Introduction

In an increasingly interconnected and volatile global financial system, traditional risk management models often fall short when confronted with extreme, unexpected events. Stress testing under tail-risk scenarios moves beyond routine analysis to explore how portfolios, institutions, and entire markets would fare in the face of rare but catastrophic events like black swan events or systemic collapses. Mastering this discipline is no longer optional; it is essential for proactive risk mitigation and ensuring the resilience of financial institutions in an unpredictable world. This Beyond the Norm: Training Course on Stress Testing under Tail-Risk Scenarios is a 10-day intensive program designed for professionals to master this critical skill set.

This course will provide a comprehensive and practical framework for designing, implementing, and interpreting stress tests that specifically target extreme, low-probability events. You will learn to identify and model the drivers of systemic risk, utilize advanced statistical techniques, and communicate the results to key stakeholders. By the end of this training, you will be equipped to build robust stress testing frameworks that can withstand the most severe market downturns and provide invaluable insights for strategic decision-making.

Duration: 10 Days

Target Audience

• Financial risk managers
• Market risk analysts
• Quantitative model developers
• Compliance officers
• Chief Risk Officers (CROs)
• Portfolio managers
• Financial regulators and examiners
• Investment bankers
• Financial consultants
• Students in finance and economics

Objectives

• Understand the concept of tail risk and its importance.
• Identify and model different types of tail-risk scenarios.
• Master the use of extreme value theory in stress testing.
• Learn to build stress testing models for various asset classes.
• Interpret and communicate stress test results effectively.
• Understand regulatory requirements for stress testing.
• Explore the use of machine learning in scenario generation.
• Develop a robust governance framework for stress testing.
• Apply stress testing to credit, market, and operational risk.
• Evaluate the effectiveness and limitations of current models.

Course Modules

Module 1: Foundations of Financial Risk Management

• The difference between expected and unexpected risk
• An overview of various financial risks (market, credit, liquidity)
• Introduction to value at risk (VaR) and its limitations
• The concept of financial contagion
• Why tail risk is a major blind spot

Module 2: The Nature of Tail Risk

• What is a black swan event?
• Understanding fat-tailed distributions
• An introduction to extreme value theory (EVT)
• Modeling the tails of financial data
• Case studies of historical financial crises

Module 3: Scenario Design and Development

• Qualitative vs. quantitative scenarios
• Top-down vs. bottom-up approaches
• Developing plausible and severe stress scenarios
• The role of macroeconomic factors
• Incorporating geopolitical and environmental risks

Module 4: Stress Testing Methodologies

• The use of historical scenarios
• The application of hypothetical scenarios
• Running a reverse stress test
• Parameterizing shocks and correlations
• Using Monte Carlo simulations

Module 5: Modeling Credit Risk under Stress

• Stressing a loan portfolio
• The impact on default probabilities
• Modeling loss given default (LGD) under stress
• The role of a stressed credit migration matrix
• Applying stress tests to counterparty risk

Module 6: Stress Testing Market and Liquidity Risk

• Stressing a trading book and its positions
• The impact on market volatility and correlations
• Modeling liquidity risk during a crisis
• The use of dynamic hedging under stress
• The importance of fire sales and their impact

Module 7: The Role of Technology and Data

• Data requirements for effective stress testing
• The use of data visualization
• Automated vs. manual stress testing processes
• Exploring software solutions for stress testing
• Cloud computing for large-scale simulations

Module 8: Regulatory Landscape and Best Practices

• An overview of international regulations (e.g., Basel III)
• The role of central banks in stress testing
• Stress testing guidelines from regulatory bodies
• Reporting requirements and submission protocols
• Building a sound governance framework

Module 9: Advanced Techniques: Machine Learning & AI

• Using AI for scenario generation
• The application of generative adversarial networks (GANs)
• Machine learning models for early warning signals
• The use of deep learning in risk modeling
• The challenges of model validation and explainability

Module 10: Capstone Project Part 1: Scenario Design

• Defining a specific financial institution and portfolio
• Designing a detailed tail-risk scenario
• Outlining the key economic and market shocks
• Justifying the severity and plausibility of the scenario
• Preparing a clear and concise project plan

Module 11: Capstone Project Part 2: Model Building

• Building a simple stress testing model in a software
• Implementing the defined shocks and correlations
• Running the simulations and gathering the results
• Calculating the capital impact and other metrics
• Validating the model's assumptions and limitations

Module 12: Capstone Project Part 3: Presentation & Discussion

• Presenting the final project and its findings
• Explaining the impact of the scenario on the portfolio
• Discussing risk mitigation strategies
• Q&A and peer feedback session
• Receiving expert recommendations and insights

Module 13: Communication and Reporting

• How to present complex results to senior management
• The importance of visual communication
• Drafting a comprehensive stress testing report
• Addressing regulatory feedback
• Communicating uncertainty and model limitations

Module 14: Future of Stress Testing

• The integration of climate risk (ESG)
• Stress testing for cyber risk
• The potential of quantum computing
• The move towards real-time stress testing
• The evolving role of the risk professional

Module 15: Course Certification

• A final comprehensive assessment
• A final review of key concepts and objectives
• Issuance of a certificate of completion
• Post-course career guidance and networking
• A final Q&A with instructors

Training Approach

This course will be delivered by our skilled trainers who have vast knowledge and experience as expert professionals in the fields. The course is taught in English and through a mix of theory, practical activities, group discussion and case studies. Course manuals and additional training materials will be provided to the participants upon completion of the training.

Tailor-Made Course

This course can also be tailor-made to meet organization requirement. For further inquiries, please contact us on: Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Training Venue

The training will be held at our Skills for Africa Training Institute Training Centre. We also offer training for a group at requested location all over the world. The course fee covers the course tuition, training materials, two break refreshments, and buffet lunch.

Visa application, travel expenses, airport transfers, dinners, accommodation, insurance, and other personal expenses are catered by the participant

Certification

Participants will be issued with Skills for Africa Training Institute certificate upon completion of this course.

Airport Pickup and Accommodation

Airport pickup and accommodation is arranged upon request. For booking contact our Training Coordinator through Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Terms of Payment: Unless otherwise agreed between the two parties’ payment of the course fee should be done 10 working days before commencement of the training.