Content, progress and pedagogy of the module

This module explores and describes the major risks faced by Financial Institutions. Risk management is at the heart of many critical Financial Institutions' decisions, and the effective management of risks is central to a Financial Institution's performance. It can be argued that the main business of Financial Institutions is to manage the risk of credit, liquidity, interest rate, foreign exchange, operations, and insolvency, among others. As a result, managers at financial institutions must dedicate a significant amount of time to understanding and managing the various risks to which their Financial Institutions are exposed.

During the module, students will go through the steps of computing Value-at-Risk, will learn about volatility modelling, back-testing, and historical simulation techniques, will make use of derivatives to hedge risk and will develop hedging strategies in excel. By the end of the module, students will understand the variety and complexity of the risks that managers of modern Financial Institutions face.

Learning objectives

Knowledge

The objective is that the student after the module possesses the necessary knowledge on:

• the role of risk management in different financial institutions.
• the types of risks incurred by Financial Institutions and methods of identification, analysis and response to risk factors.
• understanding of how the various risks faced by financial institutions are related.

Skills

The objective is that the student after the module possesses the necessary skills in:

• constructing hedge positions with financial instruments based on different risk measures.
• applying and analysing Value-at-Risk concepts and different risk-related measures.
• calculating and analysing Value-at-Risk measures for portfolios of stocks and financial derivatives with historical simulations.

Competences

The objective is that the student after the module possesses the necessary competences in:

• developing hedge strategies in excel and making use of integrated software solutions for problem-solving.
• computing Value-at-Risk and making use of derivatives to hedge risk.
• analysing risk management problems created by different sources of risk.

Type of instruction

For information see § 17.

Exam

Exams