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Market Risk Management And Modeling

COURSE DESCRIPTION

Value at risk is vital for banks, securities firms, commodity and energy merchants, and other trading organizations to be able to track their portfolios' market risk. It is a measure used by financial practitioners to quantify risk of a portfolio. The Course introduces VaR and other advanced measures of Market Risk as well as Regulatory Capital calculations for Trading book portfolios. It provides in-depth knowledge of all industry relevant and contemporary regulations in Market Risk and Management.

COURSE DESCRIPTION

On successful completion of the program, you would be awarded the professional certification in “MARKET RISK MANAGEMENT, MODELING AND REGULATIONS” by Moody’s Analytics and EduEdgePro.

CERTIFICATION AWARDED

On successful completion of the program, you would be awarded the professional certification in "CREDIT RISK MANAGEMENT, MODELING AND REGULATIONS" by Moody's Analytics and EduEdgePro.

COURSE COLLATERALS AND HIGHLIGHTS

  • Market Risk Frameworks for identifying and quantifying market risk
  • Excel models to calculate Value-at-Risk and Expected Shortfall
  • Monte Carlo Simulators and application to market risk calculations
  • Models for Scenario Analysis and Stress Testing
  • Regulatory capital calculators for Market Risk
  • Exhaustive reading material covering the detailed sections outlined below
  • Practical hands-on Risk Modeling and Analytics useful for careers in Market Risk Management

COURSE OBJECTIVES

  • Identify the sources of market risk and how these arise within the context of trading portfolios for banks.
  • Build a knowledge of the main techniques and models for the measurement and quantification of market risks and their relative merits and drawbacks.
  • Understand concepts of Value-at-Risk and the various VaR models for economic capital calculations.
  • Understand how to calculate Regulatory Market risk capital and interlinkages with RWA.
  • Appreciate the approaches available to a bank under Basel 2.5 and FRTB for the calculation of regulatory capital for market risks and the supervisory requirements for each approach.

WHO SHOULD ATTEND

This course is aimed at those who wish to explore the more advanced aspects of Market Risk Management to build a career in the below areas:
  • Investment Banking
  • Global Markets and Risk
  • Commercial Banking and Treasury
  • Risk Consulting
  • Regulatory Capital Management
  • Model Validation
  • Quantitative Research

Fast Facts

  • Certified by : Moody’s Analytics and EduEdgePro
  • Broad Coverage:
  • Foundations of Market Risk & important Risk Types
  • Market Risk Measurement and Framework
  • Concept of VaR and other statistical measures
  • VaR models : Historical Simulation, EWMA Historical Simulation, Monte Carlo Simulation, Delta-Normal VaR
  • VaR Mapping and Aggregation
  • VaR for complex portfolios
  • Backtesting VaR
  • Beyond VaR measures
  • Stress Testing and Advanced Scenario Analysis
  • Basel 2.5 – Regulatory Capital and RWA Calculation
  • Market Risk under FRTB
  • Market Risk Mitigation Methodologies

  • DETAILED CURRICULUM

    This section covers Foundations of Market Risk and Risk Types including Linear and non-linear risks, interest rate risks, volatility risks and risks for exotics and their sensitivities.

    Introduction
    • Quick review of mathematics: probability and statistics
    • Review of Statistical concepts for VaR
    • Sources of market risk: Equity, Interest Rates, Foreign Exchange, Commodities; hidden sources of risk.
    • Portfolio theory, alpha, beta, Capital Asset Pricing Model, risk/reward
    • Risk premium
    Linear risks
    • Linear instruments: indices, futures, forwards and swaps.
    • Foreign Exchange, Equity and Commodities risk.
    • Hedging linear risk
    Interest Rate risk
    • Yield, interest rate curves and discounting
    • Interest rate risk
    • Hedging cash-flows and swaps
    • Curve building and bootstrapping
    Non-linear risk
    • Non-linear instruments, Greeks. Options, option pricing and hedging
    • Black-Scholes model
    • Risk of a portfolio of options
    • Exercise: pricing and hedging of a portfolio of options
    Complex Interest Rate risk
    • Constant Maturity Swaps, Libor in arrear swaps, Cross Currency Swaps, quanto swaps
    Risks for Exotics
    • Exotic options: digitals, barriers, lookback, average, forward starting options
    • Hedging exotics, higher order Greeks
    • Static hedge/replication for exotic options, uncertain cash-flow timing
    Volatility Risk
    • Implied volatility, smile and skew, volatility surface, risk reversals,
    • Non arbitrage constraints on volatility surfaces
    • Dynamics of volatility surface
    • Modeling smiles and skews
    • building a volatility surface, interpolation and extrapolation techniques

    This section provides a comprehensive coverage of Value-at-Risk including VaR concept, important VaR models, VaR mapping, VaR calculations for complex portfolios and Backtesting VaR.

