This is a book about risk mangement, so there is relatively little material on the valuation of derivatives contracts. (This is the main focus of my other two books Options, Futures, and Other Derivatives and Fundamentals of Futues and Options Markets.) The appendices at the end of the book include material that summerizes some of the key results that are important to risk managers.
What's New in This Edition?
The second edition contains much new material. In particular :
1. There are three new chapters providing background material on financial institutions. These are Chapter 2 on banks, Chapter 3
on insurance companies and pension plans, and Chapter 4 on mutual funds and hedge funds.
2. There is a new chapter titled "ABS, CDOs, and the Credit Crunch of 2007" (Chapter 16). This explains the events that led to the
credit crisis of 2007-2009 and the lessons that can be learned form it.
3. There is a new chapter titled "Scenario Analysis and Streets Testing" (Chapter 17). This reflects the importance now placed on
stress testing by both financial institutions and their regulators.
4. There are separate chapters on liquidity risk and model risk (Chapter 19 and 20). Both of these topics have assumed greater
importance since 2007.
5. Value at risk is now introduced before Basel II is discussed (Chapter 8). This sequence was suggested to me as more logical by
a number of instructions.
6. A sample portfolio with accompanying speadsheets (available on the author's website) is used for explaning alternative
approaches for calculating value at risk.
7. There are many more numerial examples.
8. The DerivaGem software (version 1.53) is included with the book.
Chapter 1 Introduction
Chapter 2 Banks
Chapter 3 Insurance Companies and Pension Plans
Chapter 4 Mutual Funds and Hedge Funds
Chapter 5 Financial Instruments
Chapter 6 How Traders Manage Their Exposures
Chapter 7 Interest Rate Risk
Chapter 8 Value at Risk
Chapter 9 Volatility
Chapter10 Correlation and Copulas
etc.