ISBN: 3540226826
TITLE: Risk Management
AUTHOR: Frenkel et al.
TOC:

A Word of Greeting V
Preface VII
Part 1: Bank Risk Management
Basel II and the Effects an the Banking Sector 3
Thomas Hartmann-Wendels, Peter Grundke and Wolfgang Sprk
1. Overview on the New Basel Capital Accord 3
1.1 Why Do We Need a More Sophisticated Banking Supervision? 5
2. The Standardized Approach 6
3. The Internal Ratings-Based Approach 9
3.1 The MB Approach for the Corporate Asset Class 9
3.1.1 Basic Strucrure of the IRB Approach for the Corporate Asset Class 9
3.1.2 The Risk Components 10
3.1.3 The Risk Weight Function 13
3.2 The IRB Approach for the Retail Asset Class 17
4 Consequences of Basel II 19
4.1 Consequences an the Lending Margins 19
4.2 Consequences for the Banking Industry 22
Conflicts of Interest and Market Discipline in Financial Services Firms 2
Ingo Walter
1 A Conflict of Interest Taxonomy 27
1.1 Conflicts of Interest in Wholesale Financial Markets 28
1.2 Conflicts of Interest in Retail Financial Services 31
1.3 Wholesale-Retail Conflicts 33
2. Conflicts of Interest and Strategic Profiles of Financial Firms 36
2.1 Potential Conflicts of Interest in Multifunctional Client Relationships 37
3 Constraining Exploitation of Conflicts of Interest 40
3.1 Regulation-Based Constraints 40
3.2 Market-Discipline Constraints 43
3.3 Intersection of Regulation and Market-Based Constraints 45
4. Conclusion 47
Risk Management and Value Creation in Banks 53
Gerhard Schrck and .Manfred Steiner
1. Introduction 54
2. Necessity for a Framework an Risk Management in Banks at the Corporate Level 54
3. RAROC as Capital Budgeting Rule in Banks 60
3.1 Evolution of Capital Budgeting Rules in Banks 60
3.2 Definition of RAROC 61
3.3 Assumptions and Deficiencies of RAROC 64
4. Overview of New Approaches 65
5. Implications of the New Approaches an Risk Management and Value Creation in Banks 67
5.1 Implications for Risk Management Decisions 68
5.2 Implications an Capital Budgeting Decisions 71
5.3 Implications an Capital Structure Decisions 71
6. Foundations for a Normative Theory for Risk Management in Banks 72
7. Conclusion 74
The New Basel Capital Accord 79
Claudia Holtorf Matthias Muck, and Markus Rudolf
1. Introduction 79
2. VaR Calculation 81
3. Regulatory Reporting, VaR, and Capital Requirement 89
4. Internal vs. Standard Model 91
5. Credit Risk 94
6. Operational Risk 97
7. Summary and Outlook 97
Value at Risk: Regulatory and Other Applications, Methods and Criticism 99
Alois Paul Knobloch
I. The Concept of Value at Risk and its Role in Contemporary Risk Management 99
1.1 Value at Risk: Definition and Risks of Concern 100
1.2 Applications and Regulatory Background 101
2. Calculating Value at Risk: Methods and Inherent Sources of inaccuracy 103
2.1 Delta-normal and Delta-gamma Approach 104
2.2 Simulation Methods: Historical and Monte Carlo Simulation 107
3. Risk Reduction and Capital Allocation Within a Value at Risk Framework 109
3.1 Minimizing Value at Risk 110
3.2 Allocating VaR to Business Units 112
4. Shortcomings of Value at Risk as a Measure of Risk 114
5. Conclusion 121
Parsimaniou's Value at Risk for Fixed Income Portfolios 125
John F. O. Bilson
1. Introduction 125
1.1 A Simple Example 126
1.2 The Key Rate Duration Model 130
1.3 The Level, Slope, and Curvature (LSC) Model 133
1.4 LSC Risk Analysis 137
1.5 Conclusion 140
