Christian Szylar is a Member at Kinetic Partners LLP and heads up Kinetic Partners' risk monitoring solution using sophisticated IT based risk engines to monitor and report on areas such as investment restrictions, liquidity, counterparty risk and VaR. Previously, he was conducting officer of RBS (Luxembourg) SA, a UCITS III Management Company as well as Managing Director of RBS Portfolio Risk Services, based in Luxembourg, where he developed a portfolio of risk management services tailored for asset managers. Christian holds a PhD in Management Science, and specialised in Finance and Corporate Strategy at MIT/Sloan School of Management. Christian is a regular speaker at many industry conferences. In addition he contributes to journals frequently, writing articles for many specialized magazines. Christian also teach in different Master degrees in University of Nancy II and Toulouse.

• Introduction xiAcknowledgements xvPART I. WHAT YOU HAVE TO KNOW ABOUT UCITS TO UCITS III 1Chapter 1. UCITS to UCITS III 31.1. UCITS primer and market size 31.2. UCITS – a success story: from UCITS to UCITS III/IV 81.3. Conclusion – focus on risk management 26Chapter 2. Risk Management History: From Banks to the Asset Management Industry 332.1. Insight on risk management 332.2. A Brief History of Risk Management 392.3. From Risk Management to Value-at-Risk 492.4. From Portfolio Theory and Capital Requirements to UCITS 60Chapter 3. Definition of the Value-at-Risk 633.1. VaR calculation models 653.2. Monte Carlo simulation 833.3. Conclusion 92PART II. UCITS RISK MANAGEMENT 95Chapter 4. UCITS III Risk Management Process and Taxonomy of Risks 974.1. Risk manager’s role and responsibilities 974.2. Taxonomy of risks 98Chapter 5. Risk Management Organization 1035.1. Risk standards 1045.2. Description of the risk management process (RMP) 1135.3. UCITS risk management process 1175.4. Disclosure requirements 1225.5. CSSF 07/308 124Chapter 6. Financial Derivative Instruments and UCITS 1276.1. Swap 1276.2. Contracts for difference 1376.3. The forward contract 1386.4. The futures contract 1396.5. Options 1416.6. Warrant 143Chapter 7. Global Exposure and Leverage 1457.1. Global exposure – overview 1457.2. Sophisticated and non-sophisticated UCITS: is there a distinction? 1487.3. Sophisticated and non-sophisticated UCITS: how to assess market risk/global exposure 150Chapter 8. Stress Testing 1638.1. Definition and overview of stress testing 1638.2. Main approaches 1668.3. Types of scenarios 1678.4. Stress test scenarios 1718.5. Scenario management/stress testing with PMS 174Chapter 9. Backtesting 1779.1. Overview 1779.2. Back-testing may also reveal important limitations of VaR 1839.3. Back testing with PMS 186Chapter 10. Counterparty and Issuer Risk, Concentration Limits and Appropriate Cover 19110.1. Counterparty risk 19110.2. Issuer risk and concentration limits 19610.3. Appropriate cover in the absence of cash-settlement 196Chapter 11. Liquidity Risk 19911.1. Overview 19911.2. Assessing liquidity constraints 20111.3. Estimation of portfolio liquidity based on historical market data 20111.4. LVaR 206Chapter 12. Other Risk Indicators that can be used in the Risk Management Process 20912.1. Market risk 20912.2. Interest rate risk 21312.3. The case of Greeks for the options 21812.4. Conclusion 223Conclusion 225Appendices 233Bibliography 265Index 271

Christian Szylar is a Member at Kinetic Partners LLP and heads up Kinetic Partners' risk monitoring solution using sophisticated IT based risk engines to monitor and report on areas such as investment restrictions, liquidity, counterparty risk and VaR. Previously, he was conducting officer of RBS (Luxembourg) SA, a UCITS III Management Company as well as Managing Director of RBS Portfolio Risk Services, based in Luxembourg, where he developed a portfolio of risk management services tailored for asset managers. Christian holds a PhD in Management Science, and specialised in Finance and Corporate Strategy at MIT/Sloan School of Management. Christian is a regular speaker at many industry conferences. In addition he contributes to journals frequently, writing articles for many specialized magazines. Christian also teach in different Master degrees in University of Nancy II and Toulouse.

