Setting Value at Risk, Stop Loss, Pre Settlement and Counterparty Limits – Course Outline

There are a number of challenges when it comes to communicating, enforcing and setting limits in a trade, treasury, portfolio and risk function. Buy Now

One big factor is the language of limits. When it comes to building consensus across Traders, Risk and Credit, it is like a tower of Babel. Traders speak and understand Stop loss, risk managers work and vouch for value at risk, credit officers track and live for PSR (Pre-Settlement). How do we link the three?

Our short “Setting Limits” video course picks up and builds up on the core concepts covered in two of our earlier courses, The Quant Crash Course and Calculating Value at Risk and introduces the linkage between Stop loss and Value at Risk by defining the median trading loss.

The median trading loss is the likely trading loss we expect to see every 2nd or 3rd trading day. We then link the median trading loss to a VaR confidence level that can be used for communicating results and suggesting limits to Board Risk Committees. To build the intuition for that conversation we introduce the concept of odds and highlight the interpretation problem Board members face when seeing extreme probabilities (the problem first highlighted and suggested by Nicholas Nassim Taleb).

In the final part of our course we switch our focus to PSR (Pre Settlement Risk) limits calculations. PSR limits are counterparty limits that calculate the worst case likely loss on account of default on settlement date by a given counterparty. Once again a VaR measure subject to changing volatilities, our approach highlights the usage of maximum, minimum and median volatilities and suggests that the underlying VaR estimates need to be reviewed more frequently than the once in 2 or 3 year practice we have observed in the region.

 

Course Prerequisites

Quant Crash Course video course

Calculating Value at Risk video course

Comfort with basic mathematics and EXCEL and an understanding of the risk management environment together with a familiarity of financial markets, banking industry, economic capital, portfolio management concepts and the Basel II framework.

 

Course Audience

This course is targeted at intermediate and advanced users and individuals responsible for capital allocations, limit setting and risk management with the treasury functions of banks and other financial institutions as well as finance departments of non-financial organizations.

 

Course Guide

Here is the structure of the course.

Title
Duration
Session 1 – Setting Limits 33:47 mins

 

Session One – Setting Limits
We consider how VAR is used in allocating, calculating and defining optimal levels for limits: Stop Loss Limits, Pre-Settlement Risk (PSR) Limits and Margin haircuts for bonds. We discuss how to set up stop loss thresholds without hindering trading while taking into account market volatility, i.e. median likelihood trading loss threshold. We consider how a financial institution’s board of directors interprets and assesses the credibility of VAR results. We show how Stop Loss may be calibrated to the VaR threshold. For PSR limits we review the market practice of using average volatility in the calculation of counterparty limits and we highlight the value of using a measure based on the maximum trailing volatility as well as the importance of carrying out a frequent, dynamic review of the limits management system in light of a changing market environment

View a sample of session one
Back to top

Random Testimonial

  • ~ Corporate Training Testimonials

    "A most amazing training - hands down the best, most useful, and most relevant I had during my tenure. Simply put, I loved it and will continue to build on the models. 

    Financial Modeling Course Participant
    FGB Training Academy, 
    First Gulf Bank, Abu Dhabi, UAE

     

    I have attended a number of training courses conducted by Alchemy technologies. Broadly, the areas covered have been Financial Risk Management aspects, Basel II implementation in Pakistan, as well as product knowledge for relatively new products in the our market for instance Financial Derivatives. As trainers, Mr. Jawwad Farid and his team bring in a wealth of conceptual knowledge entwined with their own professional experiences, adapting and honing it to our local market needs. The training courses are very informative and are delivered in a witty and energetic manner. The learning needs of the participants are kept in focus, and they are kept involved by interactive discussions and queries. Personally, I have always left these sessions with a much better understanding and grasp over the subjects delivered, which has helped me professionally.”

    Senior Manager & Team Leader
    Treasury Middle Office
    Habib Bank Limited

     

    “Jawwad Farid has admirably led the training piece on the Treasury side covering Treasury risk, Treausury products, Derivatives (basic & Advanced), Fixed income securities (Basic & Advanced) and ALM training modules. Jawwad in our opinion is an “Outstanding Senior Trainer” who has deep subject matter knowledge and an uncanny ability to keep the participants engaged in the training process. So far our clients have expressed maximum level of satisfaction in Jawwad’s capability to deliver high value training programs, that have tangibly enhanced their staff’s skill sets.

    Based on our direct more than satisfactory experience, Jawwad’s otherwise exceptional track record on the training side with over 90 technical skill building courses in South Asia, Middle Eastern and Far Easterm markets, we have no hesitation in strongly recommending Jawwad Farid for the training that for participants based out of Malaysia or the adjoining Far Eastern Markets.”

    Mohammad Nasr Ullah
    Principal Consultant
    Consultnomics, FZE

     

    I have loved each and every workshop from Alchemy. The workshops are extremely helpful in removing queries about Derivatives Pricing, Basel & Regulatory issues. I feel attending the workshops have added value to my knowledge and expertise. Moreover, the instructor is extremely knowledgeable on the subject area and ensures that each candidate returns with similar knowledge and expertise.

    Senior Vice President
    Compliance
    Allied Bank"

  • Read more testimonials »