Chapter 9 takes a close look at the equity derivatives market, the allocation of limits to equities trading, stock market indices, delta hedging and the use of rocket scientists in conducting rigorous analyses of equity risk. The book concludes with Chapter 10, which explains how institutions can precalculate their capital adequacy, as well as what is meant by precommitment. These relatively new and perhaps unfamiliar terms refer to a bank's ability to prognosticate its exposure over the next time period of operations. Based on mathematical models and interactive computational finance, both precalculation of capital adequacy and precommitment integrate credit risk and market risk by important customers handling exposure to other customers through statistical sampling. All 10 chapters emphasise the need to use both quantitative and qualitative criteria.
Qualitative criteria help to provide perspective.
This does not mean that figures should be disregarded, but that players must look beyond the numbers as well as behind them, and ask how they have come about, what messages they convey and how likely is it that they will remain where they are. These are crucial questions of a qualitative and quantitative nature. Providing factual answers to the queries that this book raises can be a daunting task. On the one hand, investment decision processes may become easier as more figures are made available, better limits are set and more is known about how the market works. All these things give answers to the question 'What'.