This short book
evolved out of lecture notes the author developed for a professional training
seminar he ran in 1998. By the author's own admission, he doesn't come from a
risk management background, so he had to research his topic to prepare the
seminar.
The book is now in
its fourth edition, but I think that reflects mostly the author moving the work
around from one publisher to another. For me, reading it is like stepping back
in time.
I remember the
mid-1990s, when value-at-risk (VaR) was a hot new topic. Everyone was publishing
software, articles and position papers on VaR. Much of it was half-baked or
downright incorrect. This was the dubious literature Choudhry turned to in
researching his seminar and book. He did a good job, largely avoiding what
lacked merit and synthesizing what was useful. Had I read the first edition of
this book back in 1998, I probably would have liked it.
Contents
1. Risk management
2. Volatility and correlation
3. VaR
4. VaR and fixed interest instruments
5. Options: risk and value-at-risk
6. Monte Carlo VaR
7. Stress testing, legal and regulatory issues
8. Credit VaR
That was then, and
this is now. Much has changed about VaR. The literature is more articulate and
much more sophisticated. Earlier editions of this book were not widely
distributed, so this is the first edition I have looked at. My impression is
that Choudhry has made only minor updates to the original 1998 edition. The book
reads like a musty old copy of RISK Magazine
more than a fresh innovative introduction to VaR. Choudhry still includes
descriptions of Chase's Charisma
and Credit Suisse First Boston's PrimeRisk
VaR measures. Talk about memory lane! Both had already fallen by the wayside by
1998. If anyone still has documentation for either model,
PLEASE LET ME KNOW. That stuff belongs
in a museum.
The book is not entirely dated. Choudhry's preface
refers to minor changes in the new edition, and a closing chapter discusses
credit derivatives, CreditMetrics and other models. It isn't
cutting-edge, but it isn't outdated either.
For someone new to VaR, this isn't the first book I
would recommend, but it is a nice book nonetheless. If you are a risk manager
who was working during the exciting days when VaR and the Internet were both
young, you might want to flip through a copy to reminisce. It will take you back
a few years. [August 19, 2006]
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