Treasury Valuation & Risk Workshop, (Two Days)

This practical workshop addresses the valuation and risk management issues associated with wholesale financial products. Increasingly regulatory standards and accounting practices require appropriate independent validation of price and risk data for dealing rooms. This workshop is designed for finance, middle office and administration staff and provides an introduction to the techniques associated with product valuation and risk management.

**The course will cover:**

- Zero curve methodology
- Why correct valuation is important
- Problems with valuation
- The main risks in treasury
- How risk can be measured

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

**Introduction**

- Short review of financial products

**Review of financial mathematics**

- Discount factors, present / future value / internal rate of return
- zero coupon discount factors

**Accounting techniques**

- Accrual
- Mark-to-market
- Similarities & differences

**Product valuation**

- Why accurate valuation is important
- P&L
- Market risk
- Credit exposures
- Collateralisation
- Importance of segregation of duties

**Valuation methodologies**

- How we value derivatives
- Market price/derived price

**Problems with valuation**

- Validation of data
- Market liquidity
- Credit differentials
- Independence

**1. Interest rate swaps**

- cash flows
- present value
- treatment of floating side

**2. Currency swaps**

- cash flows
- present value
- problems with basis swaps

**3. Interest rate futures**

- variation margin

**4. Fixed income securities**

- Market price
- Price derived from asset swap spread
- Comparison with credit derivatives

**5. Floating rate notes**

- Discount margin

**6. Interest rate options**

- Using a Black model
- Implied volatility

**7. Complex products**

- Pricing models
- Validation & testing
- Problems associated with valuing risks embedded in bonds

**8. Where valuation has gone wrong**

- case studies where incorrect valuation has led to financial loss

**Main risks**

- FX risk
- Interest rate risk
- Credit risk
- Liquidity risk

**Risk reporting**

- Timeliness/availability
- Understanding
- Validity of data
- Accuracy
- Reporting of excesses and action

**Measuring interest rate risk**

- Forward interest rates
- Basis point value
- Effect on cash flow valuation
- Interest rate risk of bonds
- Short dates/long dates
- Low coupon/high coupon
- Non-parallel shifts in yield curve
- Duration
- Simple Hedge ratios

**Value at Risk**

- What it is
- Why it is used
- Examples
- Strengths & weaknesses
- Importance of validation & testing
- Importance of stress testing

25th March 2017

Derivatives are traditionally valued by taking the expected future cash flows and then discounting them in accordance with interest rates to give today’s value (present value). Implicit is the assumption that the derivative contract will run to its contractual date and all the cash flows will be paid and received. However, in the real world this may not occur. The counterparty may default.

25th March 2017

XVA refers to several different valuation adjustments that may be applied to derivatives. These adjustments have come about because the 2007/8 crisis caused us to question traditional models used to value trades. For example, the Libor based yield curve became significantly higher than a curve based on a “risk free” rate like the overnight index swap curve. The adjustments include:

26th February 2011

9th January 2011

Getting a fresh look at your treasury can give you a new perspective on the risks you are running and the things that you need to tighten up on. Why wait for the regulator? Here's one client's experience.