| 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. At
the end of the course, students are expected to be able to:
- Analyze and discuss the role of risk management in different
financial institutions.
- Explain how derivative securities can be used for hedging and
speculation.
- Explain, apply, and implement basic models for the pricing of
forwards, futures, swaps, and options.
- Construct hedging positions for financial instruments based on
"greek" risk measures.
- 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.
- 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 the concepts,
theories, models, and methods taught in the course Financial Market
Theory or a similar course. |
| 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
The number of registered candidates for the make-up
examination/re-take examination may warrant that it most
appropriately be held as an oral examination. The programme office
will inform the students if the make-up examination/re-take
examination instead is held as an oral examination including a
second examiner or external
examiner.
|
|
| 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. We will give special
attention to derivative instruments, how these instruments are
priced, and how these can be actively used in the process of
managing financial market risks. Modern capital requirements rely
increasingly on Value-at-Risk or related risk measures, and 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 derivative instruments and how these can be actively
used in the process of managing financial market risks. Credit
risk and liquidity 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, videos, and exercises. |
| Feedback during the teaching period |
| In order to increase the students immediate
understanding and reflection of the course material there will be
buzz-assignments and questions during the lectures. This gives the
students immediate feedback of their understanding of the covered
topic. Online and in-class quizzes are offered throughout the
course with the purpose of giving the students a quick indication
of their understanding of each topic. At the exercise classes the
students receive feedback on their solutions to the given
exam-relevant exercises. Finally, Students are encouraged to take
active part in both lectures and exercises by contributing with
questions and comments. The teachers will do their best to provide
useful immediate feedback. |
| Student workload |
| Lectures and exercises, including own preparation |
202 hours |
| Exam |
4 hours |
|
| Expected literature |
|
Hull, John C. Risk Management and Financial
Institutions. 6th edition. Wiley 2023 (or later
edition).
|
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