Risk Management 1: Risk Assessment

Fundamentals
  • Introduction to risk classification
  • Basic techniques common to market risk valuation
  • Reference framework: market price (Mark-to-Market)
  • Quantifying exposure: using sensitivity and convexity
  • Linear/non-linear positions
  • Practical workshop
  • Application to interest rate positions: duration, sensitivity and convexity
  • Application to optional positions. Use of sensitivities (“Greeks”): delta management
  • Estimate market movements, scenarios
  • Concept of Value At Risk
  • Example using the analytical method: portfolio effects, cash flows mapping, correlation
  • Limits due to empirical difficulties: (leptokurtism, stability of volatilities and correlations…)
Position Risks: Various Methods of Calculating VaR
  • Internal risk management
  • Regulatory approach (integration of Basel II) and capital allocation
  • Introduction to Monte Carlo, historical and analytical VaR
  • Specific areas, estimating VaR
  • Foreign-exchange risk/Equity risk/Interest rate risk/Commodities risk
  • Use of RISKMETRICS™
  • Risks of options
  • Practical workshop
  • Calculate VaR in EXCEL™
  • Back-testing
  • Variance-covariance matrices: UWMA and EWMA
  • Pricing risks
  • Derivatives - VaR delta, gamma
  • Vega
  • Synthesis of VaR: putting the different methods into context and conclusions on using VaR
Counterparty Risks (market, credit)
  • Basics and operational aspects
  • Classification of counterparty risks (credit risk, variation risk, risk of delivery/settlement, issuers, etc.)
  • Measuring counterparty risks: centile exposure and average exposure
  • Practical workshop
  • Calculate the risk profile of an IRS via the Monte Carlo method
  • Classification of objectives: monitoring of the positions of a customer, calculation of a credit spread, calculation of economic capital and economic profitability, monitoring of sovereign risks
  • Introduction to credit VaR (economic capital model) and to statutory capital:
  • Determining credit risk
  • Calculation methods
  • Economic vs regulatory approach
  • Post-crisis, lessons and regulatory developments: Incremental Risk Charge, Comprehensive Risk Measure, Basel III

  • Understand risk management principles (internal issues, regulatory constraints) for market and credit risks
  • Learn the essential techniques to measure risk exposure
  • Master the concept of generic and specific risks
  • Identify risk financial products risk factors and master sensitivities of optional and non-optional products
  • Master risk management statistic tools
  • Know how to assess the market and counterparty risks of various products
  • Understand the Basel II and III reform
  • Understand VaR-like models
  • Get acquainted with credit VaR
  • Understand the scope and limitations of various risk management techniques
  • Study, critical analysis and implementation of the full range of methods and models used in the assessment of market risk and counterparty risk
  • Topics systematically placed within the framework of the Basel II reform and its implications
  • Risk management departments
  • Finance departments
  • Middle office
  • Traders, asset managers
  • Inspection / audit / internal control
  • Financial engineers
  • Compliance
  • IT
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