Risk Budgeting with Value at Risk Limits 143
Robert Hrtl and Lutz Johanning
1. Introduction 144
2. Definition of Value at Risk Limits 145
3. The Structure of the Simulation Models 147
4. Adjusting Risk Limits for Time Horizons and
Profits and Losses 148
5. Incorporating Asset Correlations Into Risk Budgets 150
6. Conclusion and Practical Implications 153
Value at Risk, Bank Equity and Credit Riss 159
Jack E. Wahl and Udo Broll
1. Introduction 159
2. A Banking Firm 160
2.1 The Economic Settine 161
2.2 The Stochastic Setting 162
2.3 Value at Risk and the Bank's Profit 163
3. Optimal Capital Requirement 163
4. Value Maximization and Bank Equity 164
5. Conclusion 166
Parametric and Nonparametric Estimation of Conditional Return Expectations 169
Wolfgang Drobetz and Daniel Hoechle
1. Introduction 170
2. Parametric versus Nonparametric Regression - A Simple Derivation 172
2.1 Conditional Mean, Econometric Loss, and Weighted Least Squares 172
2.2 The Parametric Approach: An Unusual Representation of OLS 174
2.3 Nonparametric Regression Analysis 176
2.4 The Multivariate Case 181
2.5 Bandwidth Selection for Nonparametric Regression Estimators 182
3. Data Description 183
4. Empirical Results 185
4.1 In-sample Results 185
4.2 Out-of-sample Results 189
5. Conclusion 193
6. Acknowledgement 193
Credit Risk Portfolio Modeling: An Overview 197
Ludger Overbeck
1. Purpose of Credit Risk Modeling 197
1.1 Entenprise Risk Management 197
1.1.1 Economic Capital 198
1.1.2 Capital Allocation 199
1.2 Integration of Risk Types 199
1.3 Loss Distribution 200
1.4 Risk Measure 200
1.5 Portfolio Transactions 201
2. Basic Contponents of Credit Risk Modeling 201
2.1 Inputs 201
2.1.1 Exposure at Default 201
2.1.2 Loss Given Default 202
2.1.3 Default Probability 202
2.1.4 Dependency Concept 202
2.1.5 Event Versus Time Series Correlation 203
2.2 Output 204
2.2.1 Economic Capital 204
2.2.2 Value-at-Risk ?04
2.2.3 Expected Shortfall 205
2.2.4 Coherent Risk Measures 706
2.2.5 Capital Allocation 206
2.2.6 Contribution to Volatility and Contribution to VaR, Capital Multiplier 206
2.2.7 Contribution to Expected Shortfall 207
3. Portfolio Models 207
3.1 Actuarial Approach 208
3.1.1 Specitication of Severity and Freduency Distributions 208
3.1.2 Dependence 209
3.1.3 Extensions 209
3.2 Structural Approach 210
3.2.1 Default Event 210
3.2.2 Dependencies 211
3.2.3 Loss Distribution 213
3.2.4 Extensions 214
4. Summary 216
Evaluating Credit Risk Models 219
Hergen Frerichs and Mark Wahrenburg
1. Introduction 219
2. Backtests Based an the Frequency of Tail Losses 221
3. Backtests Based an Loss Density Forecasts 225
4. Forecast Evaluation Approaches to Backtesting 231
5. Conclusion 236
Estimation of Default Probabilities and Default Correlations 239
Stefan Huschens, Konstantin Vogl, and Robert Wania
1. Introduction 39
2. Estimation of Default Probabilities 240
2.1 Single-Period Case 240
2.2 Multi-Period Case 246
2.3 Multi-Group Case 247
3 Estimation of Default Correlation 249
3.1 Concepts of Dependent Defaults 2:19
3.2 Estimation in a General Bernoulli Mixture Model 250
3.3 Estimation in a Single-Factor Model 253
4. Simultaneous Estimation 255
4.1 General Bemoulli Mixture Model 255
4.2 Single-Factor Model 256
5. Conclusion 257
Managing Investment Risks of Institutional Private
Equity Investors - The Challenge of Illiquidity 259
Christoph Kaserer. Niklas Wagner and Ann-Kristin Achleitner
