75447 - Advanced Methods of Risk Management 1

Course Unit Page

Academic Year 2018/2019

Learning outcomes

At the end of the course the student is familiar with the main principles and tools of market risk analysis and the hedging techniques. He knows the general theory of risk measures and the principles of market risk regulation. He is able to design a process of market risk measurement and reporting, and to make market risk management decisions.

Course contents

1. Definition of market risk and the concept of sensitivity

2. Cash flow analysis and mapping of fixed and floating rate secutities

3. Profit and loss distribution analysis for linear portfolios: parametric VaR approach

4.Structured finance and non linear portfolios: replicating portfolio analysis and Monte Carlo simulation.

5. Beyond non-normal returns: historical simulation and stress testing

6. Spread risk and the risk analysis of credit risk portfolios and securitization tranches

7. The debate on risk measures

8. Credit and funding valuations adjustments

9. Market risk and accounting: prudent valuation

10.Overview of market risk regulation: towards FRTB

Readings/Bibliography

  1. C. Acerbi, Coherent Representations of Subjective Risk Aversion, ch. 10 in G. Szego (ed), Risk Measures for the 21th Century, Wiley Finance Series, 2004
  2. M. Bianchetti and U. Cherubini, Prudent Valuation Guidelines and Sound Practices, https://ssrn.com/abstract=2790629 , 2016
  3. U. Cherubini and G. Della Lunga, Structured Finance: The Objected Oriented Approach, Wiley Finance, Chichester, 2007
  4. J. Mina and J. Y. Xiao, Return to RiskMetrics: The Evolution of the Standard,RiskMetrics, New York, 2001
  5. JP Morgan, RiskMetrics™ – Technical Document, Fourth Edition, New York, 1996

Additional reading will be provided during the course

Teaching methods

Classroom lectures

Assessment methods

The exam will be based on the risk analysis of a portfolio and an oral exam. The portfolio will be provided at the beginning of the course. During the course, several analysis of the portfolio will be suggested.

At the end of the course each student will take an oral exam in which he will sustain a defence of the analysis of the portfolio, and will answer questions about