Fundamentals of Financial Risk Management

Course Overview

The Fundamentals of Financial Risk Management delves into the essential aspects of managing financial risk within organisations and the broader financial system. Beginning with an overview of risk and uncertainty, it introduces participants to various types of financial risks including market, credit, liquidity, sovereign, and operational risks, along with statistical and probabilistic methods for measuring and analysing these risks. ​
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The course explores the historical development and methodology of Value at Risk (VaR), its limitations, and the interdependence of different risk types. Further, it covers counterparty credit risk, techniques for managing credit risk, and the fundamentals of interest rate risk, highlighting the importance of Basel III in capital adequacy and liquidity risk management. ​
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Participants will learn about market risk within trading book activities, how market, liquidity, and systemic risks are intertwined, and the importance of monitoring Key Risk Indicators (KRIs). The course also addresses stress testing methods and the critical role of operational risk management, including methodologies for measuring and monitoring operational risks and creating an effective risk management culture. ​

Learning Outcomes

• Distinguish between different types of financial risk, including market, credit, liquidity, sovereign, and operational risks, and understand the statistical and probabilistic tools used for risk measurement and analysis.​
• Explore the development, application, and limitations of Value at Risk (VaR) as a measure of enterprise risk, including its interdependence with market, credit, and liquidity risks, and delve into alternative risk measures like stress testing and scenario analysis.​
• Gain insights into counterparty credit risk components such as probability of default, loss given default, and credit exposure, and learn methods for managing credit risk using tools like credit metrics, credit scoring, and credit derivatives.​
• Understand the fundamentals of interest rate risk, including the sensitivity of bond prices to interest rate changes, duration modeling, and strategies for managing portfolio risk through hedging and gap analysis.​
• Analyse the implications of Basel III on capital adequacy and liquidity risk, focusing on the Liquidity Coverage Ratio (LCR), High Quality Liquid Assets (HQLA), and the Net Stable Funding Ratio (NSFR), and their impact on financial institutions.​
• Develop a comprehensive approach to operational risk management, including identifying and quantifying operational risks, integrating operational risk management into organisational frameworks, and fostering a culture that aligns with effective risk management practices.