1 Introduction 260
2. Measuring Private Equity Returns and Risk 261
2.1 Asset Value Based Rerums 263
2.2 Smoothed Proxy Observations 265
2.3 Noisy Smoothed Proxy Observations 266
2.4 Cash Flow Based Returns 267
3. Risk Management and Asset Allocation 270
3.1 Specific Issues in Risk Management 371
3.2 Specific Issues in Asset Allocation 273
4. Conclusion 275
Assessment of Uperational Risk Capital 279
Carol Alexander
1. The Operational Risk Capital Model 281
1.1 Frequency, Severity and the Loss Distribution 283
1.2 Operational Risk Capital Calculation 286
2. Dealing with Operational Risk Data 289
2.1 Choosing the Functional Form of the Loss Model 289
2.2 Data Filtering and Scaling 290
2.3 Risk Self-Assessment 293
2.4 Data-Oriented AMA 294
3. Aggregation of Operational Risks 294
3.1 Identification of Dependencies 295
3.2 The Effect of Dependencies an the Aggregate ORC 296
3.3 Aggregating Operational Risks with Other Risks 298
4. Summary and Conclusions 299
Operational Risk: The Management Perspective 283
Wilhelm Kross
1. Introduction 304
1.1 Commonly Practiced Approaches to OpRisk 305
1.2 Pitfalls an the Road to AMA Compliance 306
1.3 Inefficiencies in AMA Compliance Management 310
1.4 Desirable Side-Effects in OpRisk Management 311
1.5 Priorities and Maximized Value in OpRisk Management 313
1.6 Generic Roadmap towards Effective OpRisk Management 315
1.7 Conclusions and Recotttmendations 316
art 2: Insurance Risk Management
Catastrophic Events as Threats to Society:
Private and Public Risk Management Strategies 321
Martin Nell and Andreas Richter
1. Introduction 322
2. Insurance-Linked Securities 324
3. State Guarantees for Catastrophic Risk? 331
4. Problems with Catastrophe Insurance Demand 335
5. Conclusion 336
New Approaches to Managing Catastrophic Insurance Risk 341
Ulrich Hommel and Mischa Ritter
1. Introduction 341
2. CAT-Linked Securities - A New Asset Class 345
3. Traditional and ART-Based CAT Reinsurance 347
4. Optimizing the Issuer's Risk Portfolio 350
5. Risk Management Strategies Using CAT-Linked Securities 352
5.1 Ex-Post Capital Provision and Funding Cost Reduction with CAT-linked Bonds 353
6. Valuation Issues 359
7. Concluding Remarks 361
Alternative Risk Transfer 369
Christopher L. Culp
1. Introduction 369
2. Self-Insurance, Captives, and the Emergence of ART 370
2.1 Single-Parent Captives 371
2.2 Other Captive-Like Structures 373
2.2.1 Mutualized Structures 373
2.2.2 Rent-A-Captives and Protected Cell Companies 374
Finite Risk 375
3.1 Typical Finite Risk Structures 375
3.2 Potential Benefits to Corporates 377
3.3 The AIG/Brightpoint SEC Settlement 378
4. Multi-Line Programs and Risk Bundling 379
4.1 Overcoming Silo-by-Silo Inefficiency 380
4.2 A Mixed Record 382
5. Multi-Trigger Programs 383
6. Structured Finance Solutions 384
6.1 Assct Securitization 384
6.2 Risk Securitization 385
6.3 Future Flow Securitization 387
6.4 Structured Liabilities 387
7. Contingent Capital 388
8. Conclusion 389
The Challenge of Managing Longevity Risk 391
Petra Riemer-Hommel and Thomas Trauth
1. Introduction 391
2. Establishing the Relevance of Longevity Risk to the Insurance Industry 392
3. Economic Reasons for the (Re)Insurance Gap 396
3.1 Difficulties in Forecasting Longevity Trends 397
3.2 Adverse Selection 398
3.3 Moral Hazard 399
3.4 Absence ofDiversitication and Hedging Opportunities 400
