Value-at-Risk

Agenda Summary VaR: Overview, Risk Capital & Regulatory Developments VaR Methodologies Historical Simulation (VaR/S) Variance-Covariance (Correlation) Matrix (VaR/P) VaRñMeasuring Market Risk: Variance-Covariance Analysis VaRñMonte Carlo Simulation: Cash Market Portfolio VaRñMonte Carlo Simulation: Options Portfolio VaRñMonte Carlo Simulation: Correlated Assets Portfolio Global Description of Risk: VaR A Sophisticated Approach to Measuring Interest Rate Risk A Two-Factor Approach for Interest Rate Derivatives Flowchart of Risk Management System Step-by-Step Worked Example - Actual Implementation in a Leading Bank Stochastic Two-Factor Model Value-at-Risk Reports: Swap, Cash, Bond Book Value-at-Risk Reports: Interest Rate Options Computer Workshops Understanding total risk (volatility measures) Historical simulation ñ Value-at-Risk reports Variance-Covariance (Riskmetrics) computations Variance-Covariance VaR reports for equity, fixed-income and derivatives trading portfolios Monte Carlo simulation - Value-at-Risk reports; Time compression issues Monte Carlo simulation applied to options portfolio; Appropriate use of BlackñScholes/Merton option pricing model Monte Carlo simulation applied to multiple assets portfolios; Modelling correlation; Cholesky decomposition Building one-factor stochastic yield curve model; Effects and implications for VaR analysis and reports Building two-factor stochastic yield curve model; Effects and implications for VaR analysis and reports Value-at-Risk for portfolios of nonlinear risk cash flow instruments: interest rate options (caps and floors) Value-at-Risk, PVBP and Risk Management Value-at-Risk for portfolios of linear risk cash flow instruments: cash, bonds and swaps