Introductory description

Risk management plays an important role in the modern decision making process and control of any financial institution. This course provides an in-depth introduction how financial corporations can identify and quantify risks, and the management and control of financial risks. The course also reviews the regulatory framework of financial risk management, how to choose and implement techniques of risk quantification and assessment according to the nature of the risks, and how to produce and perform critical analysis of the applied risk measures.

Module web page

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

Risk management in equity, currency and commodity markets
Risk management in fixed income markets
Risk measurement
Market risk, Credit risk, Operational risk
Firm level risk management: economic capital, capital allocation, RAROC
Financial risk management regulatory frameworks (Basel I-III, Solvency II, Regulation T) and the Global Financial Crisis

Learning outcomes

By the end of the module, students should be able to:

• Demonstrate comprehensive knowledge of the regulatory framework of financial risk management
• Identify and interpret the financial risks a firm is subject to
• Demonstrate the theoretical knowledge to quantify the identified risks.
• Demonstrate a comprehensive understanding of the qualitative and quantitative approaches to risk management at the firm level
• Assess and select the appropriate technique to employ according to the nature of the risk and the regulatory guidelines.
• Perform a critical analysis of the results obtained with the quantitative techniques.

Indicative reading list

Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, McGraw-Hill, 2014
John C. Hull, Risk Management and Financial Institutions, Wiley Finance, 2018.
Jon Danielsson, Financial Risk Forecasting, Wiley, 2011.
Philippe Jorion, Value at Risk: the New Benchmark for Measuring Financial Risk. McGraw-Hill, 2007.
Pietro Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley, 2010.
Alexander J. McNeil, Rudiger Frey, Paul Embrechts, Quantitative Risk Management, Princeton Series in Finance, 2015.
Harvard Business School Case #9-294-061: Leland O’Brien Rubinstein Associates Incorporate: Portfolio Insurance.
Harvard Business School Case #9-202-024: Strategic Capital Management, LLC.
Harvard Business School Case #9-211-049: Fixed Income Arbitrage in a Financial Crisis.
Harvard Business School Case #9-218-065: Merger Arbitrage at Tannenberg Capital.

Interdisciplinary

While not emphasized much in the module, the content touches upon accounting and legal issues when discussing the legal requirements related to risk management. Further, the techniques mastered in the course can be extended by considerations of additional economic risks, and applied in various other economic settings.

International

Understanding the various regulatory frameworks applied to risk management around the world. Knowledge of the risk management implications of global portfolio investments.

Subject specific skills

Use computer software (Excel and EViews) to implement quantitative techniques to measure the different risks.
Carry out market risk measurement, credit portfolio modelling and operational risk assessment.
Produce risk measures such as VaR, ES, Economic capital and RAROC.
Produce risk assessment reports at global level according to the regulatory guidelines.
Effectively deploy internet and database research skills to locate the financial markets data that is necessary for risk management

Transferable skills

Written communication