FIRST FINANCE - Financial training courses - London - New York - Singapore - Masterclass - Interest rate instruments

INTEREST RATE INSTRUMENT:
RISK MEASUREMENT AND CONTROL

Programme combining online and in-class training

1st stage of individual work preceding the seminar in the form of self-assessment quizzes, online consultations of technical sheets and e-learning modules

One-day course: revisions, lectures and case studies

2nd stage of individual work postseminar:
quizzes, case studies and exercises in EXCEL™ (accessible online after the seminar)

Phase 7 consists in bestowing a FIRST FINANCE certificate to delegates who have successfully completed the programme.

Trainees may take the evaluation tests more than once. What is important is that the knowledge be truly acquired.

This programme is linear. Delegates will have to follow the phases in their sequential order.

	Be able to identify all the risk factors of interest rate products and master key sensitivity parameters
	Master market Value-at-Risk, the various uses of stress scenarios and assess the counterparty risk involved in a market transaction
	Understand capital requirements and the Basel II Reform and grasp the economic potential of optimum internal risk management techniques
	Master cutting edge techniques for risk monitoring, control and driving on interest rate activities

Anchor knowledge and skills using:

an appropriate rhythm of preparation, training and practice

an alternated use of educational methods: e-learning, small group sizes, exercises in EXCEL™, case studies, simulations, MCQ

Gain state-of-the-art practical skills

Validation via tests and an official FIRST FINANCE certificate

	Middle office staff
	Internal control/audit
	Financial department staff

TYPE OF TRAINING	TOPICS	DURATION
PHASE 1: Technical fundamentals of sensitivities of non-option interest rate instruments
Quiz	Self-assessment	20 min
E-learning + quiz	Bond markets	60 min
Pre-reading	Index bonds	20 min
E-learning + Pre-reading	FRAs, short-term futures, IRSs, CIRSs and non-option interest rate products	75 min
Seminar	Technical fundamentals and sensitivities of non-option interest rate instruments	1 day
Summary Quiz		30 min
Exercise 1	Calculating a bond's price, sensitivity and duration	30 min
Exercise 2	Using sensitivity to analyse swap strategies	30 min
PHASE 2: Risk factors and sensitivities of interest rate options
Quiz	Self-assessment	15 min
Pre-reading	Exotic interest rate options	40 min
Pre-reading	Quanto swaps, Constant Maturity Swaps (CMS), Libor-in-arrears swaps	30 min
Seminar	Risk factors and sensitivity of interest rate options	1 day
Summary Quiz		30 min
Exercises	Analysing risk in function of the Greeks	30 min
PHASE 3: Value-at-Risk (VaR)
Quiz	Self-assessment	15 min
Pre-reading	Value-at-Risk techniques	45 min
Pre-reading	Riskmetrics cash flow mapping	45 min
Seminar	VALUE at RISK (VaR)	1 day
Summary Quiz		30 min
Exercises	VaR calculations on non-option instruments	60 min
PHASE 4: Plain vanilla and exotic option position risks and stress scenarios
Quiz	Self-assessment	15 min
Pre-reading	VaR delta, gamma and vega	40 min
Seminar	Plain vanilla and exotic option position risks and stress scenarios	1 day
Summary Quiz		30 min
Exercises	Calculation and analysis of option VaR and stress scenarios	60 min
PHASE 5: Counterparty risk in market transactions and the Basel II Reform
Quiz	Self-assessment	15 min
Pre-reading	Counterparty risk in market transactions	40 min
Pre-reading	Basel II Reform and credit risk	45 min
Seminar	Counterparty risk in market transactions and the Basel II Reform	1 day
Summary Quiz		30 min
Exercises	Comparison of risk profiles on positions and capital consumption calculations	45 min
PHASE 6: Value-at-Risk (VaR)
Quiz	Self-assessment	15 min
Pre-reading	Internal risk monitoring and control	30 min
Pre-reading	Regulatory and supervisory standards	40 min
Seminar	Risk monitoring and control	1 day
Summary Quiz		30 min
Exercise 1	In-depth verification using validation criteria	30 min
Exercise 2	Calibration of risk measurement/monitoring tools	30 min
PHASE 7: Certification by FIRST FINANCE
FIRST FINANCE certificate bestowed to all successful delegates
TOTAL: 44 h 00

