Introduction to 'Lessons from the Financial Crisis'

Arthur M Berd

Contents

Introduction to 'Lessons from the Financial Crisis'

1.

The Credit Crunch of 2007: What Went Wrong? Why? What Lessons Can be Learned?

2.

Underwriting versus Economy: A New Approach to Decomposing Mortgage Losses

3.

The Shadow Banking System and Hyman Minsky’s Economic Journey

4.

The Collapse of the Icelandic Banking System

5.

The Quant Crunch Experience and the Future of Quantitative Investing

6.

No Margin for Error: The Impact of the Credit Crisis on Derivatives Markets

7.

The Re-Emergence of Distressed Exchanges in Corporate Restructurings

8.

Modelling Systemic and Sovereign Risks

9.

Measuring and Managing Risk in Innovative Financial Instruments

10.

Forecasting Extreme Risk of Equity Portfolios with Fundamental Factors

11.

Limits of Implied Credit Correlation Metrics Before and During the Crisis

12.

Another view on the pricing of MBSs, CMOs and CDOs of ABS

13.

Pricing of Credit Derivatives with and without Counterparty and Collateral Adjustments

14.

A Practical Guide to Monte Carlo CVA

15.

The Endogenous Dynamics of Markets: Price Impact, Feedback Loops and Instabilities

16.

Market Panics: Correlation Dynamics, Dispersion and Tails

17.

Financial Complexity and Systemic Stability in Trading Markets

18.

The Martingale Theory of Bubbles: Implications for the Valuation of Derivatives and Detecting Bubbles

19.

Managing through a Crisis: Practical Insights and Lessons Learned for Quantitatively Managed Equity Portfolios

20.

Active Risk Management: A Credit Investor’s Perspective

21.

Investment Strategy Returns: Volatility, Asymmetry, Fat Tails and the Nature of Alpha

The ongoing global financial crisis has dramatically affected many aspects of our profession, even calling into question the very existence of institutions that have long been among the pillars of the capital markets. The main objective of this book is to uncover the roots of the financial crisis and to highlight the new realities that have emerged and insights that were gained from it. The book features topics ranging from tracking of the history of the crisis and its impact on the structure and functioning of capital markets to the analysis of the fundamental sources of market instabilities and offers new quantitative methodologies designed to withstand the test of future crises. Among the contributors are some of the best-known researchers from both academia and industry, whose expertise ranges from risk management to macroeconomics, from derivatives modelling to investment management.

Debating the Origins, Outcomes and Lessons of the Financial Crisis

Many researchers have noted that the current crisis is bigger than just a single burst credit market bubble: it involves many interconnected markets, from real estate to sovereign debt, from commodities to equities, and almost

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