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FINANCIAL MARKET COURSES

VAR - Variance-Covariance Approach

This course examines the first of the three approaches to calculating VAR - the variance-covariance or parametric approach. Starting off with a simple, single-asset portfolio, the course progresses to include more advanced VAR calculations for portfolios containing derivatives, incorporating concepts such as incremental VAR and interest rate dependent mapping.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Use the variance-covariance approach to calculate VAR for both single-asset and multi-asset portfolios

    Use incremental VAR (IVAR) to identify the different contributions individual assets make to the overall VAR of a portfolio

    Use mapping to calculate the VAR of portfolios that contain instruments with multiple cashflows

    Calculate VAR for portfolios containing derivatives

  • COURSE OUTLINE

    Topic 1: Calculating VAR Using the Variance-Covariance Approach

    What is the Variance-Covariance Approach?

    The Assumptions Underpinning the Variance-Covariance Approach

    Calculation of VAR for a Single-Asset Portfolio

    Calculation of VAR for a Two-Asset Portfolio

    General Formula for Portfolio Variance

    Calculation of VAR for a Multi-Asset Portfolio

    Topic 2: Incremental VAR

    What is Incremental VAR?

    Calculating IVAR

    Topic 3: Mapping Positions

    What is Mapping?

    The Mapping Procedure

    o Determine the Cashflows Involved

    o Calculate the NPV of the Cashflows

    o Calculate the Proportion of the Cashflow Allocations

    o Map the Cashflows

    o Calculate the VAR

    Topic 4: Calculating VAR for Portfolios Containing Derivatives

    VAR and Derivatives

    o FX Forwards

    o Forward Rate Agreements

    o Interest Rate Swaps

    o Options

    Options – Comparison of Delta & Delta-Gamma Approximations

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    120 Minutes

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