|Introduces a powerful new approach to financial risk modeling with proven strategies for its real-world applicationsThe 2008 credit crisis did much to debunk the much touted powers of Value at Risk (VaR) as a risk metric. Unlike most authors on VaR who focus on what it can do, in this book the author looks at what it cannot. In clear, accessible prose, finance practitioners, Max Wong, describes the VaR measure and what it was meant to do, then explores its various failures in the real world of crisis risk management. More importantly, he lays out a revolutionary new method of measuring risks, Bubble Value at Risk, that is countercyclical and offers a well-tested buffer against market crashes.
-- Describes Bubble VaR, a more macro-prudential risk measure proven to avoid the limitations of VaR and by providing a more accurate risk exposure estimation over market cycles
-- Makes a strong case that analysts and risk managers need to unlearn our existing "science" of risk measurement and discover more robust approaches to calculating risk capital
-- Illustrates every key concept or formula with an abundance of practical, numerical examples, most of them provided in interactive Excel spreadsheets
-- Features numerous real-world applications, throughout, based on the author’s firsthand experience as a veteran financial risk analyst
To read a sample chapter go here: TOC, Preface & Introduction Chapter
"Bubble Value at Risk offers a critical rethinking of some of the deficiencies in the calculation of risk capital. I particularly liked the more applied wisdom scattered throughout the text. Here is a practitioner explaining how things really work, or for that matter, don’t work in the real world. These remarks will definitely open the eyes of the more academic researcher."
—PAUL EMBRECHTS, Director of RiskLab, ETH Zurich
"Reading Bubble Value at Risk is an intensive master class in risk management. As a busy risk management practitioner I found Bubble Value at Risk extremely worthwhile in that Wong, with the theoretic detail of an academic but with the intuition of a practitioner, very efficiently surveys the evolution of financial risk management thought since the Credit Crisis. The book is well written, organized, thought provoking, and to the point. After constructively critiquing pre Crisis risk management for its conceit that it could precisely model extreme events, Wong pragmatically breaks with risk dogma and introduces the concept of Bubble Value at Risk as a more prudent means of allocating sufficient capital to buffer tail risk in light of the fact that tail risk is inherently unknowable. The book is simply a very good use of time for anyone fighting the guerrilla war with risk."
—DAVID P. BELMONT, CFA and Chief Risk Officer, Commonfund
John Maynard Keynes is famous for many things, including this quote on bankers: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." This quote, originally found in "The Consequences to the Banks of the Collapse of Money Values" (1931), describes very accurately the robotic use of the value at risk concept at many financial institutions. Max Wong skewers the conventional wisdom on value at risk in this original book from a very talented and experienced market participant. Mr. Wong illustrates the mathematical problems with value at risk with many worked examples and insights from the 2007-2011 credit crisis. He suggests an alternative to the conventional wisdom, "bubble Value at Risk," which addresses many of the short-comings in conventional VAR calculations that were starkly revealed in the credit crisis. We highly recommend this candid and enlightening book to any risk analyst who finds himself surrounded by a large contingent of "sound bankers."
—DONALD R. VAN DEVENTER, PH.D. Chairman and Chief Executive Officer, Kamakura Corporation (www.kamakuraco.com)
"Wong establishes his reputation as an inventive risk manager with the innovative idea to express expected shortfall (also called expected tail loss, or conditional VaR) in terms of previous price levels. This book also has some interesting ideas on financial regulatory reform and should be attractive to non-quant readers seeking knowledge of the pitfalls of Value-at-Risk, as it is usually measured."
—Professor CAROL ALEXANDER, University of Sussex
"Despite being in essence a critique on VaR and a recommendation for a more "macroprudential" risk measure (the author's "Bubble VaR"), this is actually an excellent and accessible description of the standard VaR measure itself. It's worth getting for that reason alone, Mr Wong's writing style is so clear and lucid that he makes a very arcane and technical subject (almost) an easy read..."
—Prof. Dr. MOORAD CHOUDHRY, Brunel University
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