- An Introduction to Quantitative Risk Analysis
- Basic Risk Measures and their Limitations
- Value-at-Risk and other Measures of Downside Risk
- Measuring VaR for Linear and Non-Linear Positions
- Back-testing VaR Models
- Stress Testing for Market, Credit, Liquidity and Operational Risks
- Building and Implementing Risk Management System
We start with an overall introduction to modern risk analysis and explain why risk measurement has become more important and challenging. We briefly review basic risk measures such as beta, duration, modified duration, convexity and standard deviation and discuss their limitations in a world with increasingly complex financial instruments.
We then give a thorough explanation of how “Value-at-Risk” and other measures of shortfall risk can be calculated for linear as well as non-linear exposures. We explain the use of delta-normal and delta-gamma-normal methods for the calculation of VaR for forwards, swaps and options, and we explain and demonstrate the use numerical techniques (including historical simulation and Monte Carlo simulation) for calculating VaR of more complex instruments and portfolios.
We explain how to back-test these “Value-at-Risk” models. As a particular case study, we look at the back-testing requirements of the Basel II framework. We also take you a step further to show how the impact of estimation risks can be considered by using dynamic parametric VaR models and by correcting standard back-testing procedures.
Further, we explain how to perform stress testing of risk management models for Basel II compliance and to improve internal risk management. We cover a range of methodologies, from simple sensitivity tests to complex stress tests, which aim to assess the impact of a severe macroeconomic stress event on measures like earnings and economic capital. We give examples of stress test for different risk types including market, credit, operational and liquidity risk.
Finally, we discuss how risk management system can be built, tested and implemented.
(For simultaneous registration for this course and "Quantitative Risk Measurement Part 2 - Multivariate Statistics and Extreme Value Modelling", the total fee for both courses is EUR 3,000)