4. Possible Solutions for Longevity Risk (Re)Insurance 401
4.1 Pricing to Risk 401
4.2 Finite Reinsurance Solutions 402
4.3 Capital Market Solutions 403
5 Conclusion 404
Asset/Liability Management of Gertnan Life Insurance Companies:
A Value-at-Risk Approach in the Presence of Interest Rate Guarantees 407
Peter Albrecht and Carsten Weber
1. Introduction 408
2. The Model and its Calibration 410
3. The Case of German Life Insurance Companies 411
4. Pure Market Values of Assets 412
5. Book Values of Assets 413
6. The Riskless Asset 414
7. Summary 417
B. Appendix A: Probable Minimum Return 418
9. Appendix B: Worst Case Average Return 419
10. Appendix C: Conversion of Market Values into Book Values 419
art 3: Corporate Risk Management
Risk Management, Corporate Governance and the Public Corporation 423
Fred R. Kaen
1. Introduction 423
2. "Scientific" Theoretical Perspective an Risk Management 424
3. From Theory to Practice: Why Firms Should Manage Risk 426
3.1 Using Risk Management to Lower Taxes 426
3 2 Reducing Financial Distress attd Bankruptcy Costs 437
3.3 Using Risk Management to Entourage and Protect Firm Specific Investments 428
3 4 Using Risk Management to Monitor and Control Managers 430
3.5 Using Risk Management to Improve Decision Making and Capital Budgeting 431
3.6 Risk Management and Dividends 431
4. Back to Berle and Nfeans 432
5. Summary and Conclusions 434
Integrating Corporate Risk Management 437
Christian Laux
1. Introduction 437
2. How Does Risk Management Add Value? 439
3. Measuring the Value of Risk Management 441
4. Identifying a Firm's Collective Risk 443
5 Interactions Between Risk Management, Financial Structure, and Operating Decisions 444
6. Integrated Products 446
7. Risk Management and Nfanagerial Incentive Problems 449
Value-Based Motives for Corporate Risk Management 455
Ulrich Hommel
1. Introduction 455
2. The Irrelevance Theorem of Modigliani-Miller (MNI) 456
3. Value Based Motives for Corporate Risk Management -358
3.1 Raising the Efficiency of Financial Contracting 459
3.1.1 Shareholders vs. Management 460
3.1.2 Creditors vs. Shareholders 462
3.2 Reducing the Corporate Tax Burden 466
3.3 Reducing Transaction Costs 468
3.3.1 Transaction Cost of Financial Distress 468
3.3.2 Transaction Cost of Hedging 469
3.4 Selecting the Optimal Risk Portfolio 470
3.5 Coordinating Financial and Investment Policies 471
4. Conclusion 474
Value-based Corporate Risk Management 479
Werner Gleiner
1. Introduction 479
2. Tasks and Elements of Corporate Risk Management - Overview 482
2.1 From Risk Management to Value-Based Management and Strategie Management 482
2.2 Analyzing Risks 484
2.3 Aggregating Risks: Definition of Total Risk Volume 484
2.4 Coping with Risks 486
2.5 Designing Risk Management Systems and Monitoring 486
3 Risk, Cost of Capital and Shareholder Value 487
3.1 Introducing Considerations, the Shareholder Value 487
3.2 Enterprise Value and Capital Costs in Efficient Markets 488
3.3 Model Criticism 489
3.4 Deriving Realistic Cost of Capital Rates 490
3.5 Further Consequences of Inefficient Capital Markets 491
4. Conclusion 492
Statutory Regulation of the Risk Management Function in Germany: Implementation Issues for the Non-Financial Sector 495
Jrgen Weber and Arnim Liekweg
1. Introduction: Statutory Regulations as Cause of a New German Discussion an Risk-Management 495
