Financial Risk Manager Handbook, Second Edition

Rating:
Summary: Financial Risk Manager Handbook, Second Edition
Review: Financial Risk Manager Handbook, Second Edition by Philippe Jorionpresents the various disciplines associated with financial risk management. Text was first created as a study support manual for the GARP's annual FRM exam, and as a general guide to assessing and controlling financial risk in today's rapidly changing environment.

Rating:
Summary: Disappointing
Review: This book is billed as the "official reference book for GARP's FRM certification program" and "ideal for self instruction and in-house training".

Unfortunately, it falls short on both scores. It is definitely not a book for someone with a basic level of knowledge. Nor does it really seem to be written for the intermediate risk manager/practitioner.

Dr. Jorion undertook a rather ambitious and perhaps thankless task with this book. The subject is quite extensive. There is probably no one person with all the required in-depth knowledge to write the entire book. So there were bound to be areas of weakness. It also appears that he had scant assistance with the book, which placed an enormous burden on him.

As well, the book lacks a consistent pedagogical focus. It is not pitched to the basic student or to the intermediate level practitioner but seems to wander between the two. And therefore is probably not an ideal text for either audience.

If it is intended as a textbook for in-house training or preparation for the FRM exam, then it should be written at a much more basic level with careful ordering of the presentation of the material and fuller explanations rather than the text's at times elliptical and terse ones. For an example of a shortcoming in presentation, in the section on option pricing, the book discusses the Merton derivation (for income generating "underlyings") of the Black Scholes model and then presents a detailed example of the Black Scholes model. It would be more helpful to reverse the order and go from the simpler to the more complex.

Other areas for improvement are the section on statistics, probability, etc. These are at the heart of modern risk management. Sometimes the descriptions seem too terse to convey the material. The tables on the "moments" could be improved by including the denominator to show the exact formula for their calculation.

Notwithstanding the above, there is some very good material in the book - thematic comments on risk management and interactions between various risks and instruments. This "big picture" analysis is good. The discussion of "moments" is well organized though there is a shortcoming in the tables - the denominators are missing and so the student doesn't see the exact formula for each. However, as outlined above, without more detail and more structured presentation, the book's utility for the basic level student is diminished.

One would expect to see more evidence of a strong editor's hand from a book published under Wiley Finance imprint. It is a little acknowledged fact that most authors rely on an editor to catch mistakes and to ensure that the book stays on message. The author's task is even more daunting when preparing such a technical book. And the editor's role then even more critical.

There are some obvious errors in the book. For example, missing information in the sample question 11.4 on page 254. Poor spacing in the answer key to that question on page 260- where the square root of time and the 99% standard deviation factors are conflated. As well, the explanation of the solution could have been expanded to explain exactly what these factors represented and why they were used. This is very important in a basic training book. Also there are several extraneous words between two sentences on the top of page 291. These and others not mentioned here seem to be obvious catches.

Since the subject matter is so extensive and since this is a GARP official publication, GARP should consider enlisting several authors, each of whom could address areas of his/her expertise. Dr. Jorion then could serve as the senior author - providing the logical architecture to link sections together and highlight critical dependencies and linkages. That would improve the book materially.