Liquidity Risk Training Course
Course Highlights and Agenda
This course will provide you with a detailed introduction to the measurement and management of liquidity risk. In the first part, liquidity risk is introduced and its impact on the pricing and funding of individual securities is explained. The fundamentals of a liquidity risk management framework are then presented in the context of contemporary regulatory requirements and firm-wide liquidity management techniques are considered.
Finally, the course discusses the effects of liquidity squeezes and the availability of risk capital on the broad market. Market oriented examples are given throughout to give participants insight into practical liquidity risk management techniques in the current environment.
We shall also explore the role of liquidity risk in the credit crunch and how measures taken by Government are mitigating its effect such as impaired asset purchases, credit guarantees and emergency liquidity facilities.
Scroll down for agenda or book onto this course.
Understanding the Nature of Liquidity Risk
- The universe of investable instruments
- Pools of liquidity and benchmark securities, off the run and illiquids
- Normal market sizes, bid-offer, block trades
- Repo and the funding of illiquid instruments
- Liquidation and "fire-sales"
- Liquidity risk in banking, securities trading and insurance
Securities Pricing in the Presence of Illiquidity
- Random walks and the assumption of continuous trading
- Gap risk
- The effect of jumps on the pricing framework
- Risk premiums and risk neutrality
- Impact on derivatives pricing and mark to market
PC Workshops: Computer based exercises modelling impact of liquidity risk on securities / derivatives prices
Building a Framework for Liquidity Management
- Mismatch approach
- Foreign currency liquidity management
- Internal controls for liquidity risk management: stress testing
- Internal controls for liquidity risk management: scenario analysis
- Double default and the analysis of collateralised transactions
- Basel and liquidity risk
- New stresses and rules post credit crunch
Contingent Liquidity Risk
- The need for contingency planning
- Written contingency plans
- Crisis management plans for assets
- Crisis management plans for liabilities
- Internal and external communications
- Other crisis management issues
Liquidity Stress Testing
- Why stress test liquidity?
- Empiricism versus rocket science
- General considerations
- Current stress test priorities
- Assumption sensitivity
- Additional considerations
Liquidity Risk in the Treasury Framework
- Metrics and measures of liquidity risk
- Liquidity gap analysis and the bank's liquidity profile
- Expected and unexpected loss analysis in the presence of illiquidity
- Liquidity management policy
- Regulatory requirements for liquidity management
- The use of conduits
- Contigent liquidity
Measuring Market Risk: Liquidity-Adjusted Value-at-Risk
- Using liquidity-adjusted VAR to manage risk
- Limitations of standard VAR measures to assess liquidity
Systemic Changes in Liquidity and Volatility
- Risk capital and illiquidity
- The effect of VAR models on liquidity cycles
- Liquidity and volatility
- Predicting volatility changes: GARCH models
- The perspective from implied volatility
- Implied probability distribution and tail risk
Case Study: Liquidity risk in the failure of long term capital management
Case Study: Liquidity risk and Lehman Brothers - how LR brought down a major Wall Street firm
What You Will Learn
"The course provided many interesting materials and examples."
"It was excellent! Perfect combination of good content and great course leader presentation. He was excellent at translating theory into simple terms. Very interesting discussion."