Management of Financial Risk

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

• the role of volatilities and correlations in the management of financial risk;
• how market, interest rate and credit risk are measured;
• how credit, market, liquidity, interest rate and operational risks are managed.

Transferable and Generic Skills

Having successfully completed this module you will be able to:

• self-manage the development of learning and study skills, both individually and as part of a collaborative learning group;
• apply the research skills to synthesise, analyse, interpret and critically evaluate information from a range of sources.
• recognise that in many situations there are a range of alternatives which should be evaluated;

Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

• know how operational and model risks are quantified and managed.
• apply insights from the latest research on management of financial risk to specific situations;
• understand and apply appropriate theoretical concepts, models, tools and techniques of risk management;
• understand the latest trends in managing financial risk;
• appreciate the limitations of the different methodologies used in practice.

In this module, the aim is to integrate risk management as part of financial theory and practice. The three main risk concepts in the investment and corporate risk management field are: market risk (times series), credit risk (financial ratings), liquidity risk (evaluation and reporting techniques) and other types of risk (operational risk, climate risk). We introduce the mathematical tools required to quantify, describe and analyse these risks quantitatively (including graphic representation, bootstrapping, calculation of Greek letters, EWMA/GARCH models, VaR, and ES).

Topics:

Topic 1: Mean-Variance Analysis, CAPM, APT & Risk vs Returns for Companies

Topic 2: Options Markets & Options Valuation: Introduction

Topic 3: How Traders Manage Their Risks (Derivatives risk and Greek letters)

Topic 4: Valuation and Scenario Analysis: The Risk-Neutral and Real Worlds

Topic 5: Value at Risk & Expected Shortfall

Topic 6: Volatility

Topic 7: Correlations and Copulas

Topic 8: Interest Rate Risk

Topic 9: Credit Risk: Estimating Default Probabilities

Topic 10: Other Risks

Teaching methods include:

Weekly lectures will provide an overview of the main issues arising in this module, and will be supplemented by weekly empirical and theoretical exercises. Exercises will support your learning by providing opportunities for you to attempt, and gain feedback on, numerical and problem-solving exercises. You will also have the opportunity for both directed and non-directed independent reading.

Learning activities include:

The module will be taught by a mixture of methods ranging from guided background reading, lectures, group work and the exploration of mini case-studies and datasets. The lecturer will draw upon market developments current at the time of the course.

The lecturer will introduce the concepts, and you will have the opportunity to practice and apply the methods discussed. A step-by-step analysis of different risk measurements will enable deeper understanding of the subject material.

Formative

This is how we’ll give you feedback as you are learning. It is not a formal test or exam.

Commentary

• Assessment Type: Formative
• Feedback: One to one feedback will be provided if required.
• Final Assessment: No
• Group Work: No

Summative

This is how we’ll formally assess what you have learned in this module.

Referral

This is how we’ll assess you if you don’t meet the criteria to pass this module.

Repeat

An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.