Financial Risk Management - Methods, Tools, Regulation and Control
Duration:
2 days
2 days
Location:
Prague, Mövenpick Hotel
Prague, Mövenpick Hotel
- Understanding Financial Risks and their Interactions
- Market and Regulatory Developments in Risk Management
- Market, Credit and Liquidity Risks
- Value-at-Risk and Stress Testing
- Hedging Financial Risks
- Practical Implementation and Control
The purpose of this seminar is to give you a good and practical understanding of financial risks and of methods and tools for managing these risks under normal as well as stressful market conditions such as those that we have experienced in recent years.
We start with a general introduction to risk management, and we discuss why sound risk management practices is today more important than ever. We explain how globalization, financial innovation, risk “mutation”, tighter integration of risks and regulatory changes has made risk management more challenging.
We then give you a thorough review of the different types of risk that financial institutions, investors, borrowers and corporations face: market risk, credit risk and liquidity risk. We carefully explain the various forms of each of these major risk categories, and we illustrate – using real life case studies from the crisis that has ravaged financial markets in recent years – how negative risk outcomes can lead to disastrous financial consequences.
Further, we present and explain a number of quantitative techniques for measuring and managing financial risk. Models include “single-factor” models such as duration and beta based risk assessment, and more sophisticated, multi-factor models. We also explain how to calculate value-at-risk for single positions and for portfolios, and we discuss the pitfalls and limitations of using value-at-risk as risk measure. We explain the importance of managing “tail risks” and of performing rigorous “stress testing”. Further, we present methods for quantifying credit risk, including the widely used “Merton-style” structural models, and we explain how to assess liquidity risk using techniques for projecting deterministic and stochastic cash flows.
Finally, we present and explain a number of risk management strategies and explain how they can be implemented and controlled in practice. Strategies include risk monitoring, limit setting and limit controls, hedging with derivates and immunization.
We start with a general introduction to risk management, and we discuss why sound risk management practices is today more important than ever. We explain how globalization, financial innovation, risk “mutation”, tighter integration of risks and regulatory changes has made risk management more challenging.
We then give you a thorough review of the different types of risk that financial institutions, investors, borrowers and corporations face: market risk, credit risk and liquidity risk. We carefully explain the various forms of each of these major risk categories, and we illustrate – using real life case studies from the crisis that has ravaged financial markets in recent years – how negative risk outcomes can lead to disastrous financial consequences.
Further, we present and explain a number of quantitative techniques for measuring and managing financial risk. Models include “single-factor” models such as duration and beta based risk assessment, and more sophisticated, multi-factor models. We also explain how to calculate value-at-risk for single positions and for portfolios, and we discuss the pitfalls and limitations of using value-at-risk as risk measure. We explain the importance of managing “tail risks” and of performing rigorous “stress testing”. Further, we present methods for quantifying credit risk, including the widely used “Merton-style” structural models, and we explain how to assess liquidity risk using techniques for projecting deterministic and stochastic cash flows.
Finally, we present and explain a number of risk management strategies and explain how they can be implemented and controlled in practice. Strategies include risk monitoring, limit setting and limit controls, hedging with derivates and immunization.
09.15 - 12.00 Quantitative Techniques for Risk Measurement and Management
- A Generic Model for Measuring Market Risk
- Models for Measuring Market Risk
- Duration and Key Rate Duration (Interest Rate Risk)
- Beta and Multifactor Models (Equity Risk)
- Measuring Portfolio Risk
- Measuring and Interpreting “Value-at-Risk” (VaR)
- Pitfalls and limitations of Using VaR in Isolation
- Using “Value-at-Risk” for Limit Setting
- Overview of Advanced Methods for Estimating Volatility and Correlation
- Measuring “Tail Risk”
- Stress Testing
- Overview of Quantitative Models for Measuring Credit Risk
- Structural Models
- Default Intensity Models
- Factor Copula Models
- Methods for Measuring and Managing Liquidity Risk
- Liquidity Curves and Liquidity-at-Risk
- Stress Testing Exposures to Liquidity Risk
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.00 Risk Management Strategies and their Practical Implementation
- Regulatory Requirements for Risk Management in Banks, Insurance Companies, Pension Funds and other Institutions
- Hedging Financial Risk – Practical Examples
- The Hedging Process
- Hedging Interest Rate Risk with Futures, FRAs, Swaps and Options
- Hedging Equity Risk with Futures and Options
- Hedging Currency Risk
- Hedging Credit Risk with Credit Derivatives
- Special Risk Management Strategies
- Immunization and Factor Immunization
- Dynamic Hedging (Portfolio Insurance)
- Practical Considerations in Risk Management
- Procedures, Controls and Reporting Requirements
- Hedge Accounting
- Outlook: Regulatory Changes and their Possible Impacts on Financial Risk Management
Evaluation and Termination of the Seminar
