Risk management and financial institutions

Abstract

The sixth edition of Risk Management and Financial Institutions has been fully updated with many improvements to the presentation of material. Like my other popular book, Options, Futures and Other Derivatives, it is designed to be suitable for practicing managers as well as university students. Those studying for professional qualifications such as FRM and PRM will also find the book useful. There are no prerequisites, except a knowledge of basic statistics. In producing the sixth edition I re-sequenced the chapters to create a more logical flow of material. Financial institutions, financial markets, and the management of different types of risk are now discussed in the first 24 chapters, with the regulation of financial institutions being covered toward the end of the book. Instructors who do not want to cover regulation will find the new structure easier to deal with. Those who do cover regulation will probably agree that students should have a good understanding of the risks first. There is a new chapter (Chapter 23) on climate risk, ESG, and sustainability.We have now reached the stage where all companies, including financial institutions, cannot ignore environmental risks. Increasingly, it is necessary for them to provide information to investors on the way they are managing these risks. This chapter describes the nature of environmental risks and the key role that financial institutions can play in saving the planet. Improvements have been made to material throughout the book. The level of mathematical sophistication and the way material is presented have been managed carefully so that the book is accessible to as wide an audience as possible. For example, when covering copulas in Chapter 9, I present the intuition followed by a detailed numerical example; when covering maximum likelihood methods in Chapter 8 and extreme value theory in Chapter 12, I provide illustrative numerical examples.