Value at Risk, 3rd Ed.: The New Benchmark for Managing Financial Risk

• Since its original publication, Value at Risk has become the industry standard in risk management. Now in its Third Edition, this international bestseller addresses the fundamental changes in the field that have occurred across the globe in recent years.

  Philippe Jorion provides the most current information needed to understand and implement VAR-as well as manage newer dimensions of financial risk. Featured updates include:

• An increased emphasis on operational risk
• Using VAR for integrated risk management and to measure economic capital
• Applications of VAR to risk budgeting in investment management
• Discussion of new risk-management techniques, including extreme value theory, principal components, and copulas
• Extensive coverage of the recently finalized Basel II capital adequacy rules for commercial banks, integrated throughout the book

A major new feature of the Third Edition is the addition of short questions and exercises at the end of each chapter, making it even easier to check progress. Detailed answers are posted on the companion web site www.pjorion.com/var/. The web site contains other materials, including additional questions that course instructors can assign to their students.

Jorion leaves no stone unturned, addressing the building blocks of VAR from computing and backtesting models to forecasting risk and correlations. He outlines the use of VAR to measure and control risk for trading, for investment management, and for enterprise-wide risk management. He also points out key pitfalls to watch out for in risk-management systems.

The value-at-risk approach continues to improve worldwide standards for managing numerous types of risk. Now more than ever, professionals can depend on Value at Risk for comprehensive, authoritative counsel on VAR, its application, and its results-and to keep ahead of the curve.

[BACK COVER]Value at Risk The Benchmark for Managing Financial Risk Second Edition Philippe Jorion [HEADLINE] Extensively Revised and Updated—Philippe Jorion's Comprehensive Reference on Financial Risk Management [SUBHEAD] Praise for Value at Risk, Second Edition: "This book has become an industry standard for value at risk." "Professor Jorion has succeeded in producing a great second edition. The book excels in explaining a complex subject with amazing clarity and depth. I recommend it highly to the novice as well as the practitioner and regulator of financial risk management. The theory is presented in plain language and brilliantly interspersed with examples of how the craft evolved—as well as accidents and what can be learned from them. A must read.'" "Many books on VaR can be intimidating. Philippe Jorion offers a pragmatic and readable guide that covers the basics as well as recent best practice. A good primer, but also a good review of the state of the art." In 1996, the first edition of Philippe Jorion's Value at Risk gave financial professionals worldwide the first comprehensive description of value at risk (VAR). Now, to keep pace with sweeping changes and advances in the field of risk management, Jorion updates this state-of-the-art reference with new information on: Latest risk management methods including backtesting, liquidity risk, and stress-testing Techniques for understanding—and working within—today's new environment of integrated risk management, including market, credit, and operational risk Strategic application of RAROC methods and VAR investment management systems [FLAP COPY] Value at Risk The Benchmark for Managing Financial Risk Second Edition Philippe Jorion Even as risk management assumes an increasingly central role in financial institutions, the actual understanding of financial risk continues to be problematic. Financial disasters still occur—witness Asia's 1997 market turmoil, Russia's 1998 default, and the near-collapse of Long Term Capital Management—as institutions either fail to see or, in some cases, completely ignore easily recognizable hallmarks of impending financial disaster. For financial risk managers attempting to navigate this tumultuous, rapidly changing environment, the updated, expanded, and substantially revised Value at Risk, second edition, will clarify the latest advances in risk management. The book's extensive restructuring, and broader scope, is reflected in its new subtitle. Whereas the first edition was described as "the new benchmark for controlling market risk," Value at Risk, second edition is now identified as "the benchmark for managing financial risk." With more than 200 pages of new material, the updated edition of this international bestseller (translated into Chinese, Hungarian, Japanese, Korean, Polish, Portuguese, and Spanish) provides financial professionals with the latest information they need to understand and implement value at risk—and manage newer dimensions of financial risk. Initially confined to measuring market risk, VAR is now being used to actively control financial risk well beyond derivatives. Professionals can depend on this substantially new edition of Value at Risk for comprehensive, authoritative counsel and assistance in: Measuring aggregate risk, and communicating a corporation's financial risks to both senior management and shareholders Setting position limits, and creating a common denominator with which to compare risky activities in diverse markets Allocating capital within an institution—by adjusting returns for risk and implementing risk-adjusted performance measures (RAPM). As we move into the 21st century, the value at risk approach will continue to improve worldwide standards for managing numerous types of financial risk. Traders and financial risk managers; financial institution executives and supervisors; regulators; researchers ; and professors, graduate students, and others who need to know more about VAR, its application, and its results will get access to updated information and practices—plus valuable data and guidance—in Value at Risk, second edition. About the Author Philippe Jorion, Ph.D., is Professor of Finance at the University of California at Irvine. Editor-in-chief of Journal of Risk and author of more than 50 professional articles on risk management and international finance, he also wrote Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County and cowrote Financial Risk Management. Dr. Jorion is a frequent speaker at academic and professional conferences, and has also served as a consultant to various institutions.

Philippe Jorion is a professor of finance at the University of California, Irvine. Editor in chief of the Journal of Risk, Jorion is a consultant to institutions including PIMCO, the World Bank, AIMR, the Federal Reserve, and the United Nations.