January 21, 2013 
Pretty much all the CCPs are using Historic VaR for their Rates business, as evident in this chart. At a recent event, I pointed out that VaR and methods related to distributions have become key to the future of protecting us all from the dynamics of the capital markets. At this same event with about 80 people in the room, I asked the question “who here can confidently explain how VaR works?”, of which myself and one other put their hands up.
So my question to you all is this: If I ran a webinar covering how to step through performing a historic VaR in the manner of a CCP, would you be interested? I think the material would take an hour or two to explain, it’s tricky but achievable for most people to see that VaR isn’t so difficult.
The agenda could include, subject to time and patience, and not necessarily in this exact order:
- What is a yield curve – how are Rate Swaps priced?
- What is PV01? What does it mean to move a curve?
- What is a distribution? What can we learn from them? How can they trick us?
- Measuring the height of penguins – my favourite
- What is a Mark-to-Market? So therefore what is Variation Margin?
- How does PAI work?
- A real world VaR example using Goldman Sachs annual report
- The three varieties of VaR: VCV, HS & MC
- What is a holding period? And no it’s not how long you hug your significant other.
- What does “historic” VaR mean?
- What does “confidence level” mean?
- What is volatility? How to apply it to a yield curve.
- How to filter volatility, using EWMA or GARCH
- Step by step – calculating VaR on a trade portfolio
- Building the scenarios
- Applying scenarios to your trades
- Assembling the scenario outcomes
- Picking the IM number using your chosen confidence level
- Back testing the IM
- How does IM relate to hedging prior to an auction
I might be a bit ambitious with this, so perhaps I’ll break the whole lot down into a couple of sessions. And secondly, if you’re interested, what monetary value would you place on know all this? Email me from my contact page if you want to communicate privately, or use the poll below to indicate your level of interest:
Amir Khwaja
Ben Larah
Michael Beaton
corinaki24
Jon Skinner
Mihir Vaidya
Maria Leontiou
samihodgson
Bill Hodgson
Tom Riesack
If a webinar, early morning EST would work for me, as I an in GMT+2.
Besides that, love your website. How come you don’t have a comment on the additional 45 days the CFTC gave itself to decide about CME SDR? And I think someone should explain that the big banks which support the DTCC do so either because they already committed for a high price, or they are partly owners of the DTCC.
Personally I think the CME approach is highly commercial, and you can’t ignore their desire to win SDR business and prevent DTCC having a monopoly, but, you can’t ignore users being choosers.
I can see two approaches:
1. User choice of SDR
2. Regulators choice of SDR
Option 1 would allow a bank to report all their business to a single SDR to keep it easy to retrieve all their data from one place.
Option 2 would require the regulators to dictate who reports to which SDR, but be seen as anti-competitive.
Option 3, CME choice would indeed fragment a banks data, if they choose not to use CME for all their asset classes.
So if I were CFTC I would choose option 2, and fight any battles that occur.
If I were a non-US regulator I might desire that a bank can only report to one SDR, and that SDR services not be tied to clearing, so Option 1 really.
Bill