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) 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. All the models presented will be empirically implemented.
Reference Books
John C. Hull, Risk Management and Financial Institutions
John C. Hull, Options, Futures, and Other Derivatives
John C. Hull, Machine Learning in Business
Additional readings
Donald R. van Deventer, Kenji Imai, Mark Mesler, Advanced Financial Risk Management
Szego (ed), Risk Measures for the 21th Century
Duffie, D., Singleton, K.J.. Credit Risk: Pricing, Management, and Measurement
Teaching Methods
The class will be based on lectures, readings and practice sessions aimed at developing an experiential learning approach. Leading risk managers and financial regulators will be invited to share their experience in class with students. All the material will be posted on the course web platform.
Assessment Method
First exams (December 2024 and January 2025)
Research project (to be done in groups): 40%.
Final exam (written): 60%.
Following exams
Final exam (written): 100%.
The research project will be orally presented by the group members before the written exam. 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 1
Concepts and the economics of Risk Management
Week 2
Definition of market risk and the concept of sensitivity
Week 3
Tools for Market Risk Management (financial derivatives/options)
Week 4
Structured finance and non linear portfolios: replicating portfolio analysis and Monte Carlo simulation.
Week 5
Profit and loss distribution analysis for linear portfolios: parametric VaR approach
Week 6
Beyond non-normal returns: historical simulation and stress testing
Week 2 Contenuto sessioni on line e on campus
Definition of market risk and the concept of sensitivity (on line)
Week 7
Credit Risk and counterparty default: structural vs. Intensity based models
Week 8
Interest Rate Risk and Liquidity risk: two sides of the same coin. Modelling and measurement approach
Week 9
Risk management, pro-cyclicality induced by risk measures and model risk
Week 10
Risk Management and AI
Week 11
Taxonomy and challenges of “new risks”: ESG and cyber risks
Week 3 Contenuto sessioni on line e on campus
Tools for Market Risk Management (financial derivatives/options) (on line)
Week 12
The rationale of financial regulation in banking, insurance and finance and its evolution
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)