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Finance Training Course – Course Outline – Risk and Derivative Pricing Crash Course

Risk management and derivative pricing concepts are closely interlinked. As practitioners we come across a wide range of issues that sit at the intersection of both subjects. An integrated skill building exercise that is aimed at professionals who deal with pricing, valuation, risk, policy and reporting issues related to structured fixed income and foreign exchange transactions.

1. LEARNING OBJECTIVES

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

  1. Understand the basis behind pricing and valuation models for both exotic and vanilla fixed income and foreign exchange transactions.
  2. Optimize risk and pricing frameworks using quantitative and behavioral trends.
  3. Review risk policy documents for effectiveness and impact.
  4. Use risk management tools such as Value at Risk within your limit management framework.
  5. Read, utilize and present risk reports with the same confidence as a quant.

2. WORKSHOP LEVEL

Intermediate and advance users only. In addition to comfort with basic mathematics, numbers and excel some familiarity with local structures and products is also required.

3. KNOWLEDGE & WORKSHOP PREREQUISITES

Comfort with basic mathematics, numbers and excel some familiarity with local structures and products is also required.

4. COURSE OUTLINE

Session & TitleTopics
Session 1: Risk – mindset and core concepts.Introduction. Course content. Participants, Instructor.

Understanding the distribution and linking it to policy and reporting frameworks.

Core concepts. Volatility, Correlation, Distributions: uniform, normal and log normal. Monte Carlo simulations, value at risk, duration, convexity and Asset Liability Management.

The Black Scholes world and limit management. Basel II and Senior management reporting for Market Risk.

Session 2 :
Market Risk and product applications
The Nassim Taleb versus Philippe Jorion debate.

Historical Simulation, Variance Covariance. Full Valuation versus Delta Normal models. Value at risk for Fixed Income instruments. The duration and convexity adjustments. Linkages to Greeks.

Derivative products – vanilla and exotics. Money market, FX and Equities. Risk Measurement, Hedging of Positions. Delta and Gamma Hedges.

VaR for options and derivatives. Value at risk interpretation. Value at risk and economic capital. The VaR to capital charge transformation. Capstone case.

Session 3: Derivative Pricing – Part IBasic pricing tools. Closed form solutions. Binary Trees. Monte Carlo simulations. Variations for Foreign Exchange products

Pricing exotics and more involved structures.

Session 4 –
Derivative Pricing – Part II
Interest Rate Swaps, Caps and Floors.

Cross Currency Swaps and variations. Valuation Models, Sensitivity Testing. Broken Periods. Capstone case

Review, wrap up and close.

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