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Measuring Market Risk With Value at Risk
Book

Measuring Market Risk With Value at Risk

Pietro Penza and Vipul K. Bansal
Wiley, 2000
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Editorial Rating

6

Qualities

  • Comprehensive
  • For Experts

Recommendation

This book is a detailed and meticulous presentation of the calculations involved in Value at Risk (VaR) measurement. According to authors Pietro Penza and Vipul K. Bansal, Value at Risk is one of the most popular approaches to measuring the risk of harm to financial portfolios. It is a valuable institutional tool. Be aware, though, the book’s message and how-to assistance will seem generally irrelevant to individual investors, except for a handful of extremely high net worth individuals at the top of the Forbes 400. Its calculations are beyond the ken of most non-mathematicians, but they will intrigue the right audience. getAbstract.com finds this book to be a useful addition to the libraries of professional investors, bankers or risk managers, particularly those with highly developed analytical skills and a certain degree of comfort with financial engineering. Some other financial managers and lay readers will find useful information here, though they may need to walk on tiptoes through those sections of the content that are over their heads.

Summary

Ready for Risk

All businesses face risk. Many kinds of risk are potential threats, but for most businesses, the most important is market risk. Risks are difficult to measure, much less manage, but it is critically important to get a handle on them. Consider the roster of institutions that have failed or incurred serious and sudden losses as a result of poor risk measurement and management: Barings Bank, Daiwa Securities, Orange County, California, Sumitomo Bank and Long Term Capital Management, among others. For every one of these highly publicized instances, there were hundreds of failures of smaller institutions killed off by market reversals, changes or spikes.

The problem of risk is especially acute for banks. The changing structure of the financial industry already has demanded that banks alter their business models. Traditionally, banks did business in a highly regulated environment. Until recently, interest rates were fixed and controlled. Banks had few competitors. But within the last few decades, deregulation has pulled away the controls that used to protect a bank’s relatively safe, stable business. New competitors have emerged. Banks have had to pay more...

About the Authors

Pietro Penza manages the financial risk management practice of the Rome office of PricewaterhouseCoopers. Vipul K. Bansal, Ph.D., CFA, CFP, is associate professor of finance at the Peter J. Tobin College of Business at St. John’s University. He is the co-author of Financial Engineering: The Complete Guide to Financial Innovation.

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