Applied Risk Management

Date: TBC

Duration: 1 day

Full Fees: €650

Network Members Fee: €350

Programme overview

This course will show participants how financial risk is measured and managed and will include:

  • Market Risk – Identification and Measurement, Interest Rate Swaps, Options, Foreign Exchange,
  • Credit Risk Mitigation,
  • Understanding Risk Measures (e.g. PSE, PSLE and CVA), Volatility, VaR, Monte Carlo approach to PSE, PSLE and CVA



Course Objectives:

This course will provide participants with an overview of risk management techniques

  • Types of financial risk
  • How to measure risk
    • Under normal conditions using VaR
    • Under abnormal market conditions using stress testing
  • How financial institutions factor risk into derivatives pricing


Who is the course for

This course will benefit new joiners to banks, fund managers, auditors and regulators who need an overview of risk management.



Course Content:

Definitions of Risk

  • Market Risk
  • Credit Risk
  • Operational Risk

Risk Policy

  • Measuring risk – which method
  • Which markets
  • What return
  • Which instruments
  • Capital Adequacy Ratio
  • Liquidity Ratio

Procedure for Managing Risk

  • New product authorization procedure
  • Responsible personnel
  • Reporting methods
  • Overage authorization
  • Problem escalation
  • How are limits allocated to operational units

Establishing the ALCO

  • What is the objective of the ALCO
  • ALCO Members
  • Frequency of meetings
  • Authorization process

Introduction to Risk Analysis

There are many ways in which risk can be measured. All have advantages and shortcomings. The best risk management systems use an overlay of all of the systems to ensure that, as far as possible, all know and expected eventualities are covered. This frees the risk manager to undertake perhaps the most difficult part of the task  – To think the unthinkable, assess the possibility of it happening and examine the consequences to the organization if it does happen. This module shows participants how to measure risk using:

  • Value at Risk (VaR)
    • Variance/Covariance Methodology
    • Historical Simulation
    • Monte Carlo Simulation
  • Conventional Methodologies
    • Maturity Buckets
    • BPV of .01%
    • Nominal Exposure Limits
  • Option Market Risk
    • Delta and Gamma Risk limits for underlying exposure
    • Vega Limits for exposure to volatility
    • Measuring smiles and skews
    • Rho Limits for exposure to interest rates


Calculating VaR

VaR can be used to calculate risk exposure on all levels from a single position through to the exposure of the institution. This module shows how calculations can be carried out and demonstrates the benefits of portfolio diversification.

  • Calculating VaR for:
    • A single instrument
    • Two instruments
    • A portfolio of instruments
  • The problems of correlation breakdown
  • Why is the firm-wide VaR less than the sum of the individual VaRs?
  • Marginal VaR
  • Incremental VaR

Practical problems

  • Cash flow mapping issues for fixed income products and choosing between:
    • Duration Mapping
    • Principal Mapping
    • PV Mapping
  • Option integration including:
    • Delta/Gamma adjustments
    • Volatility curves
    • The interaction of the Greeks for changes in market conditions

Scenario Analysis and Stress Testing

Critics of VaR often make the comment “VaR assumes that the future will mirror the past and this may not be the case!” This statement is true and the prudent risk manager will ensure that the VaR numbers are “shocked” or “stressed” by extreme events to ensure that the institutions do not have “ticking time bombs” sitting in the portfolio which will explode if an extreme market event occurs.  Risk manager will regularly invent scenarios, which are both extreme and plausible and test the value of the portfolio value for potential large losses. This module shows participants how to undertake this process.

  • How and why to stress test
  • Defining the scenario – what is reasonable and what is not
  • What is the next disaster scenario
  • If it happens what is the loss

Finding the balance between reasonable concern and scare tactics

Trainer Provider

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