This book gives a new perspective on how investors and policy makers can analyze risk and vulnerabilities in economies, both emerging market and industrial, by using modern risk management and financial engineering techniques. Using recent advances in this field and the theory of finance, an economic value can be placed on vulnerabilities caused by inter-linkages between different sectors of the economy, the macroeconomic risks due to external shocks quantified, and the value ex-ante of various policy measures to respond to crises calculated. The authors provide a new framework by which all sectors of an economy can be evaluated, and include risk management tools adapted to analyze risks on sovereign balance sheets. This framework has been described as a Merton-KMV model for an economy it is also analogous to carrying out Basel II-type risk analysis for a country rather than a bank. The book provides investors, risk managers, policy makers, economic advisors to governments, and those concerned with issues of macroeconomic and financial stability the modeling paradigm of the framework, which holds a substantial promise for countries to effectively manage their aggregate financial exposures to a variety of relevant economic shocks (The structural credit risk model is a model for assessing credit risk, typically of a corporations debt. It is also sometimes called the Merton model or asset value model. A popular implementation of the model is the commercial KMV model – KMV was a boutique software firm now owned by Moodys.)
Book Details:
- Author: Dale Gray
- ISBN: 9780470058312
- Year Published: 2007
- Pages: 362
- BISAC: BUS027000, BUSINESS & ECONOMICS/Finance
About the Book and Topic:
This book gives a new perspective on how investors and policy makers can analyze risk and vulnerabilities in economies, both emerging market and industrial, by using modern risk management and financial engineering techniques. Using recent advances in this field and the theory of finance, an economic value can be placed on vulnerabilities caused by inter-linkages between different sectors of the economy, the macroeconomic risks due to external shocks quantified, and the value ex-ante of various policy measures to respond to crises calculated. The authors provide a new framework by which all sectors of an economy can be evaluated, and include risk management tools adapted to analyze risks on sovereign balance sheets. This framework has been described as a Merton-KMV model for an economy it is also analogous to carrying out Basel II-type risk analysis for a country rather than a bank. The book provides investors, risk managers, policy makers, economic advisors to governments, and those concerned with issues of macroeconomic and financial stability the modeling paradigm of the framework, which holds a substantial promise for countries to effectively manage their aggregate financial exposures to a variety of relevant economic shocks (The structural credit risk model is a model for assessing credit risk, typically of a corporations debt. It is also sometimes called the Merton model or asset value model. A popular implementation of the model is the commercial KMV model – KMV was a boutique software firm now owned by Moodys.)
Traditional financial institutions have four primary sets of accounts: the income statement accounts, the accounting balance sheet, the mark-to-market balance sheet of the different trading units, and value-at-risk statements. Macroeconomics is primarily the analysis of the income statement of the economy of a country, but rarely have the other sectors been brought into play. Many of the particular models of past sovereign crises, whether debt defaults, currency crises, or balance of payment crises, have focused on some relevant features of the problem, such as balance sheet problems, but few or none have really advanced a comprehensive framework that involves a risk-adjusted sovereign balance sheet and risk-adjusted balance sheets for the other sectors of the economy.
Foreword by Robert Merton, who is also on the Board of Macro Financial Risk Inc Uniquely looks at crisis prevention and sovereign risk management in economies Adapts modern risk management tools to analyze risks on sovereign balance sheets theMerton-KMV model for an economy. Highlights potential investment and arbitrage opportunities in emerging and developed markets arising from a structural theory of the interlinked balance sheets of the sovereign, the corporate, and the banking sectors of the economy
About the Author
Dale Gray, President, Macro Financial Risk Inc, Bethesda, Maryland, US. Dale is also the Senior Risk Expert in the Monetary and Capital Markets Department of the International Monetary Fund. He worked for over 14 years at the International Monetary Fund and World Bank. He then established MfRisk Inc. and has worked with investment banks, asset managers, hedge funds, Moody’s Investors Service, and government agencies advising and building risk models of countries. He has published a number of papers on economics, finance and energy issues. He holds a PhD from MIT, an MS from Stanford and is a certified Financial Risk Manager. Samuel Malone, Professor of Finance, Instituto de Estudios Superiores de Administracion (IESA), Caracas, Venezuela. Samuel is also director of ProAlea, Inc., a risk and strategy consultancy based in Latin America. He holds a doctorate in economics from the University of Oxford, UK, and undergraduate degrees in mathematics and economics from Duke University, where he graduated Phi Beta Kappa with summa cum laude Latin honors. Elected to attend Oxford as a Rhodes Scholar representing the United States, Malone is also a four-time winner of the International Mathematical Contest in Modelling. He has written several articles in applied mathematics and economics, and has consulted for the International Monetary Fund and the Inter-American Development Bank in Washington, DC.