Content, progress and pedagogy of the module

This module introduces students to the structure and functioning of financial markets, emphasizing the interconnections between different market segments and the central role of depository institutions (banks).

The module focuses on the significant risks faced by financial institutions and the principles and practices of managing these risks. Effective risk management is at the core of financial institutions’ decision-making and long-term performance. In many respects, managing credit, liquidity, interest rate, foreign exchange, operational, and insolvency risk constitutes the core business of these institutions. Accordingly, managers must devote substantial effort to identifying, measuring, and mitigating the risks to which their institutions are exposed.

Throughout the module, students will learn to compute Value-at-Risk (VaR) and Expected Shortfall (ES), explore volatility modeling techniques, conduct back-testing and historical simulations, and use derivatives for hedging purposes. By the end of the course, students will have a comprehensive understanding of the risk landscape faced by modern financial institutions and the tools available to manage it effectively.

Learning objectives

Knowledge

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

• The structure and functioning of financial markets, focusing on the role of banks and other financial institutions.
• The major risk types faced by financial institutions and their implications for financial stability and performance.
• The key principles and regulatory frameworks guiding risk management practices in financial institutions.
• The interdependence among risk types (credit, liquidity, interest rate, market, and operational risk) and how they jointly affect institutional risk exposure.

Skills

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

• Analyzing and interpreting the financial statements of banks to evaluate risk exposure.
• Quantifying major risk types (i.e., interest rate, liquidity, credit, and market risk) using appropriate quantitative methods and models (e.g., VaR, Expected Shortfall, Merton Model).
• Applying statistical and computational techniques (e.g., historical simulation, back-testing, volatility modeling) to measure and manage financial risks.
• Using derivatives and other financial instruments to design and evaluate hedging strategies.

Competences

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

• Integrating theoretical and empirical approaches to assess the overall risk profile of a financial institution.
• Evaluating and designing risk management strategies that balance profitability, liquidity, and solvency objectives under regulatory constraints.
• Communicating complex risk assessments and policy implications clearly to both professional and academic audiences.

Type of instruction

For information see § 17.

Exam

Exams