ACF Academy

Category: Risk Management

Mastering Risk Management

This comprehensive seminar gives delegates a clear understanding of risk: how it arises, how to measure it, and – most important of all – how to manage risk. Delegates will explore and master a wide spectrum of risks, including market, credit, and operational risks.

The principal objectives of this intensive three-day seminar are to:
 
  Provide a thorough insight into credit and market risk management concepts and practices
  To give delegates an in-depth understanding of the varied risks – both credit and market – arising from FX, swaps, futures, options, and other financial products.
  To demonstrate the principles used in the active hedging and risk management of derivative instruments and portfolios, and the practical problems faced by banks in managing their books.
  Explore counterparty and credit risk issues, and the methods available to mitigate these risks
  Consolidate delegates' understanding with extensive practical examples illustrating each of the concepts covered
 
Hot Topic  VaR and the extreme market events of 2008.
 

 
Course Outline
   
 Overview of Banking Risk
   
Definition of risk and uncertainty
The dimensions of risk
Market risk: FX, I/R, equity, commodity, basis, and volatility risks
Credit and counterparty risk
Liquidity risk
Operating risk — including fraud and settlement risk
Legal, regulatory, and political risk
The risk / return trade-off
   
 Review of Statistical Concepts
   
Statistical distributions
Mean, variance, standard deviation, skewness and kurtosis
Probability distributions
Mastering the Normal distribution
Confidence intervals
Volatility
Correlation and auto-correlation
Calculating Volatility from Market Data
   
 Pricing Principles for Financial Products
   
FRAs
Swaps
Options
Why options behave differently
Option pricing models – how do they work?
The "Greeks" for options
Market risk for financial products
Symmetrical vs. non-symmetrical products
Pricing Options
   
 Overview of VaR
   
Objective of Value At Risk (VaR)
Establishing confidence intervals
Principles of calculating VaR
Methods of calculating VaR
The variance / covariance (parametric) approach
The Monte-Carlo risk approach
Using historical simulation
Stress-testing and scenario analysis
   
 Implementing VaR
   
Principles
Choosing a confidence levels (5%?, 1%?, 0.0001%?)
Choosing a time horizon (1d?, 10d?, 30 days?)
Gathering risk data
Full valuation vs. parametric approaches
Implementing the variance / covariance approach
Historical simulation
Choosing scenarios for Monte-Carlo and stress-testing
Comparing methodologies
Verifying VaR
Back-testing and model validation
Calculating VaR using the Historical Simulation approach
   
   
   
 VaR for a Portfolio of Instruments
   
Combining and integrating risk exposures
Portfolio risk and correlation concepts
Components of portfolio risk – the Greeks again
Risk managing the entire portfolio
Additive, non-additive, and offsetting risks
Managing a portfolio of linear instruments
Managing a portfolio of non-linear instruments
Special problems caused by convex products
Correlations between interest rates, currencies, and other financial risk dimensions
Calculating VaR for a Banking Portfolio
   
 
 Review of Credit Risk
 
Definition of credit risk
Sources of credit risk: bank lending, LCs, money market and bonds, derivatives
Country and counterparty risk
Measuring credit risk: traditional methods
Measuring credit risk for financial products
Z-score and similar statistical approaches
Credit ratings and methodology
   
 Credit Risk and Credit VaR
 
Default risk and equity prices – the KMV approach
Determining expected default frequency (EDF)
CreditMetrics (JPM)
Calculating value volatility and Credit VaR
Choice of time horizon for Credit VaR
The transition matrix
Estimating migration probabilities
Markov processes and chains
Modelling recovery rates and credit spreads
Determining correlations from equity data
Standalone risk vs. portfolio risk
Applying analytical approaches where data is sparse
Using models to assess ratings
Monte-Carlo methodology
CreditRisk+ (CSFP)
Comparison of different credit models
Measuring Credit Risk for a Loans Portfolio
   
   
   
 Credit Derivatives
 
Principles and functions of credit derivatives
Types of credit derivatives
Credit default swaps
Index products
Pricing CDS
Using CDS to reduce credit exposure
   
 Mitigating Counterparty Risk
 
Monitoring & controlling counterparty risk
Netting
Collateral management
Settlement – delivery versus payment
Using credit derivatives to modify risk profile
   
 The BIS Standard for Credit and Market Risk
 
The role of capital
Best practices recommendations from G-30
The Basle Accord for Credit Risk
Limitations of the BIS approach
The Basle Accord for Market Risk
The standard model
Using internal models
Qualitative standards for internal models
Calculating VaR using internal models
The multiplier, "yellow cards", and the "red card"
Stress testing
Calculating market risk
   
 Management and Current Issues
 
Segregation of discretion and responsibilities
Role of senior management
What do the numbers really mean?
Limits of VaR – what VaR can and cannot achieve
The 2008 credit crisis and its implications
Global risk management
Risk-adjusted and capital-adjusted profit and performance measures
Efficient allocation of capital and risk resources
Examples of best practices
Situations to be avoided (and how)
Lessons to be learned from recent financial disasters
Risk management in the future
Measuring Capital Adequacy
   
   

 

NB All practical sessions are highlighted like this:
means a Workshop or Simulation
means a Case study
 
Accreditation


 

"This simulator gave the basic understanding of how trading is done. Even though it was not real money being used, one still had an adrenalin rush for the effects on our positions."

– Edward A.