Macrofinancial Risk Analysis
Wiley Finance Series
1. Edition March 2008
362 Pages, Hardcover
Wiley & Sons Ltd
Short Description
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.
Macrofinancial risk analysis
Dale Gray and Samuel Malone
Macrofinancial Risk Analysis provides a new and powerful framework with which policymakers and investors can analyze risk and vulnerability in economies, both emerging market and industrial. Using modern risk management and financial engineering techniques applied to the macroeconomy, an economic value can be placed on the risks posed by inter-linkages between sectors, the risk of default of different sectors on their outstanding debt obligations quantified, and the value ex-ante of guarantees to private sector entities by the government calculated. This book guides the reader through the basic macroeconomic and financial models necessary to understand the framework, the core analytical tools, and more advanced contributions that will be of interest to researchers. This unique synthesis of ideas from finance and macroeconomics offers several original contributions to the theory of financial crises, as well as a range of new policy options for governments interested in achieving a better tradeoff between economic growth and macro risk.
Preface
1 Introduction
PART I OVERVIEW OF FINANCE, MACROECONOMICS, AND RISK CONCEPTS
2 A Brief History of Macroeconomics, and Why the Theory of Asset Pricing and Contingent Claims Should Shape its Future
References
3 Macroeconomic Models
References
4 Stochastic Processes, Asset Pricing, and Option Pricing
Appendix 4A Primer on relationship of put, call, and exchange options
Appendix 4B Physics, Feynman, and finance
References
5 Balance Sheets, Implicit Options, and Contingent Claims Analysis
References
6 Further Extensions and Applications of Contingent Claims Analysis
Appendix 6A Calculating parameters in the Vasicek model
References
PART II THE MACROFINANCE MODELING FRAMEWORK
7 The Macrofinance Modeling Framework: Interlinked Sector Balance Sheets
References
8 The Macrofinance Modeling Framework: A Closer Look at the Sovereign CCA Balance Sheet
Appendix 8A Value and volatility of local currency liabilities and base money
References
9 The Macrofinance Modeling Framework: Linking Interest Rate Models in Finance and Macroeconomics
References
10 Macrofinance Modeling Framework: Financial Sector Risk and Stability Analysis
Appendix 10A CCA model for banks and borrowers with foreign-currency-denominated debt and lending spreads based on credit risk
References
11 Macrofinancial Modeling Framework: Extensions to Different Exchange Rate Regimes
References
PART III LINKING MACROFINANCIAL AND MACROECONOMIC FRAMEWORKS
12 Sovereign Reserve, Debt, and Wealth Management from a Macrofinancial Risk Perspective
References
13 Macrofinancial Modeling Framework: Relationship to Accounting Balance Sheets and the Flow of Funds
Appendix 13A Cross-holding by households and financial sectors of contingent claims in other sectors
Appendix 13B Contingent claim values and returns of different sectors
References
14 Macrofinancial Risk Framework Linked to Macroeconomic Models
References
PART IV CRISIS AND DISTRESS IN ECONOMIES
15 Macroeconomic Models vs. Crisis Models: Why Nonlinearity Matters
References
16 Sensitivity Analysis, Destabilization Mechanisms, and Financial Crises
References 17 The Case of Thailand 1996-1999
Appendix 17.A Banking and corporate sector risk analysis with scenarios
References
18 The Brazil Crisis of 2002-2003
References
PART V MACROFINANCIAL MODEL APPLICATIONS AND ANALYTICAL ISSUES
19 International Shocks, Risk Transmission, and Crisis Prevention
References
20 Macro Risk Management: Ways to Mitigate, Control, and Transfer Risk in the Economy
References
21 Integrated Framework for Corporate and Sovereign Relative Value and Capital Structure Arbitrage
References
22 Conclusion and New Directions for Macrofinance
Appendix A The Mundell-Fleming Model with Default Risk
Index
Dr. SAMUEL W. MALONE is a professor of finance at the IESA, a business school in Caracas, and 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 Modeling, an intensive problem-solving competition in which participants devise and write up solutions to real-world problems chosen by experts in government and industry. Author of several articles in applied mathematics and economics, he has consulted for the International Monetary Fund and the Inter-American Development Bank in Washington, DC.
