Market Risk - 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, anaemic growth, falling dollar rates, negative bond yields and the potential rise of inflation

Market Risk – Methodology

• The origins of market risk
• Sensitivities and The Greeks, DV01, duration, convexity
• Why have limits?
• Value-at-Risk, Expected Shortfall – is it any use?
• What else can we do to control risk?

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, ILAAP

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?
• LCR / NSFR regulations

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

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

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

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

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?