Value-at-Risk (VaR)- Approaches to market risk measurement
- Introduction to Value at Risk (VaR)
- VaR parameters viz., confidence level, horizon and volatility
- Steps in computing VaR
- Shortcomings in VaR
Monte Carlo and Historical Calculation of VaR- Composition and requirements of VaR models
- Approaches to VaR computation viz., linear valuation and full valuation
- Computing VaR using variance-covariance, historical simulation, and Monte Carlo simulation.
Advanced Value at Risk Models- Understand the concept of volatility and volatility clustering
- Acquire an introductory knowledge of conditional volatility models viz., Exponential Moving Average approach and Generalized Autoregressive Conditional Heteroskedastic (GARCH)
- Analyze the importance of time errors and impact of crashes on correlation and its effect on VAR calculation
Stress Testing- Concept of stress testing and need for it
- Analyze the creation of hypothetical and historical scenarios
- Application of stress test scenarios into market risk modeling
- Importance of stress testing to risk managers
RAROC & Economic Capital Allocation- The concept of risk adjusted performance measurement
- Capital allocation, economic capital and risk capital
- The concept of RORAC and RAROC
- Risk-adjusted performance measures, viz., Shape’s Measure, Treynor’s Measure and Jensen’s Measure.
Overview of Credit Risk- Credit risk and its sources
- Credit Exposure
- What is Sovereign and Corporate risk
- Basel Accord (1998 and 2001)
- Risk weightages
- Cooke ratio
Credit Exposure- Credit exposures
- Replacement cost
- Mark to market value
- Reducing credit risk
- Value at risk due to credit (Credit-VaR)
Settlement Risk and Netting Systems- Pre-settlement and settlement risk
- Netting and effects of netting
- Collaterals
- Guarantees
Rating Agencies and their Grades- Credit rating
- Investment grade
- Migration matrix
- Key ratios
- Financial assessment
- Country risk reports
Marginal, Cumulative Default Risk- Historical Default Rates
- Marginal Default Rates
- Cumulative Default Rates
- Survival Rates
Transition Matrix, Joint Transition Matrix and Correlated Migrations- Transition Matrix
- Correlation Between Credit Events
Recovery Rate Distributions- Understand the difficulties involved in estimating recovery rates.
- Two studies on recovery of bonds and bank facilities.
- Wide uncertainty of recovery rates and the use of the beta distribution.
Portfolio Models and Credit Loss- Portfolio-based approach
- Credit VaR
- Z-score
- Credit VaR in credit matrics
Merton and KMV Models- Introduction to credit risk models
- KMV Credit Monitor
- Calculating Distance-to-default
- Expected Default Frequency
- Advantages and weaknesses
- Merton Model
Credit Risk- RAROC & Economic Capital Allocation- Integration of credit and market risk
- Economic capital allocation
- RAROC
- Mismatches
- Haircut
| Regulatory Credit Capital: Basel II- The objectives of the International convergence of capital measurement and capital standards. (Also known as Basel-II)
- Risk components and risk weights for corporate, bank, equity and sovereign exposures
- Approaches used to estimate the risk components
- Various categories of exposures under the IRB approach
- Risk components and risk weights for each category of exposure
- Approaches used to estimate the risk components
Securitization Framework : Basel II- Credit Risk - Securitization Framework
- Standardized Approach for Securitization Exposures
- Internal Ratings Based (IRB) Approach for Securitization Exposures
Operational Risk- The importance of operational risk management in the financial industry.
- The various approaches to operational risk.
- Calculating operational risk capital (OPVaR).
- Approaches suggested by Basle II capital accord.
Basel II: Operational risk- Operational risk measurement methodologies:
- Basic Indicator Approach (BIA)
- Standardized Approach
- Advanced Measurement Approaches (AMA)
- Calculation of Operational risk capital charges using BIA and Standardized approach
- Qualifying criteria for use of the standardized approach and AMA
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