Investment Risk and Uncertainty -- Contents -- Foreword -- Preface -- Acknowledgments -- Introduction: Why Risk Management Is Mostly Misunderstood -- Quantitative Risk Management Beginnings -- Quantitative Risk Management Successes -- Quantitative Risk Management Failures -- Warren Buffett's Risk Management Strategy -- Defining Risk Management -- Fat Tails, Stationarity, Correlation, and Optimization -- Managing the Risks of a Risk Management Strategy -- The Risk Management Opportunity Set -- Notes -- Part One -- Chapter 1 Exposed versus Experienced Risk Revisited -- Exposure Hedge versus Dollar Hedge -- How the Credit Crisis Moved Risk Management to the Forefront -- Risks beyond Volatility -- What Risk Management Should Provide -- Clarifying Expectations of Risk Management -- An Example -- Notes -- Chapter 2 Definitions of Tractable Risk -- The Effect of UncertaInty on Objectives -- Identifying and Measuring Risks -- Forecasting and Hedging Risks -- Portfolio View versus Security‐Level View -- Total Risk View of Multi-Asset-Class (MAC) Portfolios -- Stability and Accuracy -- Note -- Chapter 3 Introduction to Asset Class Specifics -- Equities -- Macroeconomic Risks -- Financial Statement Variables -- Higher‐Frequency Risks -- Subcategorization of Risks -- Principal Component Risk Identification -- Fixed Income -- Duration Risk -- Corporate Securities: Interest Rate and Credit Sensitivity -- Credit Analysis -- Securitized Bonds: Interest Rate and Prepayment Sensitivity -- Statistical Analysis for Fixed Income -- Conclusion -- Notes -- Chapter 4 Commodities and Currencies -- Commodities -- Model Methodology -- Risk Calculation -- Estimation Universe -- Model Results -- Introduction to Currency Risk -- Conclusion -- Notes -- Chapter 5 Options and Interest Rate Derivatives -- Short History of Option Pricing -- Volatility Smile.

Implied Volatility Model -- Some Results -- Baroni‐Adesi Whaley (BAW) Option Pricing Methodology -- Other Option Pricing Methods -- Swaps, Swaptions, Forwards, and Futures -- Government Bond Futures -- Options on Government Bond Futures -- Interest Rate Swaps -- Credit Default Swaps -- Eurodollar Futures -- Conclusion -- Notes -- Chapter 6 Measuring Asset Association and Dependence -- The Sample Covariance Matrix -- Estimation Error Maximization -- Minimizing the Extremes -- The Copula, the Most Comprehensive Dependent Structure Measure -- The Model Covariance Matrix -- Notes -- Chapter 7 Risk Model Construction -- Multifactor Prespecified Risk Models -- Principal Component (Statistical) Risk Models -- Customized Hybrid Risk Models -- Estimation Universe -- Active Super-Factor Composite Creation -- Currency Factors -- Active Style Factors -- Industry and Regional Factors -- Priors -- Historical Risk Models -- Arch/Garch -- Notes -- Part Two -- Chapter 8 Fixed Income Issues -- Variety. Illiquidity. Size. -- Empirical Evidence -- Test Portfolios and Methodology -- Test Metrics -- Computational Efficiency -- Conclusion -- Notes -- Chapter 9 Interest Rate Risk -- The Term Structure -- Term Structure Dynamics -- Factor Models -- Stochastic Differential Equations -- Interest Rate Risk Exposures -- Risk Forecasting -- Conditional Duration and Expected Tail Duration -- Conclusion -- Notes -- Chapter 10 Spread Risk -- Spread Basics -- Reduced Form Approach -- Structural Approach -- Spread Exposure -- Spread Volatility -- Derived Spread Approach -- Euro‐Sovereign Spreads -- Factor Model Approach -- Conclusion -- Notes -- Chapter 11 Fixed Income Interest Rate Volatility, Idiosyncratic Risk, and Currency Risk -- Fixed Income Interest Rate Risk -- Term Structure of Volatility -- Interest Rate Volatility Forecasting -- Interest Rate Volatility Risk Exposures.

