The Clearing Corporation of India Ltd.

Certification Programme

Risk Management In Financial Market Syllabus

Section I - Quantitative Analysis

Measures of Central Tendency & Dispersion

Probabilities and Probability Distributions

o

Discrete and Continuous Probability

Uniform, Bernoulli, Binomial, Exponential, Poisson, Normal, Log-Normal, Chi-Squared,

Joint-Normal

Statistical Inference
o

Estimation and Hypothesis testing

Maximum Likelihood Estimation

Regression
o

Simple

Multiple

Stochastic Processes
o

Basic Definition

Random Walk

Geometric Brownian Motion

Itos lemma

Financial Time Series Analysis

o

Basic Definitions

ARMA

ARIMA

GARCH, ARCH

Volatility Forecasting

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 Rubin Statistics for Management 7th Ed

Page 1

The Clearing Corporation of India Ltd. Certification Programme

Section II - Financial Derivatives Concepts, Valuation

Forwards, Futures & Options

o

Concepts, Key features

Hedging strategies

Pricing forwards and futures

Forward Rate Agreements

Interest rates

Options
Concepts, Strategies

Valuation Binomial & Black-Scholes

Products Stock Indices, Currencies, ESOP,

Greeks

Exotic Options

Interest Rates
o

Determining Interest Rates

Futures, Forwards, Options and Swaps

Interest Rate Structured Products

Models of interest rate derivatives

Currencies
o

Currency Derivatives: Forwards, Futures and Options

Exchange Risk: Hedging Transaction Exposure

Exchange Risk: Hedging Translation and Economic Exposure

Management of Operating Exposure

Currency Swaps

Fixed Income Securities

o

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 Derivatives

o

Concepts

Page 2

The Clearing Corporation of India Ltd. Certification Programme

Pricing

Strategies

References: Satyajit Das Swaps/Financial Derivatives Products Pricing, Applications and Risk Management, 3rd
Edition, Volume I
John C. Hull Options, futures and Other Derivatives, 7th Ed
Frank Fabozzi The Handbook of Fixed Income Securities 7th Ed
P.G.Apte - International Financial Management, 5th Ed
Hlyette Geman - Risk Management in Commodity Markets From Shipping to Agricultures and Energy

Page 3

The Clearing Corporation of India Ltd. Certification Programme

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

VaR

Coherent Risk Measures

Estimating Market Risk

Non parametric Approaches

Forecasting volatility, covariance and correlations

Parametric Approaches
o

Conditional v/s unconditional variances

Normal VaR and ES

t-Distribution

Lognormal Distribution

Miscellaneous approaches

Levy

Elliptical and Hyperbolic

Normal mixture

Jump diffusion

Stochastic volatility

Cornish Fischer

Multivariate normal variance-covariance approach

Non normal variance-covariance approach

Extreme Value Theory

Value at Risk

Computing VaR

VaR Methods

Backtesting VaR

Stress Testing

Limitations

Estimating Liquidity Risk

References: John C. Hull Options, futures and Other Derivatives, 7th Ed

GARP FRM Handbook, 4thEd
Kevin Dowd Measuring Market Risk, 2nd Ed
Philippe Jorion Value at Risk, 3rd Ed

Page 4

The Clearing Corporation of India Ltd. Certification Programme

Section IV - Credit Risk Measurement

Concept

Credit Analysis of Corporate Bonds

Agency Ratings

Modeling Credit Risk

o

Elements of Credit Risk

Default Risk

Measuring Default Probabilities

Loss given Default

Loan Portfolios, Expected Losses & Unexpected Losses

Default dependencies

Structural Models

Threshold Models

Mixture Models

Monte Carlo Models

Dynamic Credit Risk Modeling

Portfolio Effects

Correlation of Default & Credit Quality

Loss distribution of Credit Default Risk

Credit Derivatives
o

CLN

CDO

CDS

References:

Chacko, Sjoman, Motohashi, Dessain Credit Derivatives A Primer on Credit Risk, Modeling
and Instruments

Michael K. Ong Internal Credit Risk Models Capital Allocation and Performance
Measurement

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

GARP FRM Handbook 4thEd

Frank Fabozzi The Handbook of Fixed Income Securities 7th Ed

Satyajit Das - Credit Derivatives, CDOs & Structured Credit Products, 3rd Ed

Arnaud De Servigny & Olivier Renault - Measuring and Managing Credit Risk

Page 5

The Clearing Corporation of India Ltd. Certification Programme

Section V - Operational Risk Measurement

Concept

Identification

Drivers

Approaches

Managing operational risk

o

Insurance

Hedging using derivatives

Application of VaR

Risk Adjusted Performance Measurement

Earnings Based

VaR Based

SVA

Integrated Risk Management

o

Firm wide performance

Legal

Reputational

Accounting

Other types Regulatory, Political

Controlling Firm Wide Risk

Model Risk

References:

GARP FRM Handbook, 4thEd

Philippe Jorion Value at Risk, 3rd Ed

Kaiser and Kohne An Introduction to Operational Risk

Andrew Kuritzkes, Til Schuermann & Scott Weiner Risk 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 Bank
Risk: A View from the Trenches March 2008.

Page 6

The Clearing Corporation of India Ltd. Certification Programme

Section VI Regulatory, Compliance & Contemporary Issues

Counterparty Risk Management Policy Group Report III (Containing Systematic risk the road
to reform) Chapter III, Appendix B

Basel Accord
o

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

1988, updated to April 1998)

Evolution

Important features

Criticism

Basel II

Evolution

Three Pillars

First Pillar Minimum 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 trading

book

Revisions to the Basel II market risk framework (July 2009)

Range of practices and issues in economic capital frameworks (March

2009)

Recent Advances.

Consultative Document International Framework for liquidity risk

measurement, standards and monitoring (December 2009)

Consultative Document Strengthening the resilience of the banking

sector (December 2009)

Thinking Beyond Basel III Necessary Solutions for Capital and Liquidity (Adrian
Blundell Wignall and Paul Atkinson) OECD Journal Financial Market Trends
Volume 2010 Issue 1

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

RBI Prudential Guidelines on Capital Adequacy - Implementation of Internal Models

Approach for Market Risk - Dated April 7, 2010

ISDA

Current issues in risk management

Subprime Mortgage Crisis

Causes

Consequences

Page 7

The Clearing Corporation of India Ltd. Certification Programme

References:

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

Adam Ashcroft & Til Schuermann - Understanding the securitization of Subprime Mortgage
Credit - 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.Varma Risk Management Lessons from the global Financial Crisis for Derivative
Exchanges. Indian Institute of Management, Ahmedabad, W.P.No. 2009-02-06,

Page 8

The Clearing Corporation of India Ltd. Certification Programme

Section VII - Investment Risk Measurement

Portfolio Management
o

Efficient Market Hypothesis & Alternatives

Portfolio Theory

Capital Asset Pricing Theory, Arbitrage Pricing Theory

Bond Portfolio Management

Equity Portfolio Management

Investment companies & Evaluation Portfolio Performance

Hedge Fund Management

o

Hedge fund basics

Analysis of performance of Hedge funds

Risks in Hedge Funds

Individual Hedge Fund Strategies

Style Drifts Monitoring, detection and control

References:

GARP FRM Handbook, 4thEd

Frank K Reilly, Keith C Brown - Investment Analysis and Portfolio Management- 5th 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: Views
From Investors, Counterparties, Hedge Funds and Consultants

E. J. Stavetski - Managing Hedge Fund Managers: Quantitative and Qualitative Performance

Measures (Wiley Finance)

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

Page 9