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Finance Training Course – Course Outline – Internal Capital Adequacy Assessment

Serves as an introduction to the internal capital adequacy assessment framework being proposed by the central bank as outlined in the Basel II revised framework.1. COURSE OBJECTIVES

At the end of this workshop the participants will be able to:

  1. What is the ICAAP framework and how is it applicable to the local market?
  2. How do we extend stress testing to capital adequacy, economic capital and capital charge calculations?
  3. What is the business case for ICAAP and what is required to implement it?
  4. What is required in addition to the work already done on Pillar I?
  5. The process for including the impact of risk rating systems, portfolio analytics and risk.

2. TRAINING COURSE LEVEL

Intermediate and advance users. This advance level workshop is aimed at individuals responsible for implementing the ICAAP framework.

3. TRAINING COURSE PREREQUISITES

Familiarity with economic capital, local markets, portfolio management concepts and the Basel II framework.

4. COURSE OUTLINE

Session & TitleTopics
Session One – 9 concepts in 90 minutes Introduction. Course objectives.Format.
Statistical distributions.
Fat Tails and asymmetry.
Volatility.
Return series.
Log normal returns.
Market data and adjustments to fixed income and capital markets data.
Probabilities and applications.
Session Two – Value at Risk DebateThe Nassim Taleb versus Philippe Jorion debate.
Comparing Historical Simulation, Variance Covariance, Monte Carlo simulation.
Results and trendsfrom local market data.
Full Valuation versus Delta Normal models.
Value at Risk for Fixed Incomeinstruments.
The Duration and Convexity adjustment.
Session Three – VaR ApplicationsValue at Risk interpretation.Value at Risk, Basel II and Economic capital.The VaR to capital charge transformation. Unexpected loss. Risk budgeting.

 

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