Read more
An irreplaceable roadmap to modern risk management from renowned experts on the subject
Edited by a co-founder and the former Chief Risk Officer of BlackRock--the world's largest asset manager--BlackRock's Guide to Fixed-Income Risk Management delivers an insightful blueprint to the implementation of a comprehensive investment risk management framework for buy-side firms. Leveraging the unprecedented academic and professional experience of current and former senior leaders in BlackRock's risk and portfolio management functions, as well as trading, financial modeling, and analytics experts, the book serves a practitioner's guide to investment risk management, leveraging BlackRock's risk management framework. The included chapters combine to provide chief investment officers, risk managers, portfolio managers, researchers, and compliance professionals an approach to investment risk management well-suited for today's and tomorrow's markets. The book also presents:
* Critical elements that underpin a strong risk management program and culture
* Fixed income risk management concepts and theories that can be applied to other asset classes
* Lessons learned from financial crises and the COVID-19 Pandemic
Ideal for undergraduate students and students and scholars of business, finance, and risk management, BlackRock's Guide to Fixed-Income Risk Management is a one-of-a-kind combination of modern theory with proven, practical risk management strategies.
List of contents
Frequently Used Abbreviations xvii
Foreword xxi
Preface xxiii
Acknowledgments xxxi
SECTION I An Approach to Fixed-Income Investment Risk Management 1
CHAPTER 1 An Investment Risk Management Paradigm 3
Bennett W. Golub and Rick Flynn
1.1 Introduction 3
1.2 Elements of Risk Management 4
1.3 BlackRock's Investment and Risk Management Approach 6
1.4 Introduction to the BlackRock Investment Risk Management Paradigm 7
CHAPTER 2 Parametric Approaches to Risk Management 11
Bennett W. Golub and Leo M. Tilman
2.1 Introduction 11
2.2 Measuring Interest Rate Exposure: Analytical Approaches 12
2.3 Measuring Interest Rate Exposure: Empirical Approaches 30
2.4 Measuring Yield Curve Exposure 34
2.5 Measuring and Managing Volatility Related Risks 40
2.6 Measuring Credit Risk 47
2.7 Measuring Mortgage-Related Risks 50
2.8 Measuring Impact of Time 52
CHAPTER 3 Modeling Yield Curve Dynamics 59
Bennett W. Golub and Leo M. Tilman
3.1 Probability Distributions of Systematic Risk Factors 59
3.2 Principal Component Analysis: Theory and Applications 61
3.3 Probability Distributions of Interest Rate Shocks 75
CHAPTER 4 Portfolio Risk: Estimation and Decomposition 81
Amandeep Dhaliwal and Tom Booker
4.1 Introduction 81
4.2 Portfolio Volatility and Factor Structure 83
4.3 Covariance Matrix Estimation 85
4.4 Ex Ante Risk and VaR Methodologies 93
4.5 Introduction to Risk Decomposition 103
4.6 Alternative Approaches to Risk Decomposition 104
4.7 Risk Decomposition Using CTR 108
4.8 Risk Decomposition Through Time 116
4.9 Risk Decomposition: Summary 119
CHAPTER 5 Market-Driven Scenarios: An Approach for Plausible Scenario Construction 125
Bennett W. Golub, David Greenberg, and Ronald Ratcliffe
5.1 Introduction 125
5.2 Implied Stress Testing Framework 127
5.3 Developing Useful Scenarios 134
5.4 A Market-Driven Scenario Example: Brexit 136
5.5 Conclusion 142
CHAPTER 6 A Framework to Quantify and Price Geopolitical Risks 145
Catherine Kress, Carl Patchen, Ronald Ratcliffe, Eric Van Nostrand, and Kemin Yang
6.1 Introduction 145
6.2 Setting the Scene 146
6.3 BlackRock's Framework for Analyzing Geopolitical Risks 149
6.4 Global Trade Deep Dive 149
6.5 What Is Already Priced In? 153
6.6 Taking Action 156
6.7 Caveats and Cautions 159
CHAPTER 7 Liquidity Risk Management 163
Bennett W. Golub, Philip Sommer, Stefano Pasquali, Michael Huang, Kristen Walters, and Nikki Azznara
7.1 Introduction 163
7.2 A Brief History of Liquidity Risk Management 164
7.3 A Fund Liquidity Risk Framework 166
7.4 Asset Liquidity 166
7.5 Redemption Risk 169
7.6 Liquidity Stress Testing 170
7.7 Extraordinary Measures 171
7.8 Fixed-Income Data Availability Limitations 171
7.9 Conclusion 181
CHAPTER 8 Using Portfolio Optimization Techniques to Manage Risk 183
Alex Ulitsky, Bennett W. Golub, Leo M. Tilman, and Jack Hattem
8.1 Risk Measurement Versus Risk Management 183
8.2 Typical Fixed-Income Hedges 185
8.3 Parametric Hedging Techniques 187
8.4 Generalized Approach to Hedging 189
8.5 Advanced Portfolio Optimization and Risk Management Techniques 207
CHAPTER 9 Risk Governance 219
Bennett W. Golub
9.1 Introduction 219
9.2 Risk Scan Standard Fr
About the author
Bennett W. Golub is one of the original founders of BlackRock. During his 34-year career at BlackRock, Dr. Golub was a member of BlackRock's Global Executive Committee, co-head of its Risk & Quantitative Analysis group and served as BlackRock's Chief Risk Officer from 2009-2022. Additionally, he co-founded BlackRock Solutions. Currently, Dr. Golub serves as a Senior Advisor to BlackRock.
