ICM239-Credit Risk

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Module version for: 2016/7

Module Convenor: Dr Simone Varotto

Email: s.varotto@icmacentre.ac.uk

Summary module description:
In recent years financial institutions have been looking at ways to quantify risk in their loan books. The lack of market prices for these types of illiquid assets implies that standard risk assessment procedures can not be employed.This course introduces students to a set of techniques to measure and manage credit risk in bank portfolios.

The course focuses on (1) default and recovery risk, (2) credit ratings and credit scoring models (3) how to measure portfolio credit risk using contingent claim and credit rating based approaches (4) credit risk management tools (5) credit risk capital regulation (Basel II and Basel III), (6) stress testing and (7) loan pricing.

Assessable learning outcomes:
By the end of the module it is expected that students will:
Understand the relationship between capital and risk;
Be familiar with credit risk capital regulation;
Be able to apply Value-at-Risk and expected shortfall techniques to portfolios of credit risk sensitive instruments;
Be able to derive and use credit ratings and credit scores;
Know how to estimate a credit loss distribution and use it for risk management purposes;
Understand the main features and implementation of the following models:
JP Morgan’s CreditMetrics
Moody’s-KMV model
Be able to use risk management tools such as Component VaR and Best Hedge calculated with and without distributional assumptions
Be familiar with the concept and implementation of stress testing in credit risk portfolios
Be able to determine appropriate interest charges for bank loans

Additional outcomes:
The module offers students the chance to work together to develop team-building and presentation skills

Outline content:
1. Economic and Regulatory capital
2. Credit scoring models: Altman Z-score and refinements
3. Credit rating issues: designing and implementing effective internal credit rating systems.
4. Recovery risk: estimating "loss given default".
5. Credit Loss Distribution: Expected and Unexpected Loss
6. A Rating-based Credit Risk Model: CreditMetrics
7. An Equity-based Credit Risk Model: KMV
8. Credit Risk Management Tools
9. Stress Testing
10. Loan pricing

Brief description of teaching and learning methods:
The core theory and concepts will be presented during lectures. Problem sets will be solved in workshops.

Contact hours:
  Autumn Spring Summer
Lectures 20
Tutorials 10
Guided independent study 170
Total hours by term 200.00
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Report 40
Class test administered by School 60

Other information on summative assessment:
The report is on a risk analysis of a portfolio of corporate loans. In this assessment, students work in teams and then formally present the findings summarised in their report to an examination panel. In addition, students take two multiple choice tests,each of which counts for 30% of the final mark.

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Length of examination:

Requirements for a pass:
50% overall grade

Reassessment arrangements:
By individual project.

Additional Costs (specified where applicable):
1) Required text books: 14.ICM239 - Credit Risk
Hull, J. C. (2015) “Risk Management and Financial Institutions, 4th ed.”, Wiley Finance.
ISBN-10: 1118955943, ISBN-13: 978-1118955949
Price: £66.32.

2) Specialist equipment or materials:
3) Specialist clothing, footwear or headgear:
4) Printing and binding:
5) Computers and devices with a particular specification:
6) Travel, accommodation and subsistence:

Last updated: 21 December 2016

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