Integrated Financial Risk Management

Duration:
4 days
Location:
Prague, NH Hotel Prague
  • Integrated Approach to Risk Management
  • The New Basle Capital Accord (Basel II)
  • 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, scheduled for implementation by 2004. 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.
  • 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 - 15.30  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

15.30 - 16.15  Test - PRMIA/FRM Style

16.15 - 16.30  Recap, Evaluation and Termination of the Seminar

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