Risk Management Concepts
This course is a non-technical survey of the concepts and practice of Risk Management. The major types of risk are identified, risk management tools and techniques are reviewed and financial regulation is covered. A number of case studies are analyzed to illustrate key principles of risk measurement and management.
Prerequisite knowledge:
- Some knowledge of financial markets and instruments
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Module 1: Introduction
- A definition of risk
- Sources of risk
- Why do firms manage risk?
- Market risk
- Credit risk
- Operational Risk
- Liquidity risk
- Systemic risk
- Case Study: Risk measurement vs risk management - Goldman Sachs Manages Subprime Risk, 2007
Module 2: Concepts in Risk Modeling
- Risk factors
- Loss distributions
- Risk measures - Value at risk (VaR), Expected shortfall (ES) or Conditional VaR (CVaR)
- Scenario analysis and stress testing
- Model risk
Module 3: Market Risk
- Equity portfolio risk
- Fixed income risk
- Asset-liability management
- Derivatives risk
Module 4: Credit Risk
- Credit risk modeling concepts
- Interpreting credit spreads
- Counterparty risk, settlement and clearing
Module 1: Liquidity Risk
- Properties of liquid markets
- Embedding liquidity risk in market risk modelss
- Case Study: Liquidity Risk - Northern Rock, 2007
Module 2: Operational Risk
- What is operational risk? - Internal fraud, External fraud, Employment practices, obligations to clients
- Case Study: Operational risk failures - Rogue trading at Allied Irish Bank, 2002, Customer business at Enron, 2001, Rogue trading at Societe-Generale, 2008
- Operational value at risk
Module 3: Stress Testing
- Scenario analysis: Historical vs hypothetical
- Stress testing best practices
- History of stress testing at financial institutions
- Reverse stress testing
Module 4: Risk Regulation
- Why regulation? - Systemic Risk, A brief history of regulation
- Impact of the subprime crisis on regulation
- The Basel capital accords
- Regulatory stress testing