IC303-Management of Risk
Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Autumn term module
Pre-requisites: IC104 Introductory Quantitative Techniques for Business and Finance and IC303PREREQ1 Any three of IC101, IC102, IC103, AC105A
Module version for: 2016/7
Dr Simone Varotto
Summary module description:
This module is delivered at University of Reading and University of Reading Malaysia.
This course introduces students to a set of techniques for measuring and managing market, credit and operational risk in financial institutions. Banks and other financial intermediaries invest considerable human and capital resources in trying to assess the risks in their day-to-day business and to increase the awareness of such risks in their employees and business associates. This course will help student develop those critical risk management skills that are now considered indispensable for anyone willing to undertake a career in the financial sector.
Assessable learning outcomes:
By the end of the module it is expected the students will:
- Be able to implement several techniques to measure market and credit risk.
- Understand the connection between bank capital and risk and the difference between economic and regulatory capital.
- Be familiar with latest bank capital regulation.
- Know how to calculate the Value-at-Risk and expected shortfall of a portfolio of assets under normality and without distributional assumptions.
- Learn the impact of holding period and confidence level on Value-at-Risk measures.
- Be able to assess the accuracy/reliability of a Value-at-Risk estimate (Backtesting).
- Know how to use risk management tools such as Component VaR and Best Hedge.
- Be able to measure credit risk as in the JP Morgan’s RiskMetrics model.
- Understand credit rating systems.
- Understand the importance and implementation issues of stress testing.
- Risk Management: An Overview. Types of financial risks, How to measure risk, Capital and Risk and Capital Regulation
- Basic Statistics, Returns, Value at Risk: mean, variance and covariance (time series and frequency approach), arithmetic and geometric returns, time aggregation, Value at Risk (parametric and non-parametric), VaR time horizon, confidence level and expected shortfall.
- Back-testing: Likelihood ratio test, Type 1 and 2 errors, Regulatory back-testing
- Risk Management Tools and Variance Forecasting: Component VaR and Best Hedge, Risk Metrics’ EWMA
- Credit Risk: Credit Rating systems and JP Morgan’s CreditMetrics.
Brief description of teaching and learning methods:
The core theory and concepts will be presented during lectures. Small class groups will discuss cases and problem sets.
Summative Assessment Methods:
|Project output other than dissertation
|Class test administered by School
Other information on summative assessment:
The group project will need to be submitted during the Summer term (April/May). In addition, there are two multiple choice tests, one in the mid of the Autumn term and the other at the end. Both tests count for 30% of the final mark.
Formative assessment methods:
Penalties for late submission:where the piece of work is submitted up to one calendar week after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for the piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.
The Module Convenor will apply the following penalties for work submitted late, in accordance with the University policy.
The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/penaltiesforlatesubmission.pdf
You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.
Length of examination:
Requirements for a pass:
Re-examination for Finals takes place in the Summer term
Additional Costs (specified where applicable):
1) Required text books: Hull, J. C. (2015) “Risk Management and Financial Institutions, 4th ed.”, Wiley Finance.
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