?

(4)

Models and the internal rating-based solution

(4)

Natural death and oblivion of models, products, factories, companies and people

(4)

Is the Work of Financial Analysts Worth the Cost and the Effort?

(21)

Introduction

(1)

The role of financial analysts

(4)

Metaknowledge is a basic concept of science and technology

(3)

Metaphors, real world problems and their solution

(4)

Characteristics of an internally consistent analysis

(3)

Financial studies and the methodology of physicists and inventors

(3)

Management based on research and analysis

(3)

The Contribution of Modelling and Experimentation in Modern Business

(22)

Introduction

(1)

The multiple role of analysis in the financial industry

(2)

Can models help in improving business leadership?

(6)

Non-traditional financial analysis and qualitative criteria

(3)

Models become more important in conjunction to internal control

(3)

Human factors in organisation and modelling

(7)

Part Two Elements of the Internal Rating-based Method

Practical Applications: the Assessment of Creditworthiness

(24)

Introduction

(1)

Notions underpinning the control of credit risk

(6)

RAROC as a strategic tool

(4)

Standardised approach and IRB method of Basle II

(3)

Amount of leverage, loss threshold and counterparty risk

(3)

Risk factors help in better appreciation of exposure

(4)

Has the Westdeutsche Landesbank Girozentrale (West LB) an AA + or a D rating?

(3)

Debts and the Use of Models in Evaluating Credit Risk

(22)

Introduction

(3)

Contribution of information technology (IT) to the control of credit exposure

(3)

Credit risk, rating and exposure: examples with credit derivatives

(4)

Rules by Banque de France on securitisation of corporate debt

101

(5)

Credit derivatives with non-performing loans: Banca di Roma and Thai Farmers' Bank

106

(2)

Don't use market risk models for credit risk

108

(5)

Models for Actuarial Science and the Cost of Money

113

(24)

Introduction

113

(1)

Basic principles underpinning actuarial science

114

(6)

The stochastic nature of actuarial models

120

(3)

Interest rates, present value and discounting

123

(3)

Modelling a cash flow system

126

(3)

Actuarial reserves and collective models

129

(8)

Part Three Forecasting, Reporting, Evaluating and Exercising Market Discipline

Scenario Analysis and the Delphi Method

137

(20)

Introduction

137

(2)

Why expert opinion is not available matter-of-course

139

(2)

The delphi method helps management avoid tunnel vision

141

(5)

Scenarios and the pattern of expert advice

146

(5)

Extending the scope of analytics and the planning horizon

151

(3)

Making effective use of informed intuitive judgement

154

(3)

Financial Forecasting and Economic Predictions

157

(22)

Introduction

157

(1)

The art of prognostication and its pitfalls

158

(4)

Predictive trends, evolutionary concepts and rocket scientists

162

(4)

A prediction theory based on the underlying simplicity of systems

166

(5)

Undocumented hypotheses are in the background of many model failures

171

(3)

Investment horizon and the arrow of time

174

(5)

Reliable Financial Reporting and Market Discipline

179

(24)

Introduction

179

(2)

Committee of Sponsoring Organisations (COSO) of the Treadway Commission and implementation of COSO

181

(3)

Qualitative and quantitative disclosures by financial institutions

184

(4)

Proactive regulation and the use of an accounting metalanguage

188

(3)

Defining the territory where new regulations must apply

191

(3)

Measurement practices, reporting guidelines and management intent

194

(4)

Why fair value in financial reporting is a superior method

198

(5)

Part Four What to do and not to do with Models

The Model's Contribution: Examples with Value at Risk and the Monte Carlo Method

203

(21)

Introduction

203

(1)

Concepts underpinning value at risk and its usage

204

(5)

What VAR is and what it is not

209

(4)

Historical correlation and simulation with VAR models

213

(2)

The bootstrapping method and backtesting

215

(3)

Levels of confidence with models and operating characteristics curves

218

(6)

Is Value at Risk an Alternative to Setting Limits?

224

(23)

Introduction

224

(2)

Establishing a policy of prudential limits

226

(4)

Limits, VAR and market risk

230

(3)

The impact of level of confidence on the usability of VAR

233

(4)

Can we use eigenmodels for precommitment?

237

(3)

Using the warning signals given by value at risk

240

(7)

Part Five Facing the Challenge of Model Risk

Errors in Prognostication

247

(21)

Introduction

247

(2)

`For' and `against' the use of models for forecasting

249

(3)

Faulty assumptions by famous people and their models

252

(5)

The detection of extreme events

257

(4)

Costly errors in option pricing and volatility smiles

261

(4)

Imperfections with modelling and simulation

265

(3)

Model Risk is Part of Operational Risk

268

(20)

Introduction

268

(2)

The risk you took is the risk you got

270

(2)

Model risk whose origin is in low technology

272

(3)

The downside may also be in overall operational risk

275

(3)

Operational risk in the evaluation of investment factors

278

(3)

How far can internal control reduce operational risk?

281

(4)

The contribution that is expected from auditing

285

(3)

Notes

288

(4)

Index

292

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Modelling the Survival of Financial and Industrial Enterprises : Advantages, Challenges and Problems with the Internal-Ratings Base (IRB)

Summary

Author Biography

Table of Contents

Supplemental Materials

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Rent More, Save More! Use code: BBRENTAL

5% off 1 book, 7% off 2 books, 10% off 3+ books

Modelling the Survival of Financial and Industrial Enterprises : Advantages, Challenges and Problems with the Internal-Ratings Base (IRB)

Summary

Author Biography

Table of Contents

Supplemental Materials

Digital License