The objective of this seminar is to give the participants a thorough review of state-of-the-art financial risk management. First, we give an overview of the different types of financial risk and show how they appear and interact. To illustrate this, we will look at some of the more spectacular financial failures over recent years, where financial risks have been "at large". We will then take a closer look inside the modern financial risk manager's toolbox. We will present and discuss traditional and new methods for measuring and controlling financial risk, and we will explain the use of financial derivatives and other tools for mitigating market, credit and operational risks. Next, we will take a closer look at recent regulatory developments, including Basel II and the regulatory changes implied by the EU Financial Services Action Plan. We will also discuss the impact on risk management of new accounting rules such as IAS 39 and FASB 133. After that, we will explain and demonstrate how risk management and capital allocation interrelate in the modern financial institution. We will explain how "economic capital" is calculated and used for the calculation of RAROC (Risk Adjusted Return on Capital) and we will show how this measure is used for risk pricing across business units. Finally, we will look at the "infrastructure" of risk management in a modern financial institution. We will discuss possible ways of organizing risk management functions and we will suggest a simple, yet comprehensive, set of risk management policies. We will also discuss the role of technology and we give an overview of state-of-the-art IT solutions for risk management.
