Nature of financial risk -- Value-at-risk and capital. Portfolio choice under VaR constraint ; Upward-sloping demand reactions ; Notes on further reading -- Boom and bust driven by value-at-risk. General equilibrium with value-at-risk ; Pricing of risk and credit supply ; Long-short strategy hedge fund ; Hedge fund with VaR constraint ; Endogenous risk ; Notes on further reading -- Dynamic hedging. Portfolio insurance ; Delta hedging ; Stock Market Crash of 1987 -- Asset-liability management. Review of basic concepts ; Example of a pension fund ; Example of Ivy League ; Prices as signals for investment -- Financial system. Accounting framework ; Realized allocations ; Market value of debt -- Lending booms. Credit risk model ; Value-at-risk and lending ; Credit boom ; Global imbalances ; Foreign holding of US debt securities ; Related literature -- Case of Northern Rock. Background ; Securitization process ; The run on Northern Rock ; Reassessing the run on Northern Rock ; Implications for financial regulation -- Securitization and the financial system. Accounting framework revisited ; Boom scenario ; Bust scenario ; Prescriptions ; Size of banking sector -- A fresh start.