Financial Risk Management - Methods, Tools, Regulation and Control

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Financial Risk Management

• The Importance of Financial Risk Management – Lessons from the Global Crisis?
  • What Went Wrong, and What Have We Learnt?
• The Changed Assumptions about Risk Management
  • Globalisation of Financial Markets and Economic Imbalances
  • Financial innovation and Increased Complexity
  • Integration and Mutation of Financial Risks
  • The “Great Deleveraging” During the Global Credit Crisis
  • Regulatory Reform

Understanding Financial Risks and their Interactions

• Overview of Risks and their Interactions
• Market Risks
  • Interest Rate Risk
  • Equity Risk
  • FX Risk
  • Volatility Risk
• Case Studies - Market Risk Related Crises
  • European Currency Turbulence and the Asian Currency Crisis

12.00 - 13.00 Lunch

13.00 - 16.30 Financial Risks and their Interactions (Continued)

• Credit Risks
  • What Is Credit Risk?
  • Classic Credit Risk and Counterparty Risk
  • Credit Spread Risk
  • Settlement Risk (Herstatt Risk)
  • Case Study: The Subprime Crisis and Its Impact on Financial Institutions and Markets
  • Case study: Counterparty Risk, Lehman Brothers and AIG
• Liquidity Risk
  • What Is “Liquidity” and “Liquidity Risk”
  • Funding Liquidity Risk and Market Liquidity Risk
  • Liquidity “Black Holes”
  • Case Studies: The LTCM Crisis and the Liquidity Crunch of 2007/2008
• Workshop: Identifying Financial Risk from Balance Sheet and Supplementary Data

Day Two

09.00 - 09.15 Recap

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