    Value-at-Risk for market risk

    VaR concept
    • Delta-normal (variance-covariance) VaR
    • Historical VaR
    • Monte Carlo VaR
    • Semi Parametric
    • Age Weighted Historic Method
    • Other Historic Method
    • Advantages and Disadvantages
    • Non Parametric Examples
    • Concept of Portfolio VaR
    • Calculation of VaR of a simple portfolio with the different

    Advanced VaR concepts

    VaR Mapping
    • Var Mapping
    • Var Mapping Process
    • Spot Positions
    • Equity Positions
    • Zero Coupon
    • Futures And Forwards Positions And Stress Testing
    • Var Benchmark
    • Two Components Of Typically Var Model
    VaR for complex portfolios
    • VaR for interest rates products
    • Portfolio mapping of risk sensitivities
    • Aggregating risk sensitivities for VaR calculation
    • Incorporating non-linearity in VaR
    • Problems with VaR-based limits, marginal VaR
    Backtesting VaR
    • Data filtering for VaR
    • VaR back-testing and regulatory requirements
    • Back Testing
    • Its Exceptions and Importance
    • Difficulties in Back Testing
    • Basel Rules For Back Testing
    • Type I and Type II Error

    The aim of this section is to explore Market Risk concepts beyond VaR with specific emphasis to advanced topics in Improvements to VaR, Stress Testing and Advanced Scenario Analysis.

    Beyond VaR measures
    • Simulations for VaR and extreme distributions, expected shortfall, coherent measures of risk
    • Stress testing: when VaR is not enough
    • Correlation risk, correlation stress test, models for correlation dynamic
    Improvements to VaR
    • Full revaluation, Monte Carlo and risk farms
    • Copulas and the integration of market and credit risks
    Stress Testing
    • Objectives
    • Need for Stress Testing
    • Incorporating into Market Risk Models
    • Implementation
    • Evaluating Stress Tests
    Advanced Scenario Analysis and Stress Tests
    • Objectives
    • Aggregate Stress Tests
    • Maximum Loss Approach
    • Extreme Value Theory
    • Systematic Testing

    This section comprehensively covers Regulatory Capital calculations for Market Risk measurement. Important topics covered include important sensitivities, Basel 2.5, Pillar 1 & 2, Market Risk RWA and FRTB

    Market Risk Measurement and Framework
    • Risk sensitivities for various asset classes
    • Risk Factor Mapping and Aggregation
    • Technical Framework for Market Risk Calculation
    • Calculating Portfolio Market VaR
    Important Market Risk Sensitivities
    • DV01
    • Equity Delta
    • Option Greeks
    • Credit spread DVOI
    Overview of Regulatory Capital
    • Basel Accord
    • Capital Adequacy : 3 Pillars
    Pillar 1
    • Pillar 1 : Minimum Capital Requirement
    • Standardized Charges and Methodology
    • Risk Weights
    • RWA and Capital under Basel 2
    Pillar 2
    • Pillar 2 : ICAAP
    • Managing ICAAP and Risk Dossier
    Regulatory Capital and RWA for Market Risk
    • Market Risk Capital Charge and RWA (Basel 2.5)
    • Standardized Charges
    • Stressed VaR (SVaR)
    • Incremental Risk Charge (IRC)
    • Comprehensive Risk Measure (CRM)
    Market Risk under FRTB
    • Market Risk under FRTB
    • Expected Shortfall calculations
    • Concept of default risks
    • Standardized and internal model charges

    The final section explores the various techniques and methodologies that could be used to mitigate Market risks with specific focus on hedging linear and non-linear risks.

    Market Risk Mitigation Methodologies
    • Mitigation Techniques
    • Best Practices
    • Hedging Linear Risks
    • Hedging Non linear Risks

    DETAILED CASE STUDY AND EXCEL IMPLEMENTATION

    Let us bring our classes to you! Our in-house training are ideal for groups of 10 or more people. We can provide Off-the-shelf training in the form of our classic courses, or we can provide bespoke training, tailored to your organisational goals and objectives. Please contact us for further details

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