Measuring and Managing Market Risk

Day One

09.00 - 09.15  Welcome Address

09.15 - 10.15  Introduction to Market Risk

• Definition of Market Risk
• Types of Market Risk
• The Interaction of Market Risk with other Risks
• Steps in Managing Market Risks

10.30 - 12.00  Building Bocks in Measuring Market Risks

• The Components of Market Risk
  • Risk Factors
  • Risk Position
  • Risk Sensitivity
• Measuring Return and Volatility
  • Total return
  • Log-normal return
  • Estimating volatility
  • Correlation and covariance analysis
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Measuring Equity Risk

• Systematic and Unsystematic risk
• Measuring Systematic Risk (Beta)
• Risk Pricing (CAPM)
• Diversification and Portfolio Risk
• Multifactor Models
• Exercises

Measuring FX Risk

• Key Determinants of FX Volatility
• Measuring FX Exposure
  • Economic exposure, translation exposure and transaction exposure
• Exercises

Day Two

09.00 - 09.15  Recap

09.15 - 12.00  Measuring Interest Rate Risk

• Price and Yield Analysis
• Duration Analysis
  • Macaulay Duration
  • Modified Duration
  • Dollar Duration
  • BPV
• Interest Rate Volatility
• Bond Price Volatility
• Leverage and Interest Rate Risk
• Measuring Yield Curve Risk
  • "Bucketing"
  • Key rate duration
• Measuring Interest Rate Risk Using the Basel Duration Method
• Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Measuring Value-at-Risk

• What is "Value-at-Risk"?
• Uses of VaR in Risk Management
• Ways of Measuring VaR
  • Parametric VaR
  • Non-parametric VaR
  • Historical simulation
  • Monte Carlo simulation
• Calculating VaR for Linear Exposures
  • VaR for stock , bond and FX positions
  • VaR for linear derivatives
• Calculating VaR for Non-linear Instruments
  • Delta/normal approach
  • Delta/gamma approach
  • Full valuation approach
• Using VaR for Basel Reporting
• Exercises

Day Three

09.00 - 09.15  Recap

09.15 - 12.00  Using Derivatives to Manage Market Risk

• Introduction and Overview
• Why Derivatives are Useful in Risk Management
• The Hedging Process
• Using Forwards and Futures to Manage Market Risks
  • Calculating the hedge ratio
  • Case: hedging stock portfolio with stock index futures
  • Case: hedging bond portfolio with bond futures
• Using Options to Manage Market Risks
  • Hedging downside risk and contingent exposures
• The Effect of Hedging on VaR
• Exercises

12.00 - 13.00  Lunch

13.00 - 14.45  Using Derivatives to Manage Market Risk (continued)

• Using FRAs, Swaps and Interest rate Options
  • Hedging "repricing" risk
  • Hedging IRR and FX risk with asset and liability swaps
• Managing Derivatives Risks
  • Risk warehousing
  • Managing counterparty and settlement risk

15.00 - 16.00  Test - PRMIA/FRM Style

16.00 - 16.30  Recap, Evaluation and Termination of the Seminar