DAY 1
TECHNICAL FUNDAMENTALS AND SENSITIVITIES OF NON-OPTION INTEREST RATE INSTRUMENTS

Introduction to risk typology

Common techniques for assessing market risk

Risk factors and sensitivity

Risk indicators and potential loss

Linear and non-linear positions

Revision of Mark-to-Market valuation

Discount coefficients and the zero-coupon curve

Bond valuation and sensitivity

Practical Workshop

Price bonds and calculate sensitivities by maturity in EXCEL™

FRAs and futures: valuation and sensitivity Exercises in EXCEL™:

Construct a forward rate curve

Calculate the sensitivity of a forward rate transaction

IRS pricing and sensitivity

Practical Workshop

Elaborate a simplified swaps pricer in EXCEL™

Determine global sensitivities and sensitivities by maturity

Day 2
RISK FACTORS AND SENSITIVITIES OF INTEREST RATE OPTIONS

Option premium components:

Graphical illustration of earnings at maturity of a call or put

Graphical illustration of an option premium

Risk factors and sensitivity parameters (Greeks)

Analysis of sensitivities in relation to underlyings, volatility, maturity and risk-free interest rates

Practical Workshop

Simulate expected results given by delta, gamma, vega and rho

The Greeks: interdependencies

Applications for futures options, caps, floors and swaptions

Exercises in EXCEL™

Construct a simplified options pricer and calculate profits and losses on positions and standard interest rate option portfolios

CMS: pricing fundamentals and convexity

Day 3
VALUE AT RISK (VaR)

Risk measurement

Revision of statistics (variance/covariance, standard deviation, correlation and matrices)

Practical Workshop

Statistical calculations in EXCEL™ and use of matrix results

Estimating expected loss

Advanced Value-at-Risk (VaR) techniques

VaR calculation methods

Practical Workshop

Perform simple VaR calculations based on real historical market prices

Advantages and disadvantages of historical VaR

Parametric VaR

Revision of statistical laws

Practical Workshop

Calculate a complete parametric VaR in EXCEL™

Advantages and disadvantages of parametric VaR

Monte Carlo VaR

Practical Workshop

Analyse an EXCEL™ spreadsheet on Monte Carlo VaR

Summary of position risk: RISKMETRICS™ example

Regulatory VaR

Using VaR for internal risk driving

Day 4
PLAIN VANILLA AND EXOTIC OPTION POSITION RISKS AND STRESS SCENARIOS

Risk monitoring for a plain vanilla options portfolio

Choosing risk indicators

Setting limits: achieving a coherent system of limits

Analysis using sensitivities Risk factors unaccounted for in the VaR (smile, etc.)

Integrating an option's parameters into a VaR calculation

Practical Workshop

Using delta, gamma and vega VaRs

Determining, calculating and analysing stress scenarios: which risk factors should be examined?

Risk monitoring for an exotic options portfolio

Exotic options (barriers, multiple underlyings, etc.)

Practical Workshop

Evaluate and analyse an exotic option book's risk

Choosing risk indicators: are the indicators adaptable to these products or do the products have to be coherent with the other product lines?

Specific issues: discontinuity risks, correlation risks, etc.

An indication: favouring stress scenarios

Practical Workshop

Simulate stress scenarios, calculations and analysis

Day 5
COUNTERPARTY RISK ON MARKET TRANSACTIONS AND THE BASEL II REFORM

Counterparty risks on market transactions and credit risk

Base techniques and operational aspects

Typology of counterparty risks (credit risk, variation risk, settlement-delivery risk, issuer risk, etc.)

Measure counterparty risks: percentile exposure and average exposure

Practical Workshop

Calculate the risk profiles of an IRS using the Monte Carlo method

Overview of objectives: framework of a customer's positions, determining a credit spread, calculating yield and economic capital, country risk

Introduction to credit VaR (internal portfolio models) and capital requirements

Introduction to the Basel II Reform

Analysis of the solvency ratio and the Basel parameters for credit risk

McDonough ratio calculations (Basel II capital requirements)

Relation to credit VaR

Generalisation to all contexts

Day 6
RISK MONITORING AND CONTROL

Risk drivers: operational process

Analysing risk monitoring methods

Revision of calibration procedures and monitoring for limits and stop losses (demand, instruction, extension, revision...)

Behaviour after exceeding operational limits

Determining the granularity of risk monitoring and degrees of consolidation

Continuous integration of new instruments within a secured context

Conditions necessary to monitor and control risks

Commonly related fields and validation of cash flows

Verification procedures and data coherency

VaR production and control, add-ons and stress scenarios

Standard VaR production reports: examples

Regulatory requirements for validation criteria and internal models

Analysis of standard auditing reports on Banking Commission requirement observance

Back-testing and reporting procedures