Market Risk Training Course

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An introduction to Market Risk, (One Day)

This practical workshop is an introduction to market risk. It explains the basic methods used by financial institutions. How the calculations are made and what they show. It will also explain the advantages and disadvantages of the techniques and why several risk measures are normally used together. The course is designed for those who prepare or use these reports and need to know more.

The market risk course will cover:

Gap reports
Duration
Basis point value, (PV01/DV01)
Futures equivalency
Value at risk
Stress testing
When things go wrong

Below is a summary of the market risk course. The day has been placed in a logical sequence and emphasis will be placed on practical case study examples.

Morning

Market Risk

What market risk is
Why we measure market risk

How market risk occurs

Foreign exchange exposure
Interest rate risk
Day-to-day mismatches
Trading
Ineffective hedging

Measuring foreign exchange risk

Spot equivalency
Strengths & weaknesses

Measuring interest rate risk:

Gap reports

What they are
What they show
Pipeline risk
Use in balance sheet management
Strengths & weaknesses

Duration

Simple & modified duration
How it is calculated
What it shows
How you can use it
Use in the industry
Strengths & weaknesses

Basis point value

How it is calculated
What it shows
How you can use it
Use in the industry
Strengths & weaknesses

Afternoon

Futures equivalency

Interest rate futures & bond futures
How it is calculated
What it shows
How you can use it
Use in the industry
Strengths & weaknesses

Value at risk

What it is
Some of the calculations involved
Single position VAR
Diversified & undiversified VAR
Variance Covariance, what it is
Why it is used
Strengths & weaknesses
Importance of validation & testing
Importance of stress testing

"Normal" market conditions

Why market risk measures do not capture all the risks you have
Why it is important to use a combination of measures to report market risk
Why consistency in the market risk reports produced is important

Where market risk reporting can go wrong

Timeliness/availability
Understanding
Validity of data
Accuracy
Reporting of excesses and action
Real life case study

End of workshop and review

Related Documents

Short courses>Market risk

Regulation > Does liquidity risk overshadow market risk?

23rd January 2010

In a world where regulators are focusing on liquidity and capital it's easy to overlook market risk. In many firms this means interest rate exposure. In the UK with Bank Rate at an all time low it's tempting to think that hedging fixed rate assets is just a waste of money. After all why pay 3.25% on a 5 year swap when 3 month Libor is only 51 basis points? Surely matching the interest basis on assets and liabilities ends up costing you 274 bps doesn't it?

Training Courses > Value at Risk

Value at Risk (VAR) Guide

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14th October 2009

Gap reports show you the interest rate risk you are running in your balance sheet. They put the assets and liabilities into time buckets in accordance with their interest rate repricing. From this simple approach you can obtain a table or graph of the risk being run. This normally includes a profit and loss figure that results from moving the yield curve. Gap limits are also applied in order to keep the interest rate exposure within risk tolerence. Gap reports aren't new; they are widely used and have both strengths and weaknesses. Let's find out more.

Market Guides > How dealers make money

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If you don't work as a dealer you probably see transactions or their results after they have been completed. Your role may be in operations, finance, risk, audit or compliance. You expect dealers to be profitable, after all isn't this what they are paid for? You definitely know that they can lose money too! So how do dealers make profits and what are the implications for the business? There are three ways a dealer can make money: