GRA 6513 Financial Risk Management

GRA 6513 Financial Risk Management

Course code: 
GRA 6513
Department: 
Finance
Credits: 
6
Course coordinator: 
Adam Walter Winegar
Product category: 
Master
Portfolio: 
MSc in Finance
Semester: 
2020 Spring
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
Introduction

Risk management has become one of the most essential aspects in finance especially in light of recent international financial crises. It is now considered a core area for any modern sustainable business. In order to understand how to manage risks in global context, it is key that students learn to critically think about risk management and its implementation. This requires students have the requisite knowledge of risk management theory and tools, as well as the skills to apply these theories and tools in today's modern digital business environment

The course starts with an overview of how risk management adds value. It then covers derivative markets, the pricing of contingent claims, and explores the pricing of the most common derivative securities (e.g., forwards, swaps, and options). With the the knowledge of these fundamental tools, the course then delves into measuring and managing the various types of risks faced by financial institutions, including market, credit/countparty, and liqudity risks. Emphasis is placed on building models using statistical tools and software packages (e.g. Matlab) and applying them to real world cases. Throughout the course, students will explore financial crises and failures of major financial institutions as well changing financial regulations. Students will utilize these examples as way to learn from the past to create more stable financial institutions in the future.

Learning outcomes - Knowledge

This course will give students an understanding of the tools and practices of financial risk management. The students at the end of the course are expected to know:

  • Fundamentals of derivative markets and the valuation of derivative securities (e.g., Forwards, Swaps, and Options)
  • Key risks that financial institutions face including market, credit, and liqudity risks
  • What causes failures of financial institutions including how risk management failures can lead to international financial crises
Learning outcomes - Skills

The students at the end of the course are expected to be able to:

  • Price plain vanilla forwards, futures, options and swaps with standard methods and Monte Carlo simulations
  • Estimate common risk measures (e.g., Value-at-Risk and Expected shortfall) and the effects of risk management tools (hedges) using historical simulations and Monte Carlo simulations via computer tools (e.g. Matlab)
General Competence

The student should be able to critically think about how risk management adds value for various financial and non-financial corporations in order to create sustainable practices in modern businesses. This includes the knowledge of available instruments and measures, their use in practice, and their individual strengths and limitations.

Course content

Part I: Introduction and Derivatives

  1. How risk management adds value
  2. Pricing of forwards, futures, options and swaps
  3. Derivative markets

Part II: Risk Management

  1. Managing market risks
  2. Volatility, Value-at-Risk, and Expected Shortfall
  3. Methods of risk measurement
  4. Financial Crises and Regulations
  5. Credit risk, default probabilities and value adjustments
  6. Liquidity Risks
  7. Corporate risk management
Teaching and learning activities

In-Class:

  1. Lectures - Lectures by the instructor are key to providing the students the theory and concepts of risk management as well as the tools of risk management. During lectures multiple real-world examples and problems will be shown and worked-through for students to gain the necessary skills. Finally, we will have occasionally have guest lectures to highlight how modern companies use risk management.
  2. Discussion - News and Academic articles will be discussed as a larger group in order to encourage students to recognize and crtitically think about the implementation of risk management in modern companies. We will also discuss several cases that highlight risk management failures and successes. Finally, we will occassionally utiliize in-class simulation exercises (e.g., trading games) that allow students to apply and test their knowledge of derivative markets.
  3. Videos and Other Digital Activities - Occasionally we will utilize videos, including documentaries and dramatizations, to highlight risk management topics (e.g., the financial crisis of 2008). In addition, we will go through in-class applications of digital tools including Matlab and Excel. This will allow students to further hone their programming and modeling skills in a supervised environment.

Excercises and Assignments

  1. Group Assignments - A primary way to evaluate student's learning will be the use of group assignments, this is especially true for topics that are unable to be evaluated in an exam setting (e.g, the use of software tools). Students are given the opportunity to price derivative securities, discuss how risk management adds value, and model hedging strategies and risk measures in real-world cases. Students use digital tools (e.g., Matlab) and multiple estimation methods (e.g., Monte Carlo) in order to complete the assignments, giving them a practical implementation of their knowledge regarding models, estimation, and software. Finally, the assignments allow students to work together in a team environment creating useful practical skills in writing, time management, and coordination.
  2. Practice Problems - Outside of group assignments students are also given numerous practice problems in order to self-assess their own learning. These are provided at the end of each major topic and generally consist of select questions from the primary textbooks as well as mock exams.

Exams

  • A majority of the assesment of the students' learning will come from a written exam. The exam will evaluate the knowledge, skills, and general competencies of the students. This will include how risk management adds value, the theory and application of derivatives pricing and markets, understanding of financial failures and crises, basic calculations of risk measures, the various risks financial institutitions face, and the application of risk management tools.
Software tools
Matlab
Additional information

Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class.

This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information in the course description in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. You will find detailed information about the point system and the cut off points with reference to the letter grades when the course starts.

At resit, all exam components must, as a main rule, be retaken during next scheduled course.

Qualifications

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65131
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
15No2 Week(s)Group (1 - 5)Assignment Group size may vary due to class size and other considerations.
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65131
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
15No2 Week(s)Group (1 - 5)Assignment Group size may vary due to class size and other considerations.
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65131
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
10No1 Week(s)Group (1 - 5)Assignment Group size may vary due to class size and other considerations.
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65131
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
60Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Individual Final written examination under supervision.
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:15
Invigilation:No
Grouping (size):Group (1-5)
Support materials:
Duration:2 Week(s)
Comment:Assignment Group size may vary due to class size and other considerations.
Exam code: GRA65131
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:15
Invigilation:No
Grouping (size):Group (1-5)
Support materials:
Duration:2 Week(s)
Comment:Assignment Group size may vary due to class size and other considerations.
Exam code: GRA65131
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:10
Invigilation:No
Grouping (size):Group (1-5)
Support materials:
Duration:1 Week(s)
Comment:Assignment Group size may vary due to class size and other considerations.
Exam code: GRA65131
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:60
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Duration:3 Hour(s)
Comment:Final written examination under supervision.
Exam code: GRA65131
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Type of Assessment: 
Continuous assessment
Grading scale: 
ECTS
Total weight: 
100
Sum workload: 
0

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.