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Level

Intermediate

Duration

2 or 3 days

Overview

This workshop is designed to provide a practical and critical examination of modern approaches to measuring the market value-at-risk (‘VaR’) of treasury products, in order to set and manage appropriate limits for trading activities.

The workshop commences with a review of classic risk measures of treasury instruments, incorporating first and second order sensitivities. The relative merits of the three generic approaches to calculating VaR are then compared and contrasted using a variety of models, and against a variety of real and simulated market conditions. Delegates are also required to examine supplementary techniques such as stress testing and scenario analysis which are designed to overcome the limitations of simple VaR models.

Learning Outcomes

  • Understand the first order market risk sensitivities of key cash and derivative instruments in the debt, equity, and foreign exchange markets
  • Identify and calculate second order risk sensitivities such as convexity and gamma
  • Examine the practical importance and limitations of statistical distributions
  • Calculate variance and confidence intervals
  • Critically examine different approaches to calculating VaR – Historical Simulation, Monte Carlo, and Analytic Variance-Covariance
  • Understand cash flow mapping, and correlation matrices
  • Perform stress testing and scenario analyses
  • Identify best practice in respect of data management
  • Understand regulatory requirements for VaR methodologies
  • Conduct backtesting of VaR models