Risk Management

Objectives

The course aims at providing the main tools for measuring and managing financial risks, with a particular focus on market risk.

Description / Program

We begin by defining the various types of financial risks and stress the need for their management through the analysis of losses and defaults of financial institutions in the recent past. We next turn to the computation of Value-at-Risk measures for portfolios of equity, bond, and option positions. We discuss the estimation of the main inputs surrounding the calculation of VaR, and elaborate on models for time-varying volatility and correlations. We cover both local-valuation models based on derivatives, as well as full-valuation models such as historical simulation and Monte Carlo methods. We also discuss alternative metrics to VaR and Extreme Value Theory. Finally, we examine models for liquidity and operational risk management.

Learning Method / Style of Lessons

Lectures will alternate between discussion of new theoretical material and exercise sessions.

Exam Style

Grading is based on an in-class, closed-book final and take-home assignments.

Readings/Textbooks

Lecture notes will be made available on the course website. The recommended textbook for the course is “Risk Management and Financial Institutions” by John Hull