Day 1
Introduction and overview: establishing enterprise risk management objectives
The motivation for ERM: inside and outside
Outside motivations
– Basel II, Sarbanes-Oxley and IFRS compliance issues as they relate to companies
Inside motivations
– Profitability and transparency benefits
– Examples from the Basel II realm
Hurdles to ERM establishment and implementation
High-level difficulties
– Senior-management buy-in
– Conglomerate nightmares
– Merger problems/benefits
Technical difficulties
– Getting model results for market, credit and operational risk to coincide
Difficulties with combining model inputs
Difficulties in combining model outputs
Solutions and methods for overcoming hurdles
– Coordination of business units and merger “partners”
– Concerted methods of obtaining senior management buy-in
– Exhibiting the benefits to ERM using the bottom line
Outlines for implementing ERM
Day 2
Corporate governance management
_ Establishing a risk-appetite, capital leverage and a desired credit rating
_ Determining whether you have the internal risk management skills on-hand
_ Establishing an organizational structure
_ Overseeing risk assessment and auditing processes
_ Shaping the risk culture from the top
_ Providing organizational incentives for learning from mistakes
Risk-based pricing and line management
Risk adjusted performance measurement (RAPM): a primer
Various RAPM measures compared and objectives defined
– Risk-adjusted Return On Capital (RaROC)
– Risk-adjusted-Return On Risk-Adjusted Capital (RaROROC)
– RAPM from an individual perspective
– RAPM from a portfolio perspective
– RAPM using capital allocations for market, credit and operational risks
Examples in Excel
Risk analytics
Credit risk assessment
– Assigning ratings via scoring
– Basel requirements for financial institutions
– Quantitative approaches
– Qualitative approaches
– Probability of Default (PD) and Probability of Event (PE) assignment
– Scoring facilities
– Loss Given Default (LGD) and Exposure At Default (EAD) assessment
Expected Loss (EL) and Unexpected Loss (UL) assessment
– EL and UL: provisioning and capital allocation for single exposures
– EL and UL: provisioning and capital allocation for portfolio Exposures
Credit Value-at-Risk (CreditVaR) estimation
Examples in Excel
Day 3
Risk analytics (contd.)
Market risk assessment
– Establishing and using market VaRs
– Calculating VaR: brief expositions and examples
– Parametric methods
– Historical methods
– Monte Carlo methods
Allocating capital in a market risk framework
– Individual exposures
– Portfolio-level exposures
Examples in Excel
Operational risk assessment
– Establishing and Operational VaR (OpVaR)
– Calculating the OpVaR
– Parametric approaches
– Loss distribution approaches
– Establishing EL and UL estimates
– Allocating provisions, insurance and capital
Attempts at combining creditVaR, market VaR and OpVaR to assess total capital
Risk transfer mechanisms
– Traditional, financial derivatives
– Credit derivatives and more exotic products
– Securitizations and synthetic Collateralized Debt Obligations (CDOs)
Day 4
Portfolio management
_ Behaving like a fund manager in establishing objectives and targets
_ Using RAPM
_ Portfolio management in the entire process of making profits
Data and IT concerns
_ Establishing the right inputs and outputs for models and assessment systems
_ Managing technology effectively
Stakeholder management
_ Some guidance on keeping the crowd happy
Case discussion: some episodes where our tools might have been effective
Concluding remarks