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The Clearing Corporation of India Ltd. Certification Programme

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Risk Management In Financial Market Syllabus

Section I - Quantitative Analysis

Measures of Central Tendency & Dispersion Probabilities and Probability Distributions

o Discrete and Continuous Probabilityo Uniform, Bernoulli, Binomial, Exponential, Poisson, Normal, Log-Normal, Chi-Squared,

Joint-Normal

Statistical Inferenceo Estimation and Hypothesis testingo Maximum Likelihood Estimation

Regressiono Simpleo Multiple

Stochastic Processeso Basic Definitiono Random Walko Geometric Brownian Motiono Itos lemma

Financial Time Series Analysiso Basic Definitionso ARMAo ARIMAo GARCH, ARCHo Volatility Forecastingo Copulas

Monte Carlo Method

References: -

Philippe Jorion, Value at Risk, 3rd

Ed

Glyn Holton, Value at Risk

Alexander J. McNeil, Rudiger Frey, Paul Embrechts - Quantitative Risk Management - Concepts,

Techniques and Tools

Richard Levin & David RubinStatistics for Management 7th

Ed


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Section II - Financial DerivativesConcepts, Valuation

Forwards, Futures & Optionso Concepts, Key featureso Hedging strategieso Pricing forwards and futureso Forward Rate Agreementso Interest rateso Options

Concepts, Strategies ValuationBinomial & Black-Scholes ProductsStock Indices, Currencies, ESOP, Greeks Exotic Options

Interest Rateso Determining Interest Rateso Futures, Forwards, Options and Swapso Interest Rate Structured Productso Models of interest rate derivatives

Currencieso Currency Derivatives: Forwards, Futures and Optionso Exchange Risk: Hedging Transaction Exposureo Exchange Risk: Hedging Translation and Economic Exposureo Management of Operating Exposureo Currency Swaps

Fixed Income Securitieso Fixed Income Risk Measurements

Bond Instruments and Interest Rates Risk Duration, Modified Duration and Convexity Macaulay duration Relationship between duration, yield, coupon and maturity Basis Point Value (BPV) Convexity Measure The Risk Model Performance Portfolio Risk Characterization Valuation of Bonds with Embedded Options Valuation of Mortgage-Backed Securities OAS and Effective Duration

Equity and Commodity Derivativeso Concepts


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o Pricingo Strategies

References: -

Satyajit DasSwaps/Financial DerivativesProducts Pricing, Applications and Risk Management, 3rd

Edition, Volume I

John C. HullOptions, futures and Other Derivatives, 7th Ed

Frank FabozziThe Handbook of Fixed Income Securities 7th Ed

P.G.Apte -International Financial Management, 5th

Ed

Hlyette Geman -Risk Management in Commodity MarketsFrom Shipping to Agricultures and Energy


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Section III - Market Risk Measurement

Risk management Principles Sources of Market Risk Derivatives and Risk Management Risk Measurement before VaR Measures of Financial Risk

o VaRo Coherent Risk Measures

Estimating Market Risk Non parametric Approaches Forecasting volatility, covariance and correlations Parametric Approaches

o Conditional v/s unconditional varianceso Normal VaR and ESo t-Distributiono Lognormal Distributiono Miscellaneous approaches

Levy Elliptical and Hyperbolic Normal mixture Jump diffusion Stochastic volatility CornishFischer

o Multivariate normal variance-covariance approacho Non normal variance-covariance approacho Extreme Value Theoryo Value at Risk

Computing VaR VaR Methods Backtesting VaR Stress Testing Limitations

o Estimating Liquidity RiskReferences: -

John C. HullOptions, futures and Other Derivatives, 7th

Ed

GARPFRM Handbook, 4thEd

Kevin DowdMeasuring Market Risk, 2ndEd

Philippe JorionValue at Risk, 3rdEd


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Section IV - Credit Risk Measurement

Concept Credit Analysis of Corporate Bonds Agency Ratings Modeling Credit Risk

o Elements of Credit Risko Default Risk

Measuring Default Probabilities Loss given Default Loan Portfolios, Expected Losses & Unexpected Losses Default dependencies

o Structural Modelso Threshold Modelso Mixture Modelso Monte Carlo Modelso Dynamic Credit Risk Modeling

Portfolio Effects Correlation of Default & Credit Quality Loss distribution of Credit Default Risk Credit Derivatives

o CLNo CDOo CDS

References: -

Chacko, Sjoman, Motohashi, DessainCredit DerivativesA Primer on Credit Risk, Modelingand Instruments

Michael K. OngInternal Credit Risk ModelsCapital Allocation and PerformanceMeasurement

