Integrated Financial Risk Management
Duration: 4 days
- Integrated Approach to Risk Management
- The New Basle Capital Accord (Basel III)
- Measuring and Managing Market Risk
- VaR, Extreme VaR and Stress Testing
- Measuring and Managing Credit Risk
- Quantifying Operational Risk
- Risk Adjusted Performance Measuring with RAROC
- Using Derivatives in Market Risk Management
- Risk Management after FAS133/IAS39
At this course, we shall present and discuss the state of the art techniques of measuring and
managing market, credit, liquidity and operational risks. We shall start with an overview of
financial risk and we shall explain how and why these risk have become more integrated. We shall
then take at look at the current regulatory framework and point to its limitations. We shall also
take a closer look at the proposal for a new Basle Accord. We shall explain the major revisions and
discuss their possible consequences for financial risk management. We shall then present a coherent
framework for measuring market, credit risk and operational risk. First, we explain how market risk
can be measured and managed at the instrument, portfolio and "enterprise" levels. We explain how
"Value at Risk" is measured for linear as well as non-linear positions, using "parametric" and
simulation approaches. We also introduce the concept of "Extreme VaR", and we demonstrate how
"stress testing" can be used to identify potential trouble spots. Further, we explain and
demonstrate how market risk can be mitigated using futures, options, swaps and other derivate
instruments. We then turn to credit risk, explaining how the various types of credit risk can be
measured and managed - and how they integrate with other risks. Further, we explain how credit risk
can be mitigated, i.a. using credit derivatives. On day three, we take a look at operational risk,
explaining why this type of risk has become more important and how it should be measured at the
enterprise level. We also explain how a coherent framework for measuring risk performance (RAROC)
and for allocating capital across business units can be established. We propose a set of risk
management policies appropriate for managing risks under stress conditions, and we present a sample
IT strategy for risk management. Finally, we give an overview of the new international accounting
standards laid down in FAS133/IAS 39 and discuss their possible implications for risk management.
Day One
09.00 - 09.10 Welcome Address
09.10 - 10.15 Financial Risk Management in a Global Economy
- Recent Developments in Financial Markets
- Overview of Financial Risks and their Interactions
- An Integrated Approach to Risk Management
10.30 - 12.00 The New Basle Accord
- The 1988 Accord
- The Market Risk Amendment
- What' s Wrong with the Current Accord?
-
The New Accord
- New charges for credit risk
- Charges for operational risk
- Possible impact on financial markets
12.00 - 13.00 Lunch
13.00 - 16.30 Measuring Market Risks
- Interest Rate, Foreign Exchange, Equity, Commodity Risks
- Liquidity Risk as Special Type of Market Risk
- Stand-alone Risk Calculation
- Portfolio Risk
-
VaR
- Parametric VaR
- Delta-Normal VaR
- Simulation VaR
- Extreme VaR
- Monte Carlo Techniques
- Stress Testing
- Exercises
Day Two
09.00 - 12.00 Managing Market Risk
- Overview of Risk Management Techniques
-
Using Derivatives in Market Risk Management
- Advantages/disadvantages of using derivatives
- Types of derivatives
-
Hedging Market Risks with Futures and Options
- Types of futures and options and their properties
- Steps in the hedging process
- Choosing the right instrument
- Calculating the hedge ratio
- Implementing and monitoring the hedge
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.30 Managing Market Risk (cont' d)
- Hedging Interest Rate Risk with FRAs and Swaps
- Micro Hedges
- Macro Hedges
- Hedging Interest Rate Risk with Caps, Floors, Collars and Swaptions
- Hedging FX Risk with Forwards and Swaps
-
Managing Derivatives Risk
- Risk warehousing
- Managing counterparty exposure
- Exercises
Day Three
09.00 - 12.00 Measuring Credit Risk
-
Types of Credit Risk
- "Classic"
- Counterparty risk
- "Herstatt" risk
- The Integration of Credit and Market Risk
-
Modelling Credit Risk
- Option-theoretical approach
- Rating Migration Approach
- Actuarial Approach
-
Measuring Credit Risk
- Default probability and recovery rate
- Credit rating migration
- Portfolio credit risk
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.30 Managing Credit Risk
-
Mitigating Credit Risk
- Netting
- Collateral management
- Credit derivatives
- Using Credit Derivatives
- Credit Default Swaps
- Total Return Swaps
- Credit Options
- Credit Spread Forwards and Options
- Credit-linked Notes
- Asset Securitisation
- Synthetic Securitisation
- Exercises
Day Four
09.00 - 12.00 Operational & Integrated Risk Management
- Business Structure
- People Risk
- Technology Risk
- Legal Risk
- Model Risk
- Accounting and Tax risk
-
Using RAROC as a Management Tool
- The strategic role of "Economic Capital' in bank management
- Calculating and using RAROC for risk capital allocation
- Requirements of a Sound Risk Management System
- Recommendations for Sound Risk Management Policies
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.15 Risk Management after FAS133/IAS 39
- Introduction and Background
- Overview of Principles in FAS133/IAS39
- Differences between FAS/IAS
- Examples: Valuation and Fair Value Accounting for Selected Risk Management Positions
- How FAS 133/IAS 39 Will Affect the Risk Management Business
16.15 - 16.30 Recap, Evaluation and Termination of the Seminar
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