Effective Market Risk Management Training Course
Course Highlights and Agenda
This course will provide you with a practical understanding of all the latest techniques used in market risk management. It will show you how policy and controls are applied by major institutions in order to control risks and how model risk is controlled and the importance and application of back testing.
This is an intermediate course and delegates should have a familiarity with financial products and basic mathematics.
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- Overview of current markets and fallout from the credit crunch
- The basics of risk management – What is it? What isn't it?
- Identification, measurement and management of risk
- Market risk
- Credit risk
- Operational risk
- Other risks
- Valuation, mark to market and accruals
- What do we mean by manage?
- What is risk management trying to achieve?
Market Risk in Banking
- Importance of basic control processes
- Mark to market, mark to model other valuation
- Profit and Loss monitoring
- Assets and liability (inventory) control
- Organisational culture and structure
- The tone set by senior management
- Staffing and experience
- The importance of systems
- Banks verses other corporate entities – Why are they different?
Risk Management Tools for Market Risk
- Defining a returns process for a price series
- Modelling the returns process
- Asset/liability size and equivalents
- Sensitivities of positions to market moves – the concepts of delta and DV01
- Arbitrage principles for pricing and sensitivities – forward pricing and probability
Case Studies: Banking blow ups - What went wrong?
Portfolio Market Risk Tools
- Aggregation of positions – From many to few
- Portfolio effects from correlation and diversification
- Composite risk measures
- Value at Risk and other portfolio risk models
Value at Risk and its Short Comings
- Historic simulation
- Limitations of approaches
- Handling specific risk
- Problems with illiquid assets
- Changes in volatility and covariance assumptions
Adjuncts to the Value-at-Risk Tools
- Using scenarios to identify "problem" positions
- Stress testing – What is it and how does it help?
Workshop: Developing scenarios and stress tests
New Products and New Challenges
- How do we incorporate new products?
- Breaking down the components of risk
- Use of models
- Incorporating into existing system and not-in-system trades forreporting
What can Derivatives tell us about Market Risk?
- Implied volatility, skews and smiles - What do they mean?
- Fat tails and market instabilities
- What do real returns look like?
- How should we adjust measures?
Incorporating Derivatives into Market Risk Portfolios
- How non-linear instruments distort returns distributions
- The effect on confidence intervals for VaR estimation
- How Greeks sensitivities are a necessary addition to normal risk measures such as VaR
- Integrating OTC Derivatives into combined market and credit risk framework using Monte Carlo Simulation
Market Risk for Fund Managers
- Why is Fund Management different?
- The role of benchmarks and mandates
- Alpha, Beta, Information and Sharpe Ratios – What do they tell us?
- Benchmark relative risk
- Non linear beta effects
The Role of Back Testing for VaR
- Explaining the sources and sinks of profit and loss from risk measures
- Back testing process – Clean, dirty and hypothetical P&L
- Exceptions – How many is too many or too few?
- Model hypothesis testing
- Effects of autocorrelation
- The role of Extreme Value Theory (EVT) for tail correction
Market Risk Capital
- The evolution of Basel capital requirements for market risk
- The 1996 market risk amendment and introduction of internal models
- Quantitative and qualitative aspects of model recognition
- Defining Market Risk Capital and qualifying capital types – Tiers 1, 2 and 3
- Recent developments such as liquidity risk and leverage limits – What will Basel III bring?
Case Study: Looking at market risk disclosures by major banks
Discussion: What elements are the vital for effective risk management? How can you tell if you have them?
What You Will Learn
"Andrew's expertise and detailed knowledge really stood out. This helps to put this course at the top end for me. I really enjoyed being able to step back and learn about the key MR principles with a very knowledgeable and skilled facilitator. A lot of the concepts learned will be applied daily."
"Very well presented and delivered"
"Very knowledgeable lecturer….very interesting. Learnt a great deal…good content."