Financial risk management overview

Investment Education Plc

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Description

  • Type

    Course

  • Start date

    Different dates available

Background

The lack of a government rescue for Lehman jolted all financial professionals into a greatly heightened perception of risk. Risk comprises both known unknowns and the unknown unknowns. The former could be handled, the latter are impossible to deal with. This course assists financial professionals in many different roles and areas to identify the key risks of the main types of Equities, Fixed Income and Derivative instruments and the approaches to quantifying and then trying to manage the various risks and their weaknesses. The course assumes an understanding of the fundamentals of equities, fixed income, swaps and options.

Delegates

- Risk Managers
- Fund Managers
- Compliance Officers
- Dealers
- Auditors and Accountants
- IT executives selling or designing systems in this area


Learning objectives

By the end of the course participants will be able to understand:

The main categories of financial risk:
-market or price risk (eg equities and FX)
-settlement risk
-rates risk (fixed income)
-credit risk, idiosyncratic and systemic
-counterparty risk (the interaction of for example, rates and credit risk on a swap)
-correlation risk
-option risks (principally gamma and vega)
-operational risk

The approaches to quantifying them and their drawbacks:
-fundamental analysis (in brief)
-Value at Risk (VaR) including regulatory VaR and its weaknesses
-default and recovery rates and expected loss
-correlation exposure

The approaches to managing them and their drawbacks:
-credit spreads
-hedging, for example with derivatives, and the risks this brings
-margining and clearing houses
-exposure limits
-portfolio diversification
-economic capital and for banks regulatory capital, the Basel Accord

Facilities

Location

Start date

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Subjects

  • Risk
  • Financial Risk
  • Risk Management
  • Market
  • Options
  • Fixed Income
  • Credit
  • Financial
  • Systems
  • Financial Risk Management
  • IT risk
  • Operational Risk
  • Financial Training

Course programme

Content

Risk types
-Market/price risk - examples
-Settlement risk - examples
-Rates risk and how it arises with fixed as opposed to floating rate debt instruments
the yield/price calculation
yield as compensation for perceived risks
why yields vary
-Credit risk (single entity): default and recovery rate risk
-Counterparty risk - how this can arise with a swap
-Correlation risk
examples from equity and credit portfolios
most investors are exposed to a rise in correlation
-Option risks
The key pricing inputs; above all, volatility
Implied volatility
Negative gamma - the risks of dynamic delta-hedging short positions
Vega and the impact of a change in implied volatility
-Operational risk - examples: systems failure, rogue trader etc

Approaches to quantifying risk and their drawbacks
-Market/price risk:
Fundamental analysis (in brief)
Value at Risk
How it is calculated
Regulatory VaR for banks
Its weakness
-Credit risk
Fundamental analysis (in brief)
Calculating expected loss from Rating agency historical statistics for default and recovery rates
Calculating implied default rates from bond and Credit Default Swap (CDS) spreads
Default correlations: the difficulties and weaknesses of calculating and using them
-Counterparty risk: calculating potential credit exposure on a swap - the interplay of yield volatility, duration and credit risk
-Options risk:
calculating gamma and vega
negative and positive gamma and vega
-Operational risk: the difficulties of quantification
Approaches to managing risk and their drawbacks
-Market/price risk
Portfolio diversification
Residual risk
Hedging: eg puts and their drawbacks
-Rates risk:
Hedging with swaps
Margining
Exposure limits
Economic capital
-Credit risk
Charging a credit spread greater than expected loss
The impact of competition
Hedging: CDSs and their drawbacks
Basle II - its requirements and drawbacks




Todays Date: 8 September 2017
Duration 1 day

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Financial risk management overview

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