A Workshop on Risk Management

This week I will interrupt my blog post series about models since I want to report about an event.
Yesterday Andreas Binder and me had a workshop on risk management for capital management firms and small banks in Vienna. Topics covered included

• Commitment Approach
• Value At Risk
• Methodologies (parametric, historical, Monte Carlo)
• Individual VaR
• Contribution VaR
• Additional Risk Measures like Expected Shortfall (ES)
• Backtesting
• Extreme Value Theory - Peak over Threshold

Different types of risk affecting funds have been discussed - market risk, credit risk and liquidity risk.    Special attention has been given to a reasonable treatment of non-scalar risk factors like yield curves and how to include them in multi risk- factor setups and scenarios. UnRisk VaR module includes principal component analysis (PCA) for this case.

Although regulators allow to use the commitment approach for certain types of funds we have shown with our examples that VaR calculations provide more than risk measures for reporting to the regulators but can be used to gain valuable information about the fund structure and its sensitivities to  different risk factors.