Advanced Value-at-Risk

Day One

09.00 - 09.15  Welcome and Introduction

09.15 - 10.00  Value-at-Risk in Risk Management

• VaR and the Evolution of Risk Management
• Types of Risk that Can be Measured Using VaR
• Regulatory Capital Standards with VaR
• Buildings Blocks in VaR
• Problems in Using VaR

10.15 - 12.00  Measuring VaR (I)

• Steps in Constructing VaR
• Measuring VaR for Single-Position Linear Instruments
  • Stocks
  • FX-positions
  • Zero coupon bonds
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Measuring VaR (II)

• Measuring VaR for Portfolios of Linear Instruments
  • Position mapping
  • Correlation and portfolio volatility
  • VaR for asset portfolios
  • VaR for assets/liabilities
• VaR for Linear Derivatives Positions
  • FRAs and Deposit Futures
  • Bond Forwards and Futures
  • FX Forwards
  • Interest Rate and FX Swaps
• Exercises

Day Two

09.00 - 09.15  Recap

09.15 - 12.00  Measuring VaR (III)

• Measuring VaR for Non-Linear Positions
• Local versus Full Valuation
• Delta-Normal Method
• Full Valuation
• Delta-Gamma Approximation
• Historical Simulation Methods
• Monte Carlo Simulation Methods
  • Building blocks in Monte Carlo simulation
  • Constructing and simulating the SDE
  • Sampling from multivariate distributions
  • Simulating pay-off profiles
  • Calculating percentiles/VaR
  • Using Monte Carlo Simulation and Principal Components Analysis
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Forecasting Volatilities and Correlations

• Time-Varying Risk or Outliers?
• Modeling Time-Varying Risk
  • Moving averages
  • GARCH estimation
  • Long-horizon forecasts
  • The RiskMetrics approach (EWMA)
• Modeling Correlation
  • Moving averages
  • Exponential averages
  • Crashes and correlation
• Using Options Data
  • Backing out volatility
• Exercises

Day Three

09.00 - 09.15  Recap

09.15 - 12.00  Backtesting VaR Models

• Setup for Backtesting
• Model Backtesting with Exceptions
• Decision Rule to Accept or Reject Model
• Model Verification: Other Approaches
• Case: Backtesting in Basel
• Conditional Coverage Models
• Examples and Exercises

Stress Testing

• Why Stress Testing?
• Implementing Scenario Analysis
• Generating Unidimensional Scenarios
• Multidimensional Scenario Analysis
• Stress-Testing Model Parameters
• Managing Stress Tests

12.00 - 13.00  Lunch

13.00 - 15.00  Building and Implementing Risk Management Systems

• Using VaR to Measure and Control Risk
• Using VaR for Active Risk Management
• VaR in Investment Management
• The Technology of Risk
• VaR and Liquidity Risk
• Operational and Integrated Risk Management
• VaR, Economic Capital and RAROC
• Exercises

15.15 - 16.15  Test

16.15 - 16.30  Evaluation and Termination of the Seminar