Risk Management and Modelling

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 the Merton and Gaussian approaches for estimation of 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

Tell a colleague about this course

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.

Brochure with Booking Form   |   Register to Receive Updates

Day One

• Introduction and Risk Management Toolbox
• Why risk management?
• Famous market events
• The Limitations of models
• Volatility, quantiles and conditional expectation
• Fat tails and heteroskedacity
• Correlation matrices, factor models and principal component analysis (PCA)
• Value-at-Risk (VaR)

Workshop: Characterising risk using simple distribution and study of properties of coherent risk measures with simple examples

• Market Risk
• Methods of computation
• Marginal and incremental VaR
• Parameter estimation
• Stress testing

Workshop: Calculating the VaR on a simple portfolio 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
• Spread risk
• Recovery risk
• Merton type approaches to assessing default probability

Workshop: Using commercial Merton approaches to estimate default
probability : KMVTM and CreditGradesTM

• Credit portfolio risk
• Credit correlation
• Gaussian copula approach to credit modelling
• Credit migration
• Credit loss distributions and credit VaR
• Tranching and credit derivatives
• Basel II and securitization

Workshop: Computation of credit portfolio losses using the Gaussian copula approach of CreditMetricsTM

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
• Normal market sizes, bid-offers and big trades
• Liquidation and fire sales
• Gap risk

Workshop: Building a model to assess the price impact of a large liquidation

• Counterparty Risk
• Credit exposure
• Netting and collateralization
• Credit value adjustment (CVA)
• Contingent credit default swaps (CCDS) and hedging
• Integration of market and credit risk
• Wrong-way and bilateral counterparty risk

Workshop: Calculating the CVA for an interest-rate swap and assessing
the impact of netting, collateralisation and wrong-way risk