Market Risk (Finance)

Market Risk (Finance)

A curriculum that provides end-to-end coverage of the most important areas of finance / Market Risk solutions.
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In this course you will learn several key topics within finance and Market Risk, starting with the foundations, before moving on to intermediary and more advanced level subject matter. Prior knowledge or experience in Finance or Market Risk is not required.

The course is taught with an applied focus and students learn by doing, gaining practical experience: you will build risk engine components from scratch and gain experience implementing stress testing, back testing, simulation, pricing, scenarios generation, VaR/ES computation modules and more. You will also benefit from direct training on important banking regulations e.g. Fundamental Review of the Trading Book (FRTB).

By the end of the course, you will have the specialist knowledge required to work with traders, risk managers, quants, quant developers etc.

The Market Risk (Finance) course is not offered on a standalone basis. It is included in our Certificate in Finance Business Analysis (FinBA), and Coding (Python, SQL) in Finance training programs.

Session 1

  • Structure of an Investment Bank – Front Office, Middle Office, Back Office
  • Roles of FO Sales, Traders and Quants
  • Trades – Execution, Booking, Settlement
  • Trading desk, prop/non prop trading, Flow desk
  • Asset classes (Equity, Fixed Income – Interest Rate, Credit -, Commodities, Foreign Exchange), derivatives – options, futures and forwards, exotics
  • Payoff profiles
  • Data – market, trade/position and reference
  • Risk factors, timeseries
  • Proxying, benching, forward filling/copy forward

Session 2

  • Implied volatility, historical vol, vol modelling (GARCH)
  • Vol surfaces
  • Correlation
  • Interest rate, zero rate, forward rates
  • Hypothetical portfolio
  • What if analyses
  • Capital requirements: standard rules, internal model approach
  • Breakdown of key components of FRTB. Discussion of DFAST, CCAR etc regulations
  • FRTB Standardised Approach (SA)
  • FRTB QIS
  • New developments in market risk, hot job areas

Module 1 outcome: After completing this module, candidates will possess in-depth knowledge and thorough understanding of the most important foundational components of finance and Market Risk

Module 2: Advanced Market Risk (Finance)

Session 1

  • Geometric Brownian Motion, Monte Carlo simulation
  • Simulating a stock price
  • Pricing of vanilla and exotic instruments
  • Computational approach (Monte Carlo method)
  • Closed form/analytical approach (Black Scholes method)
  • Sensitivities
  • Finite difference method
  • Black Scholes method
  • Stress testing

Session 2

  • Historical scenarios generation
  • Monte Carlo scenarios generation
  • Absolute, and relative scenarios
  • Full revaluation
  • PnL calculations (hypothetical/theoretical/clean/Full Reval PnL)
  • Taylor PnL (Delta-Gamma-Vega approximation)

Session 3

  • Value at Risk, incremental VaR
  • Historical simulation VaR, MC VaR
  • Stress period, Stressed VaR
  • Scenario PV
  • PnL vector analysis – interpolation
  • VaR scaling
  • Expected Shortfall
  • Back testing (VaR/PnL)

Session 4

FRTB Internal Model Approach (IMA) Expected Shortfall model for Capital calculation

  • Cascading approach
  • Indirect method
  • Constrained and unconstrained ES

FRTB Capital Eligibility

  • Backtesting
  • PnL attribution

FRTB IMA and SBA process flows

Quantitative validation/testing of

  • VaR
  • ES
  • Stress testing
  • Backtesting
  • PnLs

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