This module introduces the topic of risk management in finance and develops some of the material covered in the Derivatives I module while focusing on practical technical elements. It also develops the student’s knowledge of the underlying literature and the current state of thinking in the financial risk management literature. The key objective is to develop the student’s knowledge of risk management and the underlying framework around which risk is identified and managed. This incorporates how to measure risk using a variety of risk metrics, and how to manage risk using a number of products and emphasising hedging strategies using futures.
Overview
Introduction to Risk Management
Risk Vs Return, Approaches to Managing Risk, Bank Capital.
Company Risk and the Balance Sheet
Definitions, Analysis, Ratios and Balance Sheet Risk measures. Treasury Management.
Bonds and Credit Risk
Credit Ratings, Historical Default Probabilities, Estimating Default Probabilities from Bond Prices/Equity prices.
MEASURING RISK
Volatility and Risk Measurement
Definition of Volatility, Estimating Volatilities from Historical Data, GARCH modelling in Finance.
Value at Risk
Definition of VaR, Expected Shortfall, Downside Risk and Tail based risk measures, Back Testing and Stress Testing of Risk Models
MANAGING RISK
Futures Markets
Types of Futures Markets, Interest Rate Futures, Equity Index and Commodities Futures, Characteristics of Futures Prices.
Hedging
When to Hedge, Hedging Effectiveness and Problems with Hedging
Operational Risk
Definitions, Determination of Regulatory Capital, Loss Severity and Frequency, Regulatory and Governance Framework
Bank Regulation
Introduction and Background to Bank Regulation. Capital Risk Requirements, Basel Agreements.
Face to Face Teaching
Lectures based approach using written material, textbooks, research articles and various media sources including using web-based data sources. This will be supported by tutorials and lab work using up to date software.
Group Work
You may be required to work in groups on an element of risk management that incorporates theoretical and practical aspects. This will contribute to the development of communication and analytical skills.
Individual Assignments
There will be a practical assignments based on work that will assess your ability to learn and apply econometric software in a practical setting.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Formal Examination | 70 |
| Other Assessment(s) | 30 |