Risk and Forecasting Systems, Beyond Gaussian Wisdom

Why Should You Attend:

For direct users of financial models, or for modelers and model managers, or for those for whom ideas of stochastic modeling in financial markets percolate into their own work, they probably are accustomed to the good old paradigm. Some even have forgotten to question if anything unknown can be anything but stochastic. This will apply to future market prices, operational risk events, and most other unknowns in most fields of human knowledge. Once this question is solved, the universe will be mankind’s oyster. However, we can try some more modest approaches.

Learning Objectives:

• Concomitant with, or maybe due to, advances in stochastic calculus, stochastic approaches, sometimes with heavy-RAM-based computer tools, we can now declare that we can put a value to most financial derivatives. We only forget to add, assuming we have some ideas about what causes the underlying. The assumption of multiple causes that can be melted into some aggregation for empirical quantification, is too comfortable to pass by.
• However, the crisis of 2007-08 is but one example that took us outside our comfort zone, and what declared ‘exogenous’ (read: a gaping hole in our understanding). It painfully proved that the assumptions needed a revisit, but also that a few chunks of modeling have to be added to take into account black swans, arbitrary behaviors and market dynamics.
• We then establish a typology of market behaviors, based upon the understanding we can have on the dynamics of the market at a given time, together with an assessment of the value of forecasts, and tell when forecasting efforts are doomed to fail.

Areas Covered in the Webinar:

• A brief history of market modelling
• The critical assumptions
• Normally distributed returns of shares (common stock)
• Mean-reversion
• Black swans
• Jump-diffusion processes
• What if markets were/are manipulated?
• Arbitrary behaviors
• Chaos theory
• Why bubbles will appear
• A better understanding of causes
• A systems-based view of markets

Who Will Benefit:

This workshop is intended for professionals in financial institutions, regulatory bodies and advisory firms, as well as individuals with a professional interest in the course material. Specific titles and functions that are of particular relevance include:

• Market Risk Management and Analytics
• Traded Market Risk
• Risk Methodology
• Risk Analysis
• Regulatory and Economic Capital
• Implementation of Basel Accords
• Stress-testing
• Regulation & Compliance
• Financial Institutions Advisory
• Bank Supervision
• Bank Regulation
• Financial Stability and Economic Analysis

Fred Vacelet
Financial Risk Management Consultant, FVacelet

Fred Vacelet, MBA, FRM/PRM, CTM, IFQ, is an international Financial Risk Management Consultant with an expertise in Risk Management methodological frameworks. His experience spans some 25 years, advising banks and software houses on risk management. Fred holds various degrees, including from London Business School, England, with post-graduate studies at the Technische (then West)-Berlin, Germany and Keio (Japan) universities. He is published author on risk management and Basel Accords, and a regular speaker at conferences. Fred writes and presents training courses and workshops on risk management and Basel Accords.

Follow us :