Instructional goals
To provide students with a comprehensive perspective on risk management and pricing concepts, tools and techniques.
To develop analytical thinking in understanding and implementing risk management practices/policies.
To engage students in active discovery of risk management principles.
To identify and explain the full risk management process in terms of identification of risks and associated potential costs.
Prerequisites
Students attending this course are expected to have a basic knowledge of: i) calculus based on probability/statistics, ii) mathematical finance and iii) asset pricing. Some exposure to stochastic processes and partial differential equations would be helpful, but not mandatory.
Intended learning outcomes
At the end of the course students are expected to be able to realize, understand and master various state-of-the-art risk management theories and practices
Course Contents
The course is designed to introduce and discuss various risk management concepts, tools and techniques for banks and insurance companies. Using integrated approaches, the course will emphasize discussion on the design and implementation of risk management practices. Attention will be devoted also to the new developments in terms of financial regulation by explaining how the new regulatory framework will affect risk management in the next future.
Reference Books
John C. Hull, Risk Management and Financial Institutions, 5th Edition.
John C. Hull, Options, Futures, and Other Derivatives (9th Edition)
Szego (ed), Risk Measures for the 21th Century, Wiley Finance Series, 2004
Duffie, D., Singleton, K.J.. "Credit Risk: Pricing, Management, and Measurement". Princeton Series in Finance (2003)
Teaching Methods
The class will be based on lectures and readings. During the lectures PowerPoint slides will be used to facilitate students. All the material will be posted to the website prior to each class.
Assessment Method
The overall assessment will be determined as follows:
final exam (written): 100%.
The final written exam will be done with "closed book".
Students may not bring notes or other material, but only a calculator. All the questions in the exams are similar to the exercises at the end of each chapter of the textbook. Some questions are quantitative (i.e. require some computation).
Thesis assignment criteria
It will be followed a policy of merit that rewards students more prepared.
Week 1 Contenuto sessioni on line e on campus
Concepts and the economics of Risk Management (on campus)
Week 2 Contenuto sessioni on line e on campus
Definition of market risk and the concept of sensitivity (on line)
Week 3 Contenuto sessioni on line e on campus
Tools for Market Risk Management (financial derivatives/options) (on line)
Week 4 Contenuto sessioni on line e on campus
Structured finance and non linear portfolios: replicating portfolio analysis and Monte Carlo simulation. (on campus)
Week 5 Contenuto sessioni on line e on campus
Profit and loss distribution analysis for linear portfolios: parametric VaR approach (on campus)
Week 6 Contenuto sessioni on line e on campus
Beyond non-normal returns: historical simulation and stress testing (on line)
Week 7 Contenuto sessioni on line e on campus
Credit Risk: structural vs. Intensity based models (on line)
Week 8 Contenuto sessioni on line e on campus
Credit risk and counterparty default: basic definitions. (on campus)
Week 9 Contenuto sessioni on line e on campus
Credit derivatives and term structure of default probabilities. (on campus)
Week 10 Contenuto sessioni on line e on campus
The practice of Risk Management (on line)
Week 11 Contenuto sessioni on line e on campus
The evolution of financial regulation (on line)
Week 12 Contenuto sessioni on line e on campus
Key topics in financial regulation (on campus)