ICM207-Market Risk

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites: ICM103 Quantitative Methods for Finance
Modules excluded:
Current from: 2021/2

Module Convenor: Dr Emese Lazar
Email: e.lazar@icmacentre.ac.uk

Type of module:

Summary module description:

This module has three broad parts: (1) it covers the main methodologies of measuring market risk (mostly VaR and ES models); (2) it discusses the applications of these models to equity & FX, interest rate-sensitive products and derivatives markets; and (3) it introduces students to the relevant regulations (Basel & FRTB) regarding bank capital calculation for the trading book.

Aims:

This module provides an understanding of the Value-at-Risk (VaR) and Expected Shortfall (ES) framework for market risk assessment and control. The module has a significant practical component with computer-based workshops that are designed to support the lecture material.

Assessable learning outcomes:

By the end of the module, it is expected that students will be able to: Outline the foundations of market risk analysis and the basic models for assessing market risk; Describe  and apply the market risk measurement techniques that are used daily in the front and middle offices of banks; Build various Value-at-Risk (VaR) and Expected Shortfall (ES) models for market risk for international portfolios of equities, FX, interest rate products, commodities and derivatives.

Additional outcomes:

The students will learn to synthesize their knowledge of finance and econometrics that they have learned in the first term of their MSc. programme and apply them in the context of risk measurement.. Also, they will learn about the latest developments in banking regulations that are the main driving force behind changes in our approaches to risk measurement.

Outline content:

• The characteristics of markets and market risk


• Capital requirements


• Risk models


• Advanced Risk models


• Applications to Equities


• Applications to Foreign exchange


• Applications to Interest rate products


• Applications to Derivatives


• Applications to Fund management, banking & non-financial firms


• Fundamental Review of the Trading Book

Brief description of teaching and learning methods:

The topics are introduced in the lectures which are then followed by assignments and practical workshops. Via the assignments and throughout the practical workshops students will be expected to build and use specially designed Excel spreadsheets.

Contact hours:

	Autumn	Spring	Summer
Lectures		20
Practicals classes and workshops		10
Guided independent study:
Wider reading (independent)		50
Exam revision/preparation		50
Advance preparation for classes		10
Preparation for tutorials		10
Revision and preparation		20
Essay preparation		25
Reflection		5
Total hours by term	0	200	0
Total hours for module	200

Summative Assessment Methods:

Method	Percentage
Written exam	60
Written assignment including essay	10
Class test administered by School	30

Summative assessment- Examinations:

One written final exam (closed book) of length 2 hours.

Summative assessment- Coursework and in-class tests:

5 written assignments (take home, open book) with submission dates in weeks 3-4, 4-6, 6-7, 8-9 and 9-10, respectively, each worth 2% of the final mark.

Two class tests (open book) of length 1 hour 30 minutes, each worth 15% of the final mark.

Formative assessment methods:

Penalties for late submission:

The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy “Penalties for late submission for Postgraduate Flexible programmes”, which can be found here: http://www.reading.ac.uk/web/files/qualitysupport/penaltiesforlatesubmissionPGflexible.pdf
The Support Centres will apply the following penalties for work submitted late:

• where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that 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 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.

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:

By written examination only, to be taken in August/September, as part of the overall examination arrangements for the MSc programme.

Additional Costs (specified where applicable):

1) Required text books: Carol Alexander: Market Risk Analysis, volume IV: Value-at-Risk Models John Wiley &Sons, 2009, ISBN-10: 0470997885, £62.99. 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: 8 April 2021