Publication detail

Blaha, Z. S.: Risk Management and Financial Engineering 2004 ; ISBN 80-7261-113-5 ; (196 pages)

Author(s): † Dr. Zdenek Sid Blaha M.A., D.B.A.,
Type: Articles in refereed journals
Year: 2004
ISSN / ISBN: ISBN 80-7261-113-5
Published in: Management Press
Publishing place: Praha
JEL codes:
Suggested Citation:
Grants: 402/01/0033 Risk Management and Financial Engineering
Abstract: The world’s leading banks and financial entities are turning to risk management methods which would help them to monitor their exposure to market (and credit) risk. A method, which is analytically tractable is the “Value at Risk” (VaR) technique for calculating and controlling market risk. This methodology is based on a risk assessment process that uses standard statistical techniques routinely used in other technical fields. In our research we propose to investigate the treatment of risk exposure and utilization of modern risk management tools in the financial and banking sectors. Both market risk and credit risk approaches are analyzed and explained. In particular, credit risk quantification methodology (a version of "Value at Risk" dedicated to the measurement of credit risk) is analyzed and investigated at length. Modeling credit risk is neither analytically nor practically easy because credit returns are highly skewed and ‘fat-tailed’ (which is caused by defaults). Proposing and testing a model to capture credit quality correlations that has readily estimated parameters is another task in the proposed research. The results of this research project may be of interest to the Czech regulators, financial economists, and the banking system in general.Furthermore, as a by-product, we propose to explore the possibility of wide application of such methods in the Czech Republic in the near future. Methodology, scenario building, and stress testing (proposed for the project) are consistent with the approach the Czech National Bank and other regulatory bodies are taking.
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