Measuring and Managing Liquidity Risk

Informationen zum Autor Antonio Castagna (Milan, Italy), is Partner of Consulting Firm Iason ltd. F.F: Head of Structured Products at Banca Profilo, Milan, Italy. Prior to this, he was head of FX Volatility trading at Banca IMI and has also held positions as Interest Rate options trader, FX options Trader in Milan and Financial Risk Analyst at IMI Luxemburg. Antonio holds chartered accountant and certified public accountant qualifications and is very active on the conference circuit and teaching at Masters level on FX topics. He graduated in Finance from LUISS University, Rome, in 1995 with a thesis on American options and the numerical procedures for their valuation.Francesco Fede (Milan, Italy), Head of Treasury at Banca IMI, Milan, Italy, one of the major European investment banks, and is also involved in redefining the liquidity policy for the IntesaSanPaolo Bank, the parent company of Banca IMI and the second largest Italian bank. Previously, he has help positions as Head of the Financial Analysis Unit in IMI Banca Luxembourg, and SVP Treasury and SVP structured Bond Dealer, also at Banca IMI. Klappentext A fully up-to-date, cutting-edge guide to the measurement and management of liquidity riskWritten for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools. Zusammenfassung A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Inhaltsverzeichnis Preface xiiiAbout the authors xviiAbbreviations and acronyms xixPART I LIQUIDITY AND BANKING ACTIVITY 11 Banks as lemons? 31.1 Introduction 31.2 The first wave 41.3 Banks as lemons? 71.4 The response 91.5 The second wave 131.6 Conclusion 152 A journey into liquidity 172.1 Introduction 172.2 Central bank liquidity 182.3 Funding liquidity 192.4 Market liquidity 222.5 The virtuous circle 242.6 The vicious circle 242.8 The role of the central bank, supervision and regulation 282.9 Conclusions 313 Too big to fail 333.1 Introduction 333.2 When giants fall 343.3 A hard lesson 363.4 Closer supervision 373.5 G-SIFI regulations 393.6 The next steps 413.7 Conclusion 444 The new framework 474.1 Introduction 474.2 Some basic liquidity risk measures 484.3 The first mover 504.4 Basel III: The new framework for liquidity risk measurement and monitoring 534.4.1 The liquidity coverage ratio 554.5 Inside the liquidity coverage ratio 634.6 The other metrics 664.7 Intraday liquidity risk 694.8 Beyond the ratios 724.9 Conclusion 745 Know thyself! 755.1 Introduction 755.2 Some changes on the liabilities side 755.3 The role of leverage 795.4 The originate-to-distribute business model 825.5 The liquidity framework 845.6 Stress-testing and contingency funding plan 895.7 The CEBS identity card 955.8 Conclusions 975.9 Appendix: The CEBS Identity Card Annex (CEBS) 98PART II TOOL...

Auteur

About the authors ANTONIO CASTAGNA is currently partner and co-founder of the consulting company Iason Ltd, focusing on the design of models to price complex derivatives and to measure financial, liquidity and credit risks. Previously he was with Banca IMI Milan, from 1999 to 2006, where he first worked as a market maker of cap/floors and swaptions and then set up the FX options market-making desk. He started his carrier in 1997 at IMI Bank Luxembourg, in the Risk Control Department. He graduated in Finance at LUISS University in Rome in 1995. He has written papers on different issues, including credit derivatives, managing exotic options risks and volatility smiles, and is also the author of FX Options and Smile Risk, John Wiley & Sons. FRANCESCO FEDE is a graduate of the LUISS University of Rome. From 1996 he worked for IMI Bank Lux as financial controller and risk manager. In 1998 he moved to Banca IMI Milan, where he started his career as a short-term interest derivative trader in 2001. Since then, he has covered many tasks in Treasury and ALM activities. Currently he is head of the Market Treasury desk of Banca IMI. Over the last couple of years he has focused on the pricing of liquidity risk for structured loans and derivative products, as well as the impact of liquidity risk on both trading and banking books.

Texte du rabat

A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools.

Contenu

Preface xiii

About the authors xvii

Abbreviations and acronyms xix

Part I Liquidity and Banking Activity 1

1 Banks as lemons? 3

1.1 Introduction 3

1.2 The first wave 4

1.3 Banks as lemons? 7

1.4 The response 9

1.5 The second wave 13

1.6 Conclusion 15

2 A journey into liquidity 17

2.1 Introduction 17

2.2 Central bank liquidity 18

2.3 Funding liquidity 19

2.4 Market liquidity 22

2.5 The virtuous circle 24

2.6 The vicious circle 24

2.8 The role of the central bank, supervision and regulation 28

2.9 Conclusions 31

3 Too big to fail 33

3.1 Introduction 33

3.2 When giants fall 34

3.3 A hard lesson 36

3.4 Closer supervision 37

3.5 G-SIFI regulations 39

3.6 The next steps 41

3.7 Conclusion 44

4 The new framework 47

4.1 Introduction 47

4.2 Some basic liquidity risk measures 48

4.3 The first mover 50

4.4 Basel III: The new framework for liquidity risk measurement and monitoring 53

4.4.1 The liquidity coverage ratio 55

4.5 Inside the liquidity coverage ratio 63

4.6 The other metrics 66

4.7 Intraday liquidity risk 69

4.8 Beyond the ratios 72

4.9 Conclusion 74

5 Know thyself ! 75

5.1 Introduction 75

5.2 Some changes on the liabilities side 75

5.3 The role of leverage 79

5.4 The originate-to-distribute business model 82

5.5 The liquidity framework 84

5.6 Stress-testing and contingency funding plan 89

5.7 The CEBS identity card 95

5.8 Conclusions 97

5.9 Appendix: The CEBS Identity Card Annex (CEBS) 98

Part II Tools To Manage Liquidity Risk 109

6 Monitoring liquidity 111

6.1 A taxonomy of cash flows 111

6.2 Liquidity options 114

6.3 Liquidity risk 1…