2. Entrepreneurial Risk and Risk Management: A Holistic Approach 497
2.1 Chance, Risk and their Definitions 497
2.2 Chance, Risk and their Dimensions 498
2.3 The Process of Entrepreneurial Chance and Risk Management 499
2.3.1 The Chance/Risk-Strategy 500
2 3.2 Chance/Risk-Identification 501
2.3.3 The Chance/Risk-Analysis 502
2.3 4 The Chance/Risk-Reporting 503
2.3.5 Chance/Risk-Management 506
2.3.6 Chance/Risk-Monitoring 507
2.4 The Process-External Monitoring and Revision Function 508
3. Summary: The Critical Factors for the Implementation of the Risk Management Function 508
A Comprehensive Approach to the Measurement of Macroeconomic Exposure 513
Lars Oxelheim and Clas Wihlborg
1 Introduction 513
2. Exposure Coefficients 515
3. The Choice of Dependent Variable 517
4. The Choice of Independent Variables and Time Horizon 519
5. Volvo Cars 520
6. Results, Interpretations and the Use of Coefficients 524
6.1 Explanatory Factors 524
6.2 Exposure to Macroeconomic Shocks 526
6.3 Exposure Under Pegged Versus Flexible Exchange Rates 527
6.4 ~Vhat Has Financial Exposure Management Achieved? 528
6.5 Financial Structure as a Hedge Against Macroeconomic Exposure 529
7. Using Estimated Coeffieients for Future Periods 530
8. Concluding Remarks and the Use of MUST Analysis in External Reporting 533
Foreign-Exchange-Risk Management in German Non-Financial Corporations: An Empirical Analysis 537
Martin Glaum
1. Introduction 537
2. Theoretical Framework: Measurement and Management of Foreign Exchange Risk 539
3. Methodology of the Empirical Study 541
4. Results of the Empirical Study 543
4.1 Exposure Concepts 543
4.2 Exchange-Risk-Management Strategies 545
4.3 The Use of Foreign-Exchange-Rate Forecasts 549
4.4 Organization of Exchange-Rate Management 550
4.5 Further Arguments and Hypotheses an Exchange-Risk Management 551
5. Conclusion 553
Estimating the Exchange Rate Exposure of US Multinational Films:
Evidence from an Event Study Methodology 557
Kathryn L. Dewenter, Robert C. Higgins and Timothy T. Simin
1. Introduction 557
2 Sample Selection and Event Study Methodology 560
3. Event Study Measures of Exchange Rate Exposure 562
4. Determinants of Exchange Rate Exposure 564
5. Conclusion 568
International Corporate Risk Management: A Comparison of Three Major Airlines 571
Matthias Muck and Markus Rudolf
1. Introduction 572
2. The Current Situation of the Airlines 574
2.1 Lufthansa AG Background Information 574
2.2 United Airlines Background Information 577
2.3 Qantas Background Information 578
3 CorporateMetricsTM - Explaining the Model 578
4. Income Statements 580
5. Corporate Risk Drivers 582
6. Hedging Strategies 585
7. Simulation Results 5587
8.Conclusion 589
Corporate Risk Management: Real Options and Financial Hedging 591
Alexander J. Triantis
1 Identification and Classification of Risks 592
2. Rationales for Managing Risk 594
3. Using Derivatives and Other Contracts to Manage Risk 597
4. Using Real Options to Hedge and Exploit Risk 599
5. Using Real versus Financial Options for Hedging 601
6. Creating an Integrated Risk Management Strategy 603
7. Conquering Risk 605
The Real Option Value of Operational and Managerial Flexibility in Global Supply Chain Networks 609
Arnd Huchzermeier
1. Introduction 610
2. The Benefit of Operational Flexibility 611
2.1 The Original Problem 611
2.2 Supply Chain Network Cost Optimization 612
2.2.1 The Two-stage Supply Chain Network Model Fonnulation 612
