CONTENTS -- Foreword -- About the Editors -- OLIVIERO ROGGI -- EDWARD I. ALTMAN -- Part A. The Evolution of Risk Management -- Chapter 1. An Evolutionary Perspective on the Concept of Risk, Uncertainty and Risk Management Oliviero Roggi and Omar Ottonelli -- An Early Definition of Risk -- The Foundation of Probability Studies -- Classical Economists and Risk -- The Eclipse of Risk in the Marginalist School -- The Risk as to an Independent Subject of Studies in Economics -- No More Risk of Misunderstandings: Frank Knight -- The Game Theory Approach to Risk. Von Neumann, Morgenstern and Savage -- Risk Meets Finance. From Risk Analysis to Risk Management -- Markowitz Contribution on Portfolio Theory and Risk Diversification -- From Risk Analysis to Risk Management -- Risk Management - A Tentative of Definition -- The Modern Risk Management: Nature and Measurement of Present-Day Risk -- Sovereign Risk -- Systemic Risk -- Liquidity Risk, Financial Stability and Asset Pricing -- Credit Risk Management -- Equity Risk, Investment Analysis and Portfolio Analysis -- Conclusion -- References -- Part B. Sovereign and Systemic Risk -- Chapter 2. Toward A Bottom-Up Approach to Assessing Sovereign Default Risk: An Update Edward I. Altman and Herbert Rijken -- Modern History Sovereign Crises -- What Do We Know about Predicting Sovereign Defaults? -- The Z-MetricsTMApproach14 -- A "Bottom-Up" Approach for Sovereign Risk Assessment -- 2010 Results -- CDS Implied PDs -- 2010 vs. 2009 -- Comparing PD Results Based on Privately-Owned vs. Publicly-Owned Firm Models -- Correlation of Sovereign PDs: Recent Evidence on Z-Metrics vs. Implied CDS PDs -- Conclusion and Implications -- Appendix: Logit Model Estimation of Default Probabilities -- References.

Chapter 3. Measuring Systemic Risk Viral V. Acharya, Christian Brownlees, Robert Engle, Farhang Farazmand and Matthew Richardson -- The Dodd-Frank Wall Street Reform and Consumer Protection Act -- Evaluation of the Dodd-Frank ACT -- Market-Based Measures of Systemic Risk -- Interconnectedness -- Stress Tests -- Transparency -- NYU Stern Systemic Risk Rankings -- Systemic Risk Methodology -- Systemic Risk Analysis of the Financial Crisis of 2007 to 2009 -- Appendix A -- Systemic Risk Institutions -- Appendix B -- Supervisory Capital Assessment Program (SCAP) -- Appendix C: Marginal Expected Shortfall (MES) and Supervisory Stress Test (SCAP) -- References -- Chapter 4. Taxing Systemic Risk Viral V. Acharya, Lasse Pedersen, Thomas Philippon and Matthew Richardson -- Systemic Risk and the Financial Crisis of 2007 to 2009 -- Regulating Systemic Risk -- Obstacle 1: Measuring Systemic Risk -- Obstacle 2: Implementing the Tax on Systemic Risk -- Obstacle 3: Is Moral Hazard Solved? -- The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 -- Measuring Systemic Risk -- Reducing Systemic Risk -- Mitigating Moral Hazard -- A Tax on Systemic Risk -- Summary -- References -- Part C. Liquidity -- Chapter 5. Liquidity and Efficiency in Three Related Foreign Exchange Options Markets Menachem Brenner and Ben Z. Schreiber -- I. Introduction -- II. Review of Literature -- III. The FX Market and the Data -- The FX Market in Israel -- Description of the Data -- IV. METHODOLOGY, HYPOTHESES, AND TESTS -- The Spot FX Market -- The Similarity of the Three FX Option Markets -- V. Hypotheses and Results -- VI. Micro Structure Effects and Option Prices -- VII. Forecasting Ability of ILS/USD Future Volatility -- VIII. Summary and Conclusions -- References.

