Module overview
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).
Aims and Objectives
Learning Outcomes
Transferable and Generic Skills
Having successfully completed this module you will be able to:
- recognise that in many situations there are a range of alternatives which should be evaluated;
- apply the research skills to synthesise, analyse, interpret and critically evaluate information from a range of sources.
- self-manage the development of learning and study skills, both individually and as part of a collaborative learning group;
Subject Specific Intellectual and Research Skills
Having successfully completed this module you will be able to:
- understand the latest trends in managing financial risk;
- understand and apply appropriate theoretical concepts, models, tools and techniques of risk management;
- know how operational and model risks are quantified and managed.
- apply insights from the latest research on management of financial risk to specific situations;
- appreciate the limitations of the different methodologies used in practice.
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.
Syllabus
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
Learning and Teaching
Teaching and learning methods
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.
| Type | Hours |
|---|---|
| Teaching | 24 |
| Independent Study | 126 |
| Total study time | 150 |
Resources & Reading list
Textbooks
Zvi Bodie, Alex Kane and Alan J. Marcus (2014). Investments. McGraw-Hill.
John Hull (2023). Risk Management and Financial Institutions. Wiley.
Assessment
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.
| Method | Percentage contribution |
|---|---|
| Examination | 100% |
Referral
This is how we’ll assess you if you don’t meet the criteria to pass this module.
| Method | Percentage contribution |
|---|---|
| Examination | 100% |
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.
| Method | Percentage contribution |
|---|---|
| Examination | 100% |
Repeat Information
Repeat type: Internal & External