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Category Archives: Middle Office and VaR


A simplified guide for reverse stress testing

A guide to reverse stress testing A typical stress test creates a scenario and evaluates how a bank would fare under it. Compared to reverse stress testing, conventional stress tests are used to assure shareholders, regulators and customers that the capital on bank balance sheet


ICAAP and ILAAP guidelines for European Banks.

ICAAP and ILAAP European guidelines. What is ICAAP? Internal Capital Adequacy Assessment. Internal Capital Adequacy Assessment Process (ICAAP) is an internal review requirement that evaluates capital adequacy, capital management and planning at banks with a specific focus on core risk factors. Expected to be reviewed

Liquidity Gap

Liquidity gap – Implementation.

Liquidity Gap Implementation challenges. A quick review of common liquidity gap implementation challenges as part of the bank asset liability management platform implementation.  What is Liquidity Gap? The liquidity gap reports presents a summarized view of the bank’s balance sheet by breaking total assets and liabilities

IRS PFE Exposure Estimate

Potential Future Exposure – PFE Calculations for a simple IRS

Potential Future Exposure – PFE – Calculations for an Interest Rate Swap. When it comes to counter party credit risk there are two credit exposure calculation methods that we frequently see in term sheets and internal risk reporting. Pre Settlement Risk Exposure (PSR or PSRE) and

Calculating NII - Bank ALM

Asset Liability Management Training Guide. 3rd Edition.

Asset Liability Management Training Guide. 3rd Edition. The brand new, revised 3rd edition of the ALM Study Guide is out. With 190 pages, 189 figures and illustrations, the new edition weighs in at thrice the size of the 2nd edition and spends more time on

Delta Gamma plot against strike

Understanding Option Greeks – Introducing Gamma

Understanding Option Greeks – Introducing Gamma Gamma is the second derivative of the option price with respect to the price of an underlying asset. Alternatively, it is the rate of change in the option Delta due to a change in the underlying asset price. Figure


Option Greeks. Using Solver to hedge Vega Gamma exposure

Option Greeks. Option Hedging using Excel. Since a spot, forward or future position is linear in its pay off it has no second order derivative. Options on the other hand are non-linear (asymmetric payoffs). While we can get away with hedging Delta with a linear