


Overview of Banking Risk 



Definition of risk and uncertainty 

The dimensions of risk 

Market risk: FX, I/R, equity, commodity, basis, and volatility risks 

Credit and counterparty risk 

Liquidity risk 

Operating risk — including fraud and settlement risk 

Legal, regulatory, and political risk 

The risk / return tradeoff 


Review of Statistical Concepts 



Statistical distributions 

Mean, variance, standard deviation, skewness and kurtosis 

Probability distributions 

Mastering the Normal distribution 

Confidence intervals 

Volatility 

Correlation and autocorrelation 

Calculating Volatility from Market Data 


Pricing Principles for Financial Products 



FRAs 

Swaps 

Options 

Why options behave differently 

Option pricing models – how do they work? 

The "Greeks" for options 

Market risk for financial products 

Symmetrical vs. nonsymmetrical products 

Pricing Options 


Overview of VaR 



Objective of Value At Risk (VaR) 

Establishing confidence intervals 

Principles of calculating VaR 

Methods of calculating VaR 

The variance / covariance (parametric) approach 

The MonteCarlo risk approach 

Using historical simulation 

Stresstesting and scenario analysis 


Implementing VaR 



Principles 

Choosing a confidence levels (5%?, 1%?, 0.0001%?) 

Choosing a time horizon (1d?, 10d?, 30 days?) 

Gathering risk data 

Full valuation vs. parametric approaches 

Implementing the variance / covariance approach 

Historical simulation 

Choosing scenarios for MonteCarlo and stresstesting 

Comparing methodologies 

Verifying VaR 

Backtesting and model validation 

Calculating VaR using the Historical Simulation approach 







VaR for a Portfolio of Instruments 



Combining and integrating risk exposures 

Portfolio risk and correlation concepts 

Components of portfolio risk – the Greeks again 

Risk managing the entire portfolio 

Additive, nonadditive, and offsetting risks 

Managing a portfolio of linear instruments 

Managing a portfolio of nonlinear instruments 

Special problems caused by convex products 

Correlations between interest rates, currencies, and other financial risk dimensions 

Calculating VaR for a Banking Portfolio 

