Essential Mathematics for Market Risk Management

In finance the universally held view is that the more risk we take the more reward we stand to gain but, just as importantly, the greater the chance of loss. The role of the financial risk manager is to be aware of the presence of risk, to understand how it can damage a potential investment and, most of all, be able to reduce the exposure to it in order to avert a potential disaster.

Essential Mathematics for Market Risk Management provides readers with the mathematical tools for managing and controlling the major sources of risk in the financial markets. Unlike most books on investment risk management which tend to be either panoptic in their coverage or narrowly focused on advanced mathematical procedures, this book offers a thorough understanding of the basic mathematical concepts and procedures required to satisfy the two key criteria of financial risk management: to ensure a healthy return on investment for a tolerable amount of risk, and to insulate a portfolio against catastrophic market events.

To this end, Dr Simon Hubbert, has drawn from his previous industrial experience to develop a format which clearly and methodically

• Traces the evolution of quantitative risk management – from Markowitz’s landmark solution to the portfolio problem in the 1950s, to the emergence of Value at Risk (VaR) in the mid 1990s and its subsequent impact.
• Provides the basic mathematical tools needed to understand and solve common risk management problems, including applied linear algebra, probability theory and mathematical optimization.
• Introduces and explains the statistical theory, tools and techniques behind cutting-edge research into financial risk management taking place in professional and academic institutions globally.
• Explores a range of advanced topics in quantitative risk management, including derivative pricing, non-linear Value at Risk, volatility modelling and extreme value theory.

By focusing on the key issues a typical financial risk manager faces on both a daily and long-term basis – from monitoring portfolio performance to modelling the volatility of specific assets – this book is essential reading for finance professionals and students who recognize the need to be conversant in modern quantitative methods for financial risk management.