A 2-day Course on the 8-9 December 2008
London
                                                                                                                                                                            

The Importance of Asset Liability Management
Various financial catastrophes such as Barings Bank, Long Term Capital Management, Allied Irish Banks, Equitable Life and Nat West indicate that many people working in financial markets don't fully understand financial risk. In response to this, various regulators have put pressure on accountants, regulators and traders to fully understand the risks of the products that they deal with. For accountants, this poses new problems. Apart from trying to implement accounting standards, they are now expected to give shareholders better information on the risk profile that they face. They may even have to suffer the consequences if things go wrong.
Risk measurement models such as Value at Risk (VaR) is an important tool in risk measurement. It is used by many treasury functions within companies and by banks. Indeed, virtually all annual reports produced by banks and large companies now contain VaR reports. Risk Management is likely to be both a key and controversial area in the future, particularly as the financial markets become more complex from the use of sophisticated financial instruments.
Who Should Attend
• Traders
• Risk Managers
• Accountants
• Back Office Staff
• Treasury Managers
Course Objectives
This practical hands-on course will allow delegates to understand asset liability management, credit risk and market risk as well as liquidity gap analysis and to calculate Value at Risk for various products like FRA’s, Swaps Forward Currency Agreements and Options. The course will commence with an introduction to asset liability management, operational, risk, credit risk, liquidity risk and market risk. A cursory overview financial statistics including, standard deviation, volatility, the normal distribution curve and correlation will also be covered.
We will then concentrate on introducing the concept of VaR and how it can meet regulatory requirements as well as improving internal decision making. Basel 2 and its impact on Asset Liability Management will also be discussed Delegates will also sell how matrices operate and will use spreadsheets to calculate VaR. Comparisons between the various VaR methods will also be covered. At the end of the course delegates will be able to:
• Evaluate the different risk methods
• Exploit the potential methods to improve global risk management
• Carry out a basic Monte Carlo simulation
• See how VaR techniques can be used to estimate credit risk
• Optimal capital allocation and setting limits
• Integrating Credit and Market risk.
Profile of Trainer
Cormac Butler is currently an active equity and options trader and a former consultant with Lombard Risk Systems London and has also worked with Peat Marwick and Coopers & Lybrand. He has considerable international experience as a training consultant in Derivative Accounting, Corporate Finance and Derivative Mathematics, working with major banks including Salomon Brothers, Robert Fleming and Banque Paribas. He has recently conducted in-house courses for Salomons, Morgan Stanley Dean Whitter (London), PriceWaterhouseCoopers (Holland), Investec (South Africa) and ABB Switzerland. In addition, he has worked for IIR and Euromoney in Singapore, Hong Kong, Thailand, America and Saudi Arabia. Cormac graduated from the University of Limerick, Ireland with a degree in Finance He has recently published Mastering Value at Risk (Financial Times Pitman) which is currently on the best sellers list (for Risk Management books) with Amazon.com, Gloriamundi.org and Financial World Bookshop (London).
Course Programme
Asset Liability Management Overview
• What is the objective of asset/liability management?
• How to articulate the objectives of asset/liability management
• ALM Objectives
• A framework for asset/liability function
• How much interest rate risk is appropriate for an institution?
• Who does asset/liability management?
• Business strategies vs hedging strategies
• How does on-balance sheet business strategy compare with the off-balance sheet strategy?
Gap Analysis
• Cumulative gap
• Two types of gap
• Data needed for preparing a gap report
• Steps in preparation of a gap report
• What assets and liabilities are included in a gap report?
Value at Risk and its role in asset management
• Evolution of the Regulatory Environment
• Capital Adequacy Directives
• Basle Proposals
Portfolio Risk Measurement
• Standard Deviation
• Correlation and Covariance
• Capital Asset Pricing Models
• Case Study – Using Spreadsheets to calculate Value at Risk at 95% and 99% levels
Risk Analysis for Treasury Products
• Forwards
• Futures
• Swaps
• Call and Put Options
Interest Rate Transactions and VaR implications
• Interest Rate Swaps
• Currency Swaps
• Differential Swaps
• Swaps Decomposition
• Applying VAR principles to Swap Transactions

Pension Market Risk Management
• Measuring VaR on Asset Side
• Equity and Interest Rate VaR
• Combination Strategies
• Spreadsheet Analysis - Sensitivity
Option Strategies and Measurement of Market Risk
• Reasons for Using Options
• Spreadsheet Analysis Hedging
• Combination Strategies
• Spreadsheet Analysis - Sensitivity
Credit Risk VaR
• Default Risk
• Credit Spread Risk
• Concentration Risk
• Monte Carlo Simulation
Interest Rate & Fixed Income VaR
• Simple v Compound Interest
• Continuous Compounding and Discounting
• Application of Exponentials and Logarithms
• Intuitive analysis of Black Scholes and other models
Using VaR Principles to Measure Credit Risk
• Portfolio Approach to Credit Risk
• Total Return Swaps
• Credit Linked Notes
• Application of Portfolio Theory to Credit Risk
Modelling Credit Default Risk
• Individual v Portfolio Risk
• Default Factors
• Relationship between Asset Prices and Credit Rating
• Marginal Risk
• Junk Bonds v Risk Free Bonds
Foreign Exchange Value at Risk
• Forward Exchange
• Future Contracts on Currencies
• Exchange rate Currency Options
Application of Risk Management to Business Plans
• Sensitivity analysis - sales revenue
• Sensitivity of Raw Materials
• Flexible Budget allocation
• Volatility of Earnings
Real Life Application of Models
• Dangers of Models
• Adjusting models to suit client portfolio
• Limitations of Models
• Volatility Skewness and Assumptions