Risk Forecasting -- Fixed Income Idiosyncratic Bond Risk -- Fixed Income Currency Risk -- Currency Unions and Interest Rate Parity -- Conclusion -- Notes -- Chapter 12 Portfolio Risk Measures -- Coherent RisK Measures -- Commonly Used RisK Measures -- Marginal Contribution -- Stress‐Testing -- Notes -- Chapter 13 Risk for the Fundamental Investor -- Fundamental Investing versus Other Approaches -- Typical Risk Controls for Fundamental Investors -- Implementing Risk Management Strategies into a Fundamental Process -- Optimization -- Conclusion -- Chapter 14 Portfolio Optimization -- The Enhanced MVO Model -- Constraints and Objectives in EMVO -- Further Improvements to the Enhanced MVO Model -- Factor Alignment Problems -- Constraint Attribution -- Specially Structured MVO Models -- Extreme Tail Loss Optimization -- Incorporating Nonlinear Instruments in the EMVO Model -- Algorithms for Solving MVO Models -- How to Choose an Optimizer -- Notes -- Part Three -- Chapter 15 The Sungard APT Risk Management System -- Introduction to Statistical Factor Models -- Why Use a Statistical Factor Model for a Single Asset Class? -- Why Use a Statistical Factor Model for Multiple Asset Classes? -- APT Factor Model Estimation-Equities Models -- Estimation Window -- Selection of the Core Universe for Factor Modeling -- Estimating Component Returns -- Choosing the Number of APT Factors -- Estimating the Risk Profiles in an APT Factor Model -- Scaling to Historical Volatility -- Cohesion -- Correlated Residuals -- APT Multi‐Asset‐Class Factor Model Estimation -- Balanced Model Overview -- Yield Curve Construction -- Modeling Derivatives and Other Nonunderlying Securities -- User‐Defined Assets within APT Models -- Perpetual Futures (Continuous Front‐Month) Series -- Conclusion -- Notes -- Chapter 16 Axioma Risk Models -- Background -- Risk Model-Based Reporting.

Role of Risk Models in Investment Decisions -- Axioma Value at a High Level -- Daily Risk Models, Delivered Daily -- Multiple Risk Models -- Empirical Results -- Accuracy of Model Forecasts -- Multiple Risk Perspectives -- Details of Axioma Innovations -- Setup -- Strategy Construction -- Risk Decomposition -- Performance Attribution -- Time‐Series Analysis -- Conclusion -- Notes -- Chapter 17 Distinguishing Risk Models -- History -- Risk Model Details -- Risk Model-Based Reporting -- Conclusion -- Notes -- Chapter 18 Northfield's Integration of Risk Assessments across Multiple Asset Classes -- A Unified Framework -- Interest Rate Risk -- Credit Risk -- Equity Factor Representation of Corporate Credit Risk -- Default Correlation -- Complex Instruments and Derivatives -- Private Equity -- Direct Real Estate and Geographically Localized Assets -- Concluding Example -- Conclusion -- References -- Chapter 19 R‐Squared -- Why Build Stock Risk Models? -- Generic Risk Modeling -- Generic Multifactor Stock Return Model -- Generic Portfolio Holdings -- Generic Portfolio Return and Risk -- Practical Risk Modeling -- Statistical Factor Models -- Defined Factor Models -- Estimate Factors or Estimate Betas? -- Practical Consequences at the Stock Level -- Practical Consequences at the Portfolio Level -- A Short Digression -- Hybrid Risk Models -- The R‐Squared Short‐Term Hybrid Risk Model for Global Equities -- Data -- Currency Factors -- Active Factors -- Industry and Country/Regional Factors -- Statistical Factors -- Stock‐Specific Risk -- Summary -- Note -- Chapter 20 The Future of Risk Management and Analytics -- The Increasing Regulatory Environment -- The Impact of Regulations with Technology -- The Future View -- New Types of Risk Models -- Stress‐Testing Your Way to Event Risk Preparedness -- Index.