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: ICM337 Econometric Analysis for Finance
Modules excluded:
Current from: 2023/4

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.

Summative assessment- Examinations:

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

The examination for this module will require a narrowly defined time window and is likely to be held in a dedicated exam venue.

Summative assessment- Coursework and in-class tests:

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:

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 

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):

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

Last updated: 30 March 2023