Dr Andrea Vedolin and Dr Philippe Mueller

This course is available on the MSc in Finance (part-time). This course is not available as an outside option.

Students must have completed Asset Markets (FM423) and Corporate Finance (FM422).

• Hedging in equity and fixed income markets
• Market Risk, Value at Risk and Expected Shortfall
• Endogenous Risk and Limits to Arbitrage
• Credit risk and structured products

The aim of this course is to give an introduction to the analysis and management of risk within financial markets.The objective of the course is to develop a conceptual framework for thinking about financial risk and to show how these concepts are implemented in practice in a variety of contexts. First, the course gives an overview of risk management in the context of portfolios of fixed income securities and derivatives. Next, will discuss the implementation and the merits of Value at Risk measures. We will spend some time on endogenous risk and limits to arbitrage. In the context of credit risk we will cover ratings based and structural models, as well as credit risk on portfolios and credit derivatives. A final topic covers regulation and the recent credit crisis. Throughout, the course spends a significant amount of time on practical applications of the theories that are introduced. Some limitations of current approaches are also discussed.

30 hours of lectures in the MT.

Problem sets. In addition, students will have the opportunity to present the results of a case study to the class.

Course readings will vary from year to year depending upon the topics covered. The main reference is: John C. Hull, Risk Management and Financial Institutions, Wiley, 2015, 4th edition.

Additional useful references are: Michel Crouhy, Dan Galai and Robert Mark, Risk Management, McGraw-Hill, 2001. Philippe Jorion, Value at Risk, McGraw-Hill, 2007, 3rd edition. Jon Danielsson, Financial Risk Forecasting, Wiley, 2011. John C. Hull, Options, Futures and Other Derivatives, Pearson, 2012, 8th edition. Darrell Duffie and Ken Singleton, Credit Risk, Princeton University Press, 2003. 

Exam (90%, duration: 2 hours) in the main exam period.
Coursework (5%) and presentation (5%) in the MT.