Advanced Risk Management

IFF Training

How long?

  • 3 days
  • online, in person

What are the topics?

IFF Training

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About the course

Picking up where many other courses leave off, it explores the connected nature of risk across market, credit, operational, liquidity, reputational and other risks. Key benefits:

  • Gain insight into cutting-edge market risk methodologies
  • Develop the tools and techniques needed to measure market risk effectively
  • Practical exercises on successful stress and scenario testing
  • Examine credit and liquidity risk modelling and management
  • Gain knowledge of how credit derivatives can be used to manage credit risk
  • Clarify of the role of capital and the relationship to other risks
  • Fully understand the impact of Basel III and FRTB – the latest developments in regulation and capital requirements in light of the credit crisis
  • Insights into the lessons learned from the credit crisis and attempted global recovery
  • Examine how Brexit might affect risk both pre and post article 50

The course is a perfect balance of theory & practice with great emphasis on practicality & real-life issues. It examines techniques such as value-at-risk, credit modelling, stress testing & scenarios. It also looks at how Basel II & III impact risk management, as well as risk management techniques in fund management. Case studies, discussion & practical sessions include: Simple portfolio credit risk modelling; Basket credit products; The demise of Lehman Brothers

Agenda

Introduction

  • What is risk management?
  • Why do we need it?
  • Risk management vs. risk measurement
  • Risk management, regulation and capital
  • What is advanced risk management?
  • How does regulation view risks and risk management?
  • The current risk environment: Brexit, ZIRP, slow growth and the death of inflation

Market Risk - Methodology

  • The origins of market risk
  • Sensitivities and The Greeks
  • Why have limits?
  • Value-at-Risk – is it any use?
  • What else can we do to control risk?

Technical Workshop Market risk measures

Market Risk – Stress and Scenarios

  • Why do we need stress and scenario testing in addition to VaR?
  • How does Expected Short Fall give us a better risk measure?
  • How should we do stress and scenario testing?
  • Why do the regulators want to see it done?
  • Stress and scenario testing and Basel Pillar 2

The Division Between Market and Credit Risk

  • The trading vs. banking business model
  • The regulatory divide
  • Impact of liquidity and funding
  • Market type risk in traditional banking activities
  • How it all went wrong – the credit crunch

Funding and Liquidity Risk Management

  • Asset liability mis-matches in the balance sheet
  • Gap analysis
  • Funding alternatives – e.g. securitisation, SIVs and conduits
  • Funding, asset/liability liquidity and derivative pricing/hedging – how are they all linked?

Market Risk Management for Funds

  • Why do Fund Managers need different tools?
  • Alpha, Beta, Sharpe Ratio, Information Ratio – what is it for?
  • The impact of leverage
  • Thinking like a Fund Manager’s Risk Manager

CREDIT RISK

Introduction

  • What is credit risk and how does it fit/overlap with the other risks?
  • The key drivers of credit risk
  • Market and credit risk together
  • Measurement of credit risk
  • Credit Valuation Adjustment and the other “XVAs” such as DVA, FVA – what are they for?

Portfolio Credit Risk

  • Pricing and risk management of loan portfolios
  • Estimating probabilities of default, exposure at default and loss given default
  • Actuarial approaches, transition matrices
  • Market-based approaches, bond spread and Merton (KMV) model
  • Building a credit risk model
  • Using the models to set limits and monitor risk

Practical Workshop Simple portfolio credit risk Modelling

Managing Credit Risk

  • Traditional techniques
  • Securitisation and risk transfer
  • Regulatory capital, Basel III and F-A-IRB
  • Measuring performance and ROC

Credit Derivatives

  • How can credit derivatives be useful in managing credit risk?
  • Credit default swaps, single and multiple name
  • Tranche CDS
  • Issues with CDS, basis, documentation
  • Correlation issues
  • N to default type structures
  • Pricing and risk issues

Exercise Basket credit products

MANAGING CREDIT RISK COLLECTIVELY

Exercise Based on Chief Credit Office Role

The Role of Capital and the Relationship to Other Risks

  • What is capital for?
  • Risk and capital performance measures such as RAROC, economic and regulatory capital
  • Allocating and managing capital
  • Raising capital and novel capital instruments

Basel III and Further Developments

  • The evolution of Basel – how did we get here?
  • The framework of market, credit and operational risk capital requirements – the three pillars
  • Operational risk methods – how do we build a model for AMA?
  • Overall requirements and best practice
  • Fundamental Review of the Trading Book – what changes will that bring?

What Risks Have Been Missed?

  • The role of pillars two and three in support of capital requirements
  • Liquidity risk – the new focus since the credit crunch
  • Liquidity Stress Testing – NSFR and LCR – how do they help manage risk?
  • Intra-day and short-term risks
  • Reputational and strategic risk
  • Whole enterprise risk

Case Study The demise of Lehman Brothers – what went wrong?

Risk Measures and Reporting in Major Banks

  • What is done currently?
  • What may have to be done?
  • How do we “govern” risk management with a firm?
  • What are the major risks going forward?

Experts

Andrew Street

Andrew Street was formerly Executive Director - Head of Arbitrage & prior to that, Director - Head of Equity & Commodity Derivatives at Mitsubishi Finance International (now bank of Tokyo-Mitsubishi). He has been a senior financial regulator including being Head of Traded Risk at the Fin...

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Advanced Risk Management at IFF Training

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