2.2.2 The International Two-stage Sttpply Chain Network Model 613
2.3 Profit Maximization 614
2.4 Shareholder Value Maximization 614
2.5 Transfer Pricing 615
2.6 Knowledge Manaeement 616
2.7 Real Exchange Rate Risk 616
3. The Option Value of Managerial Flexibility 617
3.1 Demand Risk 618
3.1.1 Stochastic or Scenario Programming Formulation with Recourse 618
3.1.2 The Option Value of Managerial Flexibility under Demand Risk 619
3.1.3 Monte-Carlo Simulation Study 620
3.2 Exchange Rate Uncertainty 620
3.2.1 Local Pricing 620
3.2.2 World Pricing 623
3.2.3 Home-Country or US$-Pricing 623
3.2.4 The Option Value of Managerial Flexibility under Demand Risk and Price/Exehange Rate Uncertainty 623
3.2.5 Monte-Carlo Simulation Study 624
4. Summary 626
Managing Acquisition-Related Currency Risk Exposures: The E.ON-Powergen Case 631
Stefan Hloch, Ulrich Hommel, and Karoline Jung-Senssfelder
1. E.ON's Acquisition of Powergen 631
2. Currency Risk Exposures in Cross-Border Acquisitions 633
2.1 Currency Exposure Defined 634
2.2 Contingent Exposure 633
2.3 Translation Exposure 636
3. Introducing an.Acquisition-Related Approach to Managing Currency Risk Exposures 637
3.1 Exposure Identification 638
3.2 Policy Formulation 639
3.3 Exposure Measurement 640
3.4 Exposure Monitoring and Reporting 641
3.5 Exposure Control 642
3.5.1 Foreign Debt 643
3.5.2 Currency Options 644
3.5.3 Currency Fonvards, Futures and Cross-Currency Swaps 646
3.5.4 "Acquisition Companies" 647
4. Concluding Remarks 648
Introducing New Risk Classes to Organized Exchanges: The Case of Electricity Derivatives 651
Christian Geyer and Werner G. Seifert
1. Introduction 651
2. Building an New Paradigms 652
2.1 The Integration of the Markets is Accelerating 653
2.2 Consolidation of European Market Infrastructures 654
2.3 A New Understanding of Roles, New Technologies and New Abilities Need a Different Form of Capitalization 657
3. New Risk Classes in Electricity 659
3.1 Challenges and Opportunities in the Emerging Power Market 659
3.2 Competition in the Electricity Industry 660
3.3 Opportunities Offered by an Electricity Exchange 661
3.4 Why Power is Different 661
3.5 Determinants of Power Prices and Related Risks 662
3.6 Limitations of Black/Scholes With Respect to Electricity 663
4. Price Discovery: Reshapine the Power Industry 664
4.1 The Role of the Fonvard Curve 664
4.2 Price Discovery in Bilateral and Exchange Markets 666
4.3 Reshaping of the Energy Industry has Begun 667
4.4 The Creation of the European Energy Exchange 667
5. Transfer to Other Risk Classes 668
5.1 The Future of Deutsche Brse: Developer and Operator of Markets for Tradable Products 668
Was Enron's Business Model Fundamentally Flawed? 671
Elhud I. Ronn
1. Overview 671
2. Causes for Market-Value Losses Known Prior to Oct. 16, 2001 671
3. Corporate Governance and the Slide towards Bankruptcy: Business Practices Brought to Light Subsequent to Oct. 16, 2001 672
4. The Aftermath of Enron for Merchant Energy 671
5. The Economie Role of Markets: Price Discovery, Risk Management and Price-Signaling 674
6. Was Enron's Business Model Fundamentally Flawed? 676
"Real" Risk Management:
Opportunities and Limits of Consumption-Based Strategies 679
Wolfgang Breuer and Olaf Stotz
1. Onassis and the Numeraire Problem 679
2. Consumption-Oriented Utility Functions 680