Alexander J. McNeil, Rudiger Frey, Paul EmbrechtsQuantitative Risk Management GARPFRM Handbook 4thEd Frank FabozziThe Handbook of Fixed Income Securities 7th Ed Satyajit Das - Credit Derivatives, CDOs & Structured Credit Products, 3rdEd Arnaud De Servigny & Olivier Renault - Measuring and Managing Credit Risk


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Section V - Operational Risk Measurement

Concept Identification Drivers Approaches Managing operational risk

o Insuranceo Hedging using derivatives

Application of VaR Risk Adjusted Performance Measurement

o Earnings Basedo VaR Basedo SVA

Integrated Risk Managemento Firm wide performanceo Legalo Reputationalo Accountingo Other typesRegulatory, Politicalo Controlling Firm Wide Risk

Model RiskReferences: -

GARPFRM Handbook, 4thEd Philippe JorionValue at Risk, 3rdEd Kaiser and KohneAn Introduction to Operational Risk Andrew Kuritzkes, Til Schuermann & Scott WeinerRisk Measuremnt, Risk Management and

Capital Adequacy in Financial Conglomerates Financial Institutions Center, Wharton Business

School, (03-02).

Andrew Kuritzkes, Til Schuermann, - What we know, Dont Know and Cant Know about BankRisk: A View from the Trenches March 2008.


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Section VIRegulatory, Compliance & Contemporary Issues

Counterparty Risk Management Policy Group ReportIII (Containing Systematic riskthe roadto reform) Chapter III, Appendix B

Basel Accordo Basel I (International Convergence of Capital Measurement and Capital Standards (July

1988, updated to April 1998)

Evolution Important features Criticism

o Basel II Evolution Three Pillars

First PillarMinimum Capital Requirement Second Pillar- Supervisory Review Market Discipline An Explanatory Note on the Basel II IRB Risk Weight Functions (July

2005)

Guidelines for computing capital for incremental risk in the tradingbook

Revisions to the Basel II market risk framework (July 2009) Range of practices and issues in economic capital frameworks (March

2009)

o Recent Advances. Consultative DocumentInternational Framework for liquidity risk

measurement, standards and monitoring (December 2009)

Consultative DocumentStrengthening the resilience of the bankingsector (December 2009)

o Thinking Beyond Basel IIINecessary Solutions for Capital and Liquidity (AdrianBlundellWignall and Paul Atkinson)OECD JournalFinancial Market Trends

Volume 2010Issue 1

o RBI Master Circular- Prudential Guidelines on Capital Adequacy and Market DisciplineNew Capital Adequacy Framework (NCAF) - Dated February 8, 2010

o RBI Prudential Guidelines on Capital Adequacy - Implementation of Internal ModelsApproach for Market Risk - Dated April 7, 2010

ISDA Current issues in risk management Subprime Mortgage Crisis

Causes Consequences


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References: -

Carmen Reinhart & Kenneth Rogoff -This time is different A panoramic view of eight centuriesof financial crisis

Adam Ashcroft & Til Schuermann - Understanding the securitization of Subprime MortgageCredit - Federal Reserve Bank of New York Staff Reports; no 318.

Asia Risk Magazine Other relevant newspaper and magazine articles ISDA website (www.isda.org) Bank of International Settlement website (www.bis.org) J.R.VarmaRiskManagement Lessons from the global Financial Crisis for Derivative

Exchanges. Indian Institute of Management, Ahmedabad, W.P.No. 2009-02-06,
http://www.isda.org/http://www.isda.org/http://www.isda.org/http://www.bis.org/http://www.bis.org/http://www.bis.org/http://www.bis.org/http://www.isda.org/


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Section VII - Investment Risk Measurement

Portfolio Managemento Efficient Market Hypothesis & Alternativeso Portfolio Theoryo Capital Asset Pricing Theory, Arbitrage Pricing Theoryo Bond Portfolio Managemento Equity Portfolio Managemento Investment companies & Evaluation Portfolio Performance

Hedge Fund Managemento Hedge fund basicso Analysis of performance of Hedge fundso Risks in Hedge Funds

Individual Hedge Fund Strategies Style DriftsMonitoring, detection and control

References: -

GARPFRM Handbook, 4thEd Frank K Reilly, Keith C Brown -Investment Analysis and Portfolio Management- 5 th Edition Richard Horwitz - Hedge Fund Risk Fundamentals: Solving the Risk Management and

Transparency Challenge

Reynolds-Parker, Virginia -Managing Hedge Fund Risk: From the Seat of the Practitioner: ViewsFrom Investors, Counterparties, Hedge Funds and Consultants

E. J. Stavetski -Managing Hedge Fund Managers: Quantitative and Qualitative PerformanceMeasures (Wiley Finance)

Leslie Rahl - Hedge Fund Transparency: - Unraveling the Complex and Controversial Debate

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