Risk Management and Modelling
"I particularly appreciated the wealth of practical experience of the teacher."
- Head of Fund Products, Switzerland
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Course Outline
This course develops a set of tools essential for the accurate management of the wide range of risks encountered in capital markets. Techniques are applied cumulatively in a sequence of workshops that include Value at Risk and its limitations, practical uses of Monte Carlo simulations and different methods for estimating default probabilities.
Who The Course is For
- Traders and Dealing Room Staff
- Risk Managers
- Middle Office and Senior Managers
- Investors
- Quantitative Analysts, Financial Engineers and Systems Developers
- Structured Products Desks, Product Controllers and Researchers
- Loan Portfolio Managers and Fund Managers
- Credit Analysts and Credit Risk Managers
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Prior Knowledge
- Numerate background (intermediate)
- A good grounding in capital markets products and techniques
- Microsoft Excel
This
program is eligible for
24 Continuing Education credit hours from the CFA Institute. If you are a
CFA Institute member, CE credit for your participation in this program
will be automatically recorded in your CE Diary.
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Day One
Workshop: What is your risk appetite? How well can you assess the risk of an extreme event?
- Introduction and Risk Management Toolbox
- Why risk management?
- Lessons from history
- Risk management and the credit crisis
- The Limitations of models
- Volatility and correlation
- Fat tails and extreme dependency
- Value-at-Risk (VaR) and expected shortfall
- Enterprise risk management (ERM)
Workshop: Characterising risk and studying the properties of coherent risk measures with simple examples
- Market Risk
- Characterising market risk
- Time horizon and confidence level
- The three classic methods of quantifying market risk
- Marginal and incremental VaR
- Counterpary credit exposure modelling
- Parameter estimation
- Stress testing
Workshop: Calculating the VaR and marginal VaR on a simple portfolio (bond + asset + option) using:
- i) Variance-covariance approach
- ii) Historical simulation
- iii) Monte Carlo simulation
Day Two
- Credit risk
- Issuer and default risk, default rates
- Credit ratings, migration and transition matrices
- Credit spread risk
- Controlling credit risk - credit lines, netting and collateralisation
- Credit default swaps (CDS) for hedging credit risk
- Recovery risk
- Implied default probabilities
Workshop: Calculating historical and implied default probability. Characterising the credit spread risk premium
- Credit portfolio risk
- Credit correlation
- Traditional approach to credit modelling
- Credit migration
- Credit loss distributions and credit VaR
- Why credit VaR is such a difficult thing to assess
- Regulatory view - Basel II and rating agencies
Workshop: What caused the credit crisis? What lessons can be learned?
Day Three
- Operational and Liquidity Risk
- Definition and growing importance of operational risk
- Basel II operational risk overview : basic indicator, standardised and advanced measurement approaches
- Operation risk VaR
- Asset and funding liquidity risk
- Normal market sizes, bid-offers and big trades
- Liquidation and fire sales
- Liquidity risk VaR
- Gap risk
Workshop: Building a model to assess the price impact of a large liquidation. Calculating liquidity and operation risk VaR
- Integration of different risk types
- Combinations of capital numbers
- Towards enterprise risk management (ERM)
- Why market and credit risk are inextricably linked
- Linkage between equity and credit markets
- Transformation of market risk into gap risk
- Transformation of credit risk into market risk
- Counterparty risk
- Credit value adjustment (CVA)
Workshop: Simple example for combining capital numbers from different risk types or trading activities
