| Learning objectives |
The course gives the students a theoretical as
well as practical understanding of the risk management process from
the perspective of financial institutions as the process by which
various risk exposures are identified, measured, and controlled.
After the students have followed the course, they are expected to
be able to:
- Analyze and discuss the role of risk management in different
financial institutions.
- Construct hedging positions for financial instruments based on
"greek" risk measures.
- Calculate, apply and analyze fixed-income risk measures such as
duration for bond portfolios and use these for hedging
decisions.
- Apply and analyze Value-at-Risk concepts and related risk
measures such as expected shortfall.
- Calculate, apply and analyze VaR risk measures for portfolios
of stocks and financial derivatives with historical simulation and
model-based approach.
- Analyze and discuss the key concepts of the Basel rules
(financial regulation). Calculate and analyze the capital
requirements under the different Basel regulations.
- Analyze, apply and discuss basic credit risk modelling
concepts.
- Calculate and analyze default probabilities and related
concepts using reduced form models as well as the structural model
by Merton.
- Calculate values of credit-risky debt securities in the Merton
model under different seniority assumptions.
- Analyze and discuss the problems for risk management created by
liquidity risk. Calculate, apply, and analyze relevant liquidity
risk measures.
|
| Course prerequisites |
| The course is not intended to be an introductory
course. Students are assumed to be familiar with basic fixed income
concepts and basic option theory like the Black-Scholes'
formula. |
| Examination |
|
Risk
Management:
|
| Exam
ECTS |
7,5 |
| Examination form |
Written sit-in exam on CBS'
computers |
| Individual or group exam |
Individual exam |
| Assignment type |
Written assignment |
| Duration |
4 hours |
| Grading scale |
7-point grading scale |
| Examiner(s) |
Internal examiner and external examiner |
| Exam period |
Spring |
| Aids |
Limited aids, see the list below:
The student is allowed to bring - An approved calculator. Only the models HP10bll+ or Texas BA ll
Plus are allowed (both models are non-programmable, financial
calculators).
- Language dictionaries in paper format
The student will have access to - Advanced IT application package
|
| Make-up exam/re-exam |
Same examination form as the ordinary exam
If the number of registered candidates for the make-up
examination/re-take examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the make-up examination/re-take
examination will be held as an oral examination
instead.
|
|
| Course content, structure and pedagogical
approach |
|
The course will motivate and discuss the need for financial risk
management in light of recent financial scandals and disasters and
in relation to international capital adequacy requirements for
banks and other financial institutions.
As modern capital requirements rely increasingly on
Value-at-Risk we will take a detailed look at this quantitative
risk measurement tool. The course will go through all of the steps
necessary for computing reliable Value-at-Risk numbers, e.g.
volatility modelling, back-testing, and historical simulation
techniques. Throughout the course we will give special
attention to how derivative instruments can affect Value-of-Risk
for portfolios and thus be actively used in the process of managing
financial market risks. Credit risk, liquidity risk, and
specific risk measures for interest-rate risk and option risk will
also be covered in the course. Overall, the course offers a
comprehensive presentation of theoretical as well as practical
aspects underlying the measurement and application of risk
management.
|
| Description of the teaching methods |
| Lectures with exercises. In order to increase the
students immediate understanding and reflection of the course
material there will be buzz-assignments and questions during the
lectures. The students will be asked to work at exam-relevant
problems before the exercise-classes. |
| Feedback during the teaching period |
The students get individual feedback from the
buzz-assignments, questions, and quizzes in the lectures.
At the exercise classes the students receive feedback on their
solutions to the given exercises. |
| Student workload |
| Lectures and exercises, including own preparation |
202 hours |
| Exam |
4 hours |
|
| Expected literature |
|
Hull, John C. Risk Management and Financial
Institutions. 5th edition. Wiley 2018 (or later
edition).
|
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