An Introduction To Risk Management
• Risk management framework
• Different types of risk management procedures
• Financial market’s regulation and the Basel accords
• Corporate governance, institutions of information, screening and monitoring
• Financial risk management and its importance on financial control
• Comparing crisis management and risk management
Exercise: Basel II – What is it? How good is it? How will it affect a business?
Exercise: Enterprise risk management – What is it? Does it add value?
Case Study: Procter & Gamble and Gibson’s misuse of derivatives financing – lessons for senior management
Forward And Future Contracts
Forward Contract Design And Structure
• Understanding the structure of forward and future contracts
• The difference between forwards and futures
• Different types of forward and futures contracts including currency, interest rates, bonds and commodities
Case Study: Designing a futures contract – designing a contract combining user requirements with feasibility
from the exchange standpoint
Mechanics And Uses Of Forward Contracts
• Trading speculation, hedging and financial engineering
• Measuring market risk
• Measuring credit risk
Case Study: Managing risk using forward contracts. You will use futures contracts to manage a range of
different financial risks facing corporates
Interest Rate Forward Contracts
• Rates implicit in spot quotations
• Arbitrage pricing methods
• Importance of margining
• Clearing and netting
Swaps
Types Of Swaps
• Interest rate swaps
• Cross currency swaps
• Equity swaps
• Asset swaps
Case Study: Using interest rate swaps in project finance
Options
Options And Their Use In Corporate Finance
• Understanding option jargon
• Using options in practice
• Trading and hedging
• Arbitrage with convertible bonds
Case Study: An option theoretic view of the organisation
Option Pricing For Corporate Finance
• Black-scholes and binomial options pricing methods
• Adoption of black-scholes method
• Other option pricing models
• Model risk – do the complex mathematical models associated with derivatives valuation have a place
in the Middle East?
Exercise: You will be provided with black-scholes and binomial option pricing models and instructed
on their use
Financial Control And Option’s Greeks
• Delta
• Gamma
• Vega
• Theta
• Rho
Exercise: Should organisations use derivatives to manage risks? How they should do it
Exercise: Managing risk using option’s greeks
Credit Risk
Introduction To Credit Risk
• Definition of credit risk
• Three approaches to measuring credit exposure – individual transaction approach, market factor
approach and portfolio approach
• Extension from credit exposure to credit risk – credit risk management, economic capital and regulatory capital
Credit Derivatives
• Understanding the major uses of these products
• Benefits and pitfalls for the user
• Credit default options
• Total return swaps
• Credit spread transactions
Case Study: Developments in credit derivatives in the Middle East
Risk Assessment Techniques
• Risk assessment from factor sensitivity to Value at Risk (VaR) to conditional VaR
• Three approaches to measuring VaR: Variance/covariance, historical simulation, Monte Carlo methods
• VaR at the transaction, portfolio and organisational levels
• Marginal VaR contribution measures and conditional VaR
• Cashflow at Risk (CfaR), Earnings at Risk (EaR), and Capital at Risk (CaR) approaches
• Credit Value at Risk (CVaR) and Operational Value at Risk (OPVaR)
Exercise: VaR across the organisation and its business units including the decomposing of risk across
an organisation using component VaR
Risk And Capital Allocation Techniques
• Risk and capital allocation using Value at Risk (VaR) measures
• Capital–based risk-adjusted return and performance measures
• Comparing economic risk capital and regulatory capital
• Relationship of RAROC capital to credit, market and operational risks
Exercise: Calculating RAROC for a financial institution
Course Conclusions