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Risk Management
Advances in Financial Risk Management: Corporates, Intermediaries and Portfolios

Authors: Editors: Jonathan A. Batten, Peter MacKay, Niklas Wagner
Editions: Palgrave Macmillan
Pages: 440 pages
Date: November 2013
 
 
 
Summary
Advances in Financial Risk Management presents the latest research on measuring, managing and pricing financial risk. It provides an expansive view of the latest techniques available to academics and practitioners in three critical areas: corporate, financial and portfolio risk management. It brings together both empirical and theoretical perspectives on issues that remain paramount despite financial market volatility abating in recent years.

Looking ahead, the prospects for the financial services industry are for more regulatory oversight and attention being paid to the modeling and measuring of financial risk. This volume contributes to this ongoing debate and provides valuable insights into the issues and appropriate practice of financial risk management.

Advances in Financial Risk Management is essential reading for anyone interested in better understanding the latest developments in risk management in the post-Global Financial Crisis (GFC) environment.

Abraham Lioui, Professor of Finance at EDHEC Business School, and member of EDHEC-Risk Institute, contributed a chapter to the "Financial Risk Management in Portfolios" section of the publication entitled "Robust Consumption and Portfolio Rules when Asset Returns are Predictable", in which he investigates the implication of predictability in asset returns for consumption and portfolio rules. The context of this chapter is the literature on dynamic asset pricing and asset allocation, which the author argues has the potential to solve some long-standing financial puzzles (for example, the equity premium puzzle). The objective of this theoretical work is to provide a closed form solution to a consumption/investment problem in incomplete markets, when an agent trades a riskless and a risky asset. The market price of risk (the state variable) is allowed to follow a mean reverting process that is imperfectly correlated with the risky asset. In addition to being risk averse, the agent has some preference for robustness and this is taken into account in the optimization problem. In this setting the author is able to obtain an explicit solution to the consumption/investment problem in incomplete markets.