Mastering Risk Management

Description

The Mastering Risk Management course is a comprehensive seminar that gives participants a clear understanding of risk: how it arises, how to measure it, and – most important of all – how to manage risk. Participants will explore and master a wide spectrum of risks, including market, credit, and operational risks.

Learning Outcomes

By attending this course, you will:

• Obtain a thorough insight into credit and market risk management concepts and practices
• Gain an in-depth understanding of the varied risks – both credit and market – arising from FX, swaps, futures, options, and other financial products.
• Explore 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.
• Examine counterparty and credit risk issues, and the methods available to mitigate these risks
• Develop your understanding with extensive practical examples illustrating each of the concepts covered

Who Should Attend

Anyone involved in risk management, measurement, and control.

Prerequisites

None

Seminar Content

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
• computer 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
• computer 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
• Expected Shortfall
• computer 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
• computer Calculating VaR for a Banking Portfolio

Basel Capital Requirements for Market Risk – the FRTB

• The Fundamental Review of the Trading Book (FRTB)
• Boundary between trading and banking books
• The Standardised Approach
• The Internal Models Approach
• Adoption of Expected Shortfall
• The meaning of: DRC, RRAO, ES, SES and other acronyms
• Default risk
• Stress testing
• computer Calculating market risk

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
• 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
• Monte-Carlo methodology
• CreditRisk+
• Comparison of different credit models
• computer 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
• computer Using CDS to reduce credit exposure

Mitigating Counterparty Risk

• Monitoring and controlling counterparty risk
• Netting
• Collateral management
• Settlement – delivery versus payment
• Using credit derivatives to modify risk profile

Basel Capital Requirements for Credit and Operational Risk

• Tier One, Tier Two, and RWA
• Pillars I, II, and III
• Standardised (SA) vs. Internal Ratings Based (IRB) approaches
• Foundation vs. Advanced IRB approaches (F-IRB vs. A-IRB)
• Using internal credit models
• PD, EAD, and LGD
• Allowance for credit risk mitigation: collateralisation and credit derivatives
• Operational Risk
• Counterparty Credit Risk (CCR)
• Credit Valuation Adjustment (B-CVA, SA-CVA)
• Securitisation (SEC-SA, SEC-ERBA, and SEC-IRBA)
• Large Exposures
• The Capital Conservation Buffer (CCB)
• The Countercyclical Buffer (CCyB)
• Capital and Leverage ratios
• Capital floors
• Step-in risk
• Key changes from Basel III to Basel IV
• computer Calculating capital for credit 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 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

When and Where
   10 Feb 2025 - 12 Feb 2025
   09:00-17:00
   London
   Risk Management

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Other Dates and Locations
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