Market Risk, VaR and Expected Shortfall

Financial institutions are continuously exposed to market movements that can significantly affect the value of their trading and investment portfolios. Changes in interest rates, foreign exchange rates, equity prices, commodity prices, credit spreads and other market variables can generate substantial financial losses if they are not properly identified, measured and managed.

Traditionally, Value at Risk (VaR) became one of the most widely used quantitative techniques for measuring potential portfolio losses. VaR estimates the potential loss of a portfolio over a specified time horizon and at a defined confidence level. However, the global financial crisis exposed important limitations in relying solely on VaR, particularly its inability to adequately describe the magnitude of losses beyond the VaR threshold.

In response, the Basel Committee's Fundamental Review of the Trading Book (FRTB) introduced major changes to the market-risk framework, including a move from VaR toward Expected Shortfall (ES) for the internal models approach. Expected Shortfall focuses on the average losses occurring beyond the selected VaR threshold, thereby providing greater insight into tail risk and extreme market losses.

The modern market-risk framework also places greater emphasis on stress scenarios, liquidity horizons, risk-factor modellability, trading-book risk and capital adequacy.

This course has therefore been designed to provide participants with a practical understanding of modern market-risk measurement, covering traditional VaR techniques while developing deeper competence in Expected Shortfall, stress testing, scenario analysis, portfolio risk and Basel market-risk requirements.

Course Objectives

At the end of this course, participants will be able to:

• Understand the fundamentals of market risk and its impact on banks, financial institutions and investment portfolios.
• Identify and assess major sources of market risk, including interest-rate, foreign-exchange, equity, commodity and credit-spread risks.
• Understand the relationship between market risk, trading activities, portfolio valuation and capital adequacy.
• Explain the principles, assumptions and applications of Value at Risk (VaR).
• Calculate and interpret VaR using different approaches, including historical simulation, parametric/variance-covariance and Monte Carlo methods.
• Understand the limitations of VaR, particularly its treatment of extreme or tail losses.
• Explain the concept and practical application of Expected Shortfall (ES).
• Compare VaR and Expected Shortfall and determine when each measure may be appropriate.
• Understand how Expected Shortfall improves the measurement of tail risk.
• Apply stress testing and scenario analysis to assess portfolio vulnerabilities under adverse market conditions.
• Understand the relationship between market liquidity and market risk measurement.
• Understand the key principles of the Basel/FRTB market-risk framework, including the Standardised Approach and Internal Models Approach.
• Understand how liquidity horizons and non-modellable risk factors influence modern market-risk capital calculations.
• Interpret market-risk reports and use risk measures to support investment, treasury and risk-management decisions.
• Develop practical skills for monitoring, reporting and mitigating market risk within a financial institution.
• Strengthen participants' ability to communicate quantitative market-risk results to management, ALCO, risk committees and senior executives.

Benefits of the Course

Participants will gain the following benefits:

1. Stronger Market-Risk Expertise

Participants will develop a comprehensive understanding of how market movements can affect financial institutions and investment portfolios.

2. Practical VaR Skills

Participants will learn how to understand, calculate, interpret and critically evaluate VaR rather than simply relying on VaR figures generated by risk systems.

3. Improved Understanding of Expected Shortfall

Participants will understand why Expected Shortfall provides additional information about losses beyond the VaR threshold and why it is central to the modern Basel market-risk framework.

4. Better Tail-Risk Management

The course will enable participants to identify and assess extreme-loss scenarios that may not be adequately captured by conventional risk measures.

5. Improved Stress-Testing Capability

Participants will be able to apply stress and scenario analysis to determine how portfolios could perform during severe market conditions.

6. Enhanced Regulatory Knowledge

Participants will gain a better understanding of the Basel market-risk framework, including the distinction between the Standardised Approach and Internal Models Approach.

7. Better Treasury & Investment Decisions

The knowledge gained can support more informed decisions concerning trading positions, investments, foreign exchange exposures, interest-rate positions and portfolio diversification.

8. Improved Risk Reporting

Participants will be better equipped to interpret and communicate market-risk indicators and reports to management and risk committees.

9. Better Capital Management

Understanding modern market-risk measures can help financial institutions improve their assessment of risk-weighted exposures and capital requirements.

10. Stronger Risk-Governance Practices

Participants will understand how quantitative risk measures can be incorporated into broader risk appetite, limits, controls and governance frameworks.

Who Should Attend?

This programme is particularly suitable for professionals working in:

• Commercial Banks
• Merchant Banks
• Development Finance Institutions
• Microfinance Banks
• Fintech Companies
• Investment Banks
• Asset Management Companies
• Pension Fund Administrators
• Insurance Companies
• Stockbroking Firms
• Investment Management Firms
• Treasury Operations
• Corporate Finance
• Financial Advisory Firms
• Regulatory and Supervisory Institutions
• Specifically recommended for:
• Chief Risk Officers
• Risk Managers
• Market Risk Managers
• Enterprise Risk Managers
• Credit Risk Managers
• Treasury Managers
• Treasury Officers
• ALM Officers
• Investment Managers
• Portfolio Managers
• Fund Managers
• Financial Analysts
• Risk Analysts
• Quantitative Analysts
• Financial Modelling Professionals
• Internal Auditors
• Compliance Officers
• Finance Managers
• Banking Operations Managers
• ALCO Members
• Risk Committee Members
• Senior Banking Executives
• Regulators and Supervisors
• Consultants and Financial Advisers.

Course Booking

Please use the "Book Now" or "Inquire" buttons on this page to reserve your space or request for more information