Value at Risk Seminar
Institute for International Research,
Helsinki, Finland
Prof. Ian H. Giddy
New York University
DAY 1
Morning
1. The Role of Value-at-Risk in Modern
Financial Management (Jauri)
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Why VAR? What is it?
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Currency and interest rate risk management
issues
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Creating a corporate risk management policy
and strategy
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The latest developments and applications of
the VAR approach
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Why and when VAR should be included in your
risk management toolkit
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Shareholder expectations
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New regulatory standards
2. Financial Toolkit for Risk Management
(Giddy)
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The Yield Curve and Forward Interest Rates
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Links between Cash, FRAs, Futures, and Swaps
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Zero-coupon Bonds and Spot Rates for Valuation
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The Bootstrapping Method
3. Measuring Market Exposure: Interest
Rates, Currencies, Equities, Commodities (Giddy)
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Measuring and predicting volatilities of currencies,
interest rates, etc.
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The distributional properties of financial
market prices: are they normal, lognormal, skewed, fat-tailed? Are volatilities
and correlations stable?
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Measuring and tracking the risk exposure of
individual market risk positions
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Allocating ("mapping") cash flows to zero-coupon
equivalents
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Issues arising from position netting (currency
correlations, parallel shift of the yield curve)
-
Problem of the timing and uncertainty of anticipated
operating cash flows
4. Using Volatilities and Correlations
to Measure Overall Value at Risk (Giddy)
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Using modern portfolio theory to reduce risk
and save hedging costs
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Adding up individual trading positions to
give an overall picture of risk for the firm
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Using the correlation matrix
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Computing the overall position VAR in bonds,
currencies, etc.
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Calculating a single measure of earnings at
risk, daily, weekly or monthly
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Production and interpretation of a management-friendly
risk report
Afternoon
5. Application of the Value-at-Risk
Approach to Management of Corporate Foreign Exchange Risk (Giddy)
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Case study of a company with multi-currency
cash flows
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How to summarize the company’s positions,
by currency and maturity
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Downloading, manipulating and organizing market
data (Internet, Datastream, etc)
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Using a computer spreadsheet program for position
risk analysis
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Sensitivity and risk-reduction analysis
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Producing a risk-management report
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Using VAR for cross-hedging and to minimize
hedging costs
6. Finnish Case Study
DAY 2
Morning
7. Effective Risk Reporting, Performance
Evaluation and Control (Giddy)
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Setting hedging goals in relation to risk
using VAR
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Risk/return based performance evaluation
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A monthly VAR review cycle
8. Application of the Value-at-Risk Approach
to Corporate Interest Rate Risk Management (Giddy)
-
Case study of a company with fixed-floating
funding in several currencies
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How to use the yield curve to set performance
benchmarks
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Using a computer spreadsheet program for VAR-based
funding cost analysis
9. The VAR of Options and Other Derivatives
(Giddy)
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Linear vs non-linear exposure
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The delta approach
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The valuation-sensitivity approach
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The technique applied to vanilla and exotic
options
10. Understanding and Managing Pitfalls,
Problems and Limitations of the Value-at-Risk Approach (Jauri & Giddy)
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Key assumptions of the standard VAR method
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Loss of information in summary reports
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Instability of volatility and correlation
estimates
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How to deal with discontinuous events such
as EMS realignments
-
Summary of alternative approaches
Ian H. Giddy, Professor of Finance
New York University • Stern School of Business
44 West 4th Street, New York 10012
Tel 212 998-0332 • Fax 212 995-4233
|
Go to Giddy's
Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu