Risk Management in the New Regulatory Environment

Day One

Background, Market Risk, Liquidity Risk, VAR and Expected Shortfall
Value at Risk (VAR) and the classical view of financial risk

Probabilities distributions, volatility and correlation
Background of regulation and VaR
Variance covariance approach
Historical simulation
Accelerating calculation times with advanced Monte Carlo methods
Beyond Value at Risk : Improving market risk management

Problems with VAR
Improving the accuracy of VaR
Backtesting and procyclicality
Coherent risk measures
Expected shortfall (ES) as an alternative risk measure
Workshop: Studying the properties of coherent risk measures. Comparing VAR and ES

Dealing with illiquid portfolios and reducing capital

Identifying trades to reduce VAR
Allocating VaR and capital to individual trading desks
Impact of illiquidity of portfolios ensuring future risks can be managed
Determining optimal liquidation strategies for illiquid positions
Liquidation VaR
Stress and Scenario Risk Management

Difference between scenarios and stresses
Managing hybrid and cross risk with scenarios
Ensuring consistency of your scenarios
Fat tails and hedging extreme events
Workshop: Building a model to assess the price impact of a large liquidation

Day Two

Credit and Operational Risk

Potential Future Exposure

Credit limits
Defining Credit Exposure
Impact of ageing
Typical credit exposure profiles
Workshop: Simulating the credit exposure of a portfolio of options

Credit Risk

Credit rating, migration and transition matrices
Credit spreads and implied default probabilities
Credit risk and double default and simultaneous default
Credit portfolio approach
Workshop: Calculation of default probability using a market implied approach

Credit Value Adjustment (CVA)

Definition of CVA
Debt value adjustment (DVA) and Funding value adjustment (FVA)
The impact of collateral
Wrong way risk modelling dependence between product and counterparty
Central clearing
Workshop: Investigating impact of wrong way risk on CDS

Operational Risk

Extreme value theory
Application of market and credit risk methods to operational risk
Modelling extreme and infrequent event probability
Modelling event severity
Operational risk VAR