Financial Training Training

UCITS for Hedge Funds

Duration

3 day

For sophisticated UCITS III structures, namely those that employ financial derivatives to gain access to specific strategies, risk measures must be calculated on a daily basis and the EC recommends the use of a Value-at-Risk (VaR) model to quantify maximum loss in normal market conditions. VaR is also coveredThe directive requires the use of both Relative VaR and Absolute VaR and imposes limits on both of these measures2. In addition, the UCITS must use stress testing in order to help manage risks related to possible abnormal market movements.

Course Agenda

Trading Strategies

• Assessing the impact of the UCITS III framework
• Hedge Fund Strategies
• UCIT and Business Globalisation
• Absolute Hedge Fund Strategies
• Value at Risk

Types of Products

• Contract for Differences
• Total Return Swaps
• Credit Default Swaps
• Futures
• Forwards
• Options

Investment Strategies

• Long Only
• Relative Trading
• Proprietary Trading

Introduction to Value at Risk

• Evolution of the Regulatory Environment
• Capital Adequacy Directives
• Basle Proposals

Portfolio Risk Measurement

• Standard Deviation
• Correlation and Covariance
• Capital Asset Pricing Models
• Case Study – Using Spreadsheets to calculate Value at Risk at 95% and 99% levels

Risk Analysis for Treasury Products

• Forwards
• Futures
• Swaps
• Call and Put Options

Interest Rate Transactions and VaR implications

• Interest Rate Swaps
• Currency Swaps
• Differential Swaps
• Swaps Decomposition
• Applying VAR principles to Swap Transactions

Pension Market Risk Management

• Measuring VaR on Asset Side
• Equity and Interest Rate VaR
• Combination Strategies
• Spreadsheet Analysis - Sensitivity

Option Strategies and Measurement of Market Risk

• Reasons for Using Options
• Spreadsheet Analysis Hedging
• Combination Strategies
• Spreadsheet Analysis - Sensitivity

Application of Black & Scholes Model to Risk and Valuation and Implications for VaR

• Expected Return
• Time to Expiry v Volatility
• Introduction to Stochastic Processes
• Overview of Delta Normal

Case Study: Measuring Portfolio Risk Using Spreadsheets

• Spreadsheet Analysis - Standard Deviation
• Normal Distribution Curve
• Stress Factors and Sensitivity Analysis
• Impact of Interest Rates

Credit Risk VaR

• Default Risk
• Credit Spread Risk
• Concentration Risk
• Monte Carlo Simulation

Case Study: Example of Monte Carlo Simulation

Interest Rate & Fixed Income VaR

• Simple v Compound Interest
• Continuous Compounding and Discounting
• Application of Exponentials and Logarithms
• Intuitive analysis of Black Scholes and other models

Using VaR Principles to Measure Credit Risk

• Portfolio Approach to Credit Risk
• Total Return Swaps
• Credit Linked Notes
• Application of Portfolio Theory to Credit Risk

Modelling Credit Default Risk

• Individual v Portfolio Risk
• Default Factors
• Relationship between Asset Prices and Credit Rating
• Marginal Risk
• Junk Bonds v Risk Free Bonds

Foreign Exchange Value at Risk

• Forward Exchange
• Future Contracts on Currencies
• Exchange rate Currency Options

Case Study: Calculating Value at Risk for Foreign Exchange Forward Contract

Application of Risk Management to Business Plans

• Sensitivity analysis - sales revenue
• Sensitivity of Raw Materials
• Flexible Budget allocation
• Volatility of Earnings

Real Life Application of Models

• Dangers of Models
• Adjusting models to suit client portfolio
• Limitations of Models
• Volatility Skewness and Assumptions

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