3. Onassis' Deeision Problem Reeonsidered 682
4. Consumption Oriented Utility and International Invitations for Tenders 684
4.1 The General Setting 684
4.2 Capital Market Data 686
4.3 Entrepreneurial Data 687
4.4 Risk Management Situations 690
4 4.1 Active Risk Management Oniv at t = 1 690
4.4.2 Active Risk Management Only at t = 0 692
5. Conclusion 697
Capacity Options: Convergence of Supply Chain Management and Financial Asset Management 699
Stefan Spinler und Arnd Huchzermeier
1. Introduction 699
2. Supply Contracting: Emergence of Forward Buying, Contractual Flexibility and Risk Hedging 700
2.1 Pricing Issues 700
2.2 Long-Term Investment vs. Short-Term Flexibility 701
2.3 Contractual Flexibility 705
2.4 Management of Demand Uncertainty 707
3. Capacity Options and Risk Management 709
3.1 A Model for Capacity Options 710
3.3 Risk Hed oing via Flexibility Contracts 711
3.3 Trading Opportunities for Flexibility Contracts 713
3.4 Contract Portfolios 714
4. Summary 715
Part 4: Systemic Issues of Risk Management
The Key to Risk Management: Management 721
Adrian E Tschoegl
1. Introduction 721
2. Same Examples of Financial Debacles 723
2.1 Barings Brothers 723
2.2 Daiwa Bank 725
2.3 Sumitomo Corporation 727
3. Conceptualizing Debacles and their Prevention 729
4. Conclusion 734
Postscript: Allied Irish Bank 735
Economic Risks of EMU 741
Michael Frenkel and Paul McCracken
1. Introduction 742
2. Risks Stemming from Excessive Government Borrowing 743
3. Risks of High Adjustment Costs Stemming from European Labor Markets 750
4. Risks Associated with EMU Enlargement 758
5. Risks in EN-IU Financial Markets 759
6. Conclusion 761
Does Risk Management Make Financial Markets Riskier? 765
Ian R. Harper, Joachim G. Keller, and Christian M. Pfeil
1. Introduction 766
1.1 Increased Risk through Risk Management? 766
2. Market Risk as a Reoulatory Concern 767
3. The Measurement of Market Risk 768
3.1 Some Comments an Different Approaches to VaR 768
3.2 VaR as an Amplifier of Volatility? 770
4. Some Einpirical Results an Volatility in Major Stock Markets 772
4.1 Model Set-up, Data and Hypotheses 772
4.2 Estimation Results 780
5. Conclusion 781
Risk Management, Rational Herding and Institutional Investors:
A Macro View 785
Torben Ltje and Lukas Menkhoff
1. Introduction 786
2. Incentives Towards Rational Herding of Institutional Investors 787
3. Evidence an Verding of Fund \Managers 788
4. Survey Findings an Herd Behavior 790
4.1 Evidence of Herding Among Institutional Investors 790
4.2 Relation Benveen the Perception of Herding and the Institutional Investors' Characteristics 792
4.3 Perception of Herding and the Sources of Information 794
5. Consequences for the Management of Macro Risks 796
Revitalization of Japanese Banks - Japan's Big Bang Reform 801
Mitsuru Misarva
1. Current Status 801
2. Demise of the High Growth Period and Birth of the Bubble Econorny 803
3. The Japanese Big Bang (Financial Overhaul) 805
4. Reforming the Financial System 806
4 1 Shift Toward the "Business-Category Subsidiary" System 807
4.2 Legalization of Financial Holding Companies 808
5. Revitalization Through Coordination and Consolidation 810
6. Risk Management by Deferred Tax Accounting 815
7 A Case of Major Bank's Default - Risk Avoiding by Nationalization 817
B. Future of Japan's Big Bang Financial Reform 819
Authors 821
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