• Introduction xiAcknowledgements xvPART I. WHAT YOU HAVE TO KNOW ABOUT UCITS TO UCITS III 1Chapter 1. UCITS to UCITS III 31.1. UCITS primer and market size 31.2. UCITS – a success story: from UCITS to UCITS III/IV 81.3. Conclusion – focus on risk management 26Chapter 2. Risk Management History: From Banks to the Asset Management Industry 332.1. Insight on risk management 332.2. A Brief History of Risk Management 392.3. From Risk Management to Value-at-Risk 492.4. From Portfolio Theory and Capital Requirements to UCITS 60Chapter 3. Definition of the Value-at-Risk 633.1. VaR calculation models 653.2. Monte Carlo simulation 833.3. Conclusion 92PART II. UCITS RISK MANAGEMENT 95Chapter 4. UCITS III Risk Management Process and Taxonomy of Risks 974.1. Risk manager’s role and responsibilities 974.2. Taxonomy of risks 98Chapter 5. Risk Management Organization 1035.1. Risk standards 1045.2. Description of the risk management process (RMP) 1135.3. UCITS risk management process 1175.4. Disclosure requirements 1225.5. CSSF 07/308 124Chapter 6. Financial Derivative Instruments and UCITS 1276.1. Swap 1276.2. Contracts for difference 1376.3. The forward contract 1386.4. The futures contract 1396.5. Options 1416.6. Warrant 143Chapter 7. Global Exposure and Leverage 1457.1. Global exposure – overview 1457.2. Sophisticated and non-sophisticated UCITS: is there a distinction? 1487.3. Sophisticated and non-sophisticated UCITS: how to assess market risk/global exposure 150Chapter 8. Stress Testing 1638.1. Definition and overview of stress testing 1638.2. Main approaches 1668.3. Types of scenarios 1678.4. Stress test scenarios 1718.5. Scenario management/stress testing with PMS 174Chapter 9. Backtesting 1779.1. Overview 1779.2. Back-testing may also reveal important limitations of VaR 1839.3. Back testing with PMS 186Chapter 10. Counterparty and Issuer Risk, Concentration Limits and Appropriate Cover 19110.1. Counterparty risk 19110.2. Issuer risk and concentration limits 19610.3. Appropriate cover in the absence of cash-settlement 196Chapter 11. Liquidity Risk 19911.1. Overview 19911.2. Assessing liquidity constraints 20111.3. Estimation of portfolio liquidity based on historical market data 20111.4. LVaR 206Chapter 12. Other Risk Indicators that can be used in the Risk Management Process 20912.1. Market risk 20912.2. Interest rate risk 21312.3. The case of Greeks for the options 21812.4. Conclusion 223Conclusion 225Appendices 233Bibliography 265Index 271

Christian Szylar is a Member at Kinetic Partners LLP and heads up Kinetic Partners' risk monitoring solution using sophisticated IT based risk engines to monitor and report on areas such as investment restrictions, liquidity, counterparty risk and VaR. Previously, he was conducting officer of RBS (Luxembourg) SA, a UCITS III Management Company as well as Managing Director of RBS Portfolio Risk Services, based in Luxembourg, where he developed a portfolio of risk management services tailored for asset managers. Christian holds a PhD in Management Science, and specialised in Finance and Corporate Strategy at MIT/Sloan School of Management. Christian is a regular speaker at many industry conferences. In addition he contributes to journals frequently, writing articles for many specialized magazines. Christian also teach in different Master degrees in University of Nancy II and Toulouse.

• Introduction xiAcknowledgements xvPART I. WHAT YOU HAVE TO KNOW ABOUT UCITS TO UCITS III 1Chapter 1. UCITS to UCITS III 31.1. UCITS primer and market size 31.2. UCITS – a success story: from UCITS to UCITS III/IV 81.3. Conclusion – focus on risk management 26Chapter 2. Risk Management History: From Banks to the Asset Management Industry 332.1. Insight on risk management 332.2. A Brief History of Risk Management 392.3. From Risk Management to Value-at-Risk 492.4. From Portfolio Theory and Capital Requirements to UCITS 60Chapter 3. Definition of the Value-at-Risk 633.1. VaR calculation models 653.2. Monte Carlo simulation 833.3. Conclusion 92PART II. UCITS RISK MANAGEMENT 95Chapter 4. UCITS III Risk Management Process and Taxonomy of Risks 974.1. Risk manager’s role and responsibilities 974.2. Taxonomy of risks 98Chapter 5. Risk Management Organization 1035.1. Risk standards 1045.2. Description of the risk management process (RMP) 1135.3. UCITS risk management process 1175.4. Disclosure requirements 1225.5. CSSF 07/308 124Chapter 6. Financial Derivative Instruments and UCITS 1276.1. Swap 1276.2. Contracts for difference 1376.3. The forward contract 1386.4. The futures contract 1396.5. Options 1416.6. Warrant 143Chapter 7. Global Exposure and Leverage 1457.1. Global exposure – overview 1457.2. Sophisticated and non-sophisticated UCITS: is there a distinction? 1487.3. Sophisticated and non-sophisticated UCITS: how to assess market risk/global exposure 150Chapter 8. Stress Testing 1638.1. Definition and overview of stress testing 1638.2. Main approaches 1668.3. Types of scenarios 1678.4. Stress test scenarios 1718.5. Scenario management/stress testing with PMS 174Chapter 9. Backtesting 1779.1. Overview 1779.2. Back-testing may also reveal important limitations of VaR 1839.3. Back testing with PMS 186Chapter 10. Counterparty and Issuer Risk, Concentration Limits and Appropriate Cover 19110.1. Counterparty risk 19110.2. Issuer risk and concentration limits 19610.3. Appropriate cover in the absence of cash-settlement 196Chapter 11. Liquidity Risk 19911.1. Overview 19911.2. Assessing liquidity constraints 20111.3. Estimation of portfolio liquidity based on historical market data 20111.4. LVaR 206Chapter 12. Other Risk Indicators that can be used in the Risk Management Process 20912.1. Market risk 20912.2. Interest rate risk 21312.3. The case of Greeks for the options 21812.4. Conclusion 223Conclusion 225Appendices 233Bibliography 265Index 271