Chapter 6. Illiquidity or Credit Deterioration: A Study of Liquidity in the US Corporate Bond Market During Financial Crises Nils Friewald, Rainer Jankowitsch and Marti G. Subrahmanyam -- Introduction -- Literature Survey -- Hypotheses -- Data description -- Liquidity Proxies -- Bond Characteristics -- Trading Activity Variables -- Liquidity Measures -- Amihud measure -- Price dispersion measure -- Roll measure -- Zero-return measure -- Methodology -- Bond Yield Spread -- Subperiods of Interest -- Panel Data Regression -- Fama-MacBeth Cross-Sectional Regression -- Results -- Descriptive Statistics -- Liquidity Effects in Corporate Bond Yield Spreads -- Liquidity Effects in Periods of Financial Distress -- Interaction Effects Between Liquidity and Credit Ratings -- Conclusion -- References -- Part D. Risk Management Principles and Strategies -- Chapter 7. Integrated Wealth and Risk Management: First Principles Zvi Bodie -- Introduction -- The Safety-First Principle -- Mark-to-Market -- Implications for Government Guarantees2 -- Conclusion -- References -- Chapter 8. Analyzing the Impact of Effective Risk Management: Innovation and Capital Structure Effects Torben Juul Andersen -- Extending the Scope of Risk Management -- Innovation, Financial Slack, and Capital Structure -- Hypotheses Development -- Methodology -- Data and Measures -- Control variables -- Analyses -- Risk measures and e.ective risk management -- Hypotheses testing -- Results -- Discussion -- Conclusions -- Appendix: Two-Stage Least Regression Equations -- References -- Part E. Credit Risk -- Chapter 9. Modeling Credit Risk for SMEs: Evidence from the US Market Edward I. Altman and Gabriele Sabato -- Introduction -- Review of the Relevant Research Literature -- Default Prediction Studies -- SME Studies -- SME Model Development -- The Data Set -- Selection of the Variables.

Logistic Regression -- Validation Results -- Comparison of Results -- Multivariate Discriminant Analysis (MDA) -- Basel II Capital Requirements for SMEs -- Conclusions -- Appendix A: Logistic Regression with Original Predictors -- Appendix B: Logistic Regression with Logarithmic Transformed Predictors -- References -- Chapter 10. SME Rating: Risk Globally, Measure Locally Oliviero Roggi and Alessandro Giannozzi -- Introduction -- Theoretical Framework of Default Risk Estimation -- Measuring Default Risk -- Concept of Default -- Construction of the Interpretative Model Discriminant Variables -- Sample Selection -- Industry-specific Models -- Enterprises Location -- Exploratory Analysis and Treatment of Outliers -- Method of Analysis -- Analysis of Results -- Discriminant Variables -- In Sample Results -- Comparison of Out of Sample Accuracy -- Conclusions -- Appendix -- References -- Chapter 11. Credit Loss and Systematic LGD Jon Frye and Michael Jacobs Jr. -- The LGD Model -- Research Methods -- The Distribution of Credit Loss in a Finite Portfolio -- Data -- Alternatives for Testing -- Testing Cells Separately -- Testing Cells in Parallel -- Applications and Incentives -- Conclusion -- Appendix 1: Analysis of the LGD Function -- Appendix 2: Alternative A and Pykhtin's LGD Model -- References -- Part F. Equity Risk and Market Crashes -- Chapter 12. Equity Risk Premiums (ERP): Determinants, Estimation and Implications - The 2012 Edition Aswath Damodaran -- Equity Risk Premiums: Importance and Determinants -- Why Does the Equity Risk Premium Matter? -- A price for risk -- Expected returns and discount rates -- Investment and policy implications -- What are the Determinants of Equity Risk Premiums? -- Risk aversion and consumption preferences -- Economic risk -- Information -- Liquidity -- Catastrophic risk -- Government policy.

The behavioral/irrational component -- The Equity Risk Premium Puzzle -- Estimation Approaches -- Survey Premiums -- Investors -- Managers -- Academics -- Historical Premiums -- Estimation questions and consequences -- 1. Time Period -- 2. Riskfree Security and Market Index -- 3. Averaging Approach -- Estimates for the United States -- Global estimates -- The survivor bias -- Historical Premium Plus -- Small cap and other risk premiums -- The CAPM and market capitalization -- The Small Cap Premium -- Perils of the approach -- Country risk premiums -- The arguments for no country risk premium -- 1. Country risk is diversifiable -- 2. A Global Capital Asset Pricing Model -- 3. Country risk is better reflected in the cash flows -- The arguments for a country risk premium -- Estimating a Country Risk Premium -- Measuring Country Risk -- i. Sovereign Ratings -- ii. Country Risk Scores -- iii. Market-based Measures -- 1. Default Spreads -- 2. Relative Equity Market Standard Deviations -- 3. Default Spreads+Relative Standard Deviations -- Choosing between the approaches -- Implied Equity Premiums -- 1. DCF model based premiums -- A Stable Growth DDM Premium -- A Generalized Model: Implied Equity Risk Premium -- Implied Equity Risk Premium: S&P 500 -- Implied Equity Risk Premiums: Annual Estimates from 2008 to 2012 -- A Term Structure for Equity Risk Premiums? -- Time Series Behavior for S&P 500 Implied Premium -- Implied Equity Risk Premiums during a Market Crisis and Beyond -- Determinants of Implied Premiums -- Implied ERP and Interest rates -- Implied ERP and Macroeconomic variables -- Implied ERP, Earnings Yields and Dividend Yields -- Implied ERP and Technical Indicators -- Extensions of Implied Equity Risk Premium -- Other Equity Markets -- Sector premiums -- Firm Characteristics -- 2. Default spread based equity risk premiums.

3. Option pricing model based equity risk premium.