75448 - Advanced Methods of Risk Management 2

Learning outcomes

At the end of the course, the student is familiar with the main principles of credit risk and frontier issues in risk management, such as high-frequency market risk measurement, behavioral risk, and systemic risk. Concerning credit risk, the student will be able to handle intensity based models for counterparty default and to compute valuation adjustments. As high-frequency risk is concerned, the student will be aware of the main features of the market at intra-day level, their measurement and management (intra-day duration, volatility, and correlation dynamics, seasonal patterns, high-frequency VaR and ES). Finally, the student will be introduced to the concept of systemic risk from two different perspectives: i) how micro prudential practices increase macro risk, ii) how markets sentiment co-evolves with systemic risk.

Course contents

At the end of the course, the student is familiar with the main principles of credit risk and frontier issues in risk management, such as value adjustment computation, collateralization, funding and behavioral adjustments. Concerning credit risk, the student will be able to handle intensity based models for counterparty default and to compute valuation adjustments. The student will be introduced to the concept of collateralization and funding. The course concludes with an introduction to behavioral value adjustments.

Highlights: Credit risk and counterparty default: basic definitions. Credit derivatives and term structure of default probabilities. Credit risk models: reduced form intensity based models. Counterparty risk: valuation adjustments. Collateralization and Funding. Behavioral value adjustment for the pricing of financial instruments with embedded options.

Readings/Bibliography

Textbooks and articles will be suggested during the lectures. Here it follows a list of the main references

1. L. Ballotta, G. Fusai, and M. Marena, A Gentle Introduction to Default Risk and Counterparty Credit Modelling (2016). Available at SSRN: https://ssrn.com/abstract=2816355
2. D. Brigo, M. Morini, and A. Pallavicini, Counterparty Credit Risk, Collateral and Funding with Pricing Cases for all Asset Classes. Wiley, Chichester (2013)
3. M. Bissiri, and R. Cogo, Behavioral Value Adjustments (2017) International Journal of Theoretical and Applied Finance (20)08: 1750050

Teaching methods

Lectures at the blackboard.

Assessment methods

Final written exam about the topics presented in class.

Teaching tools

Classroom lectures.

Office hours

See the website of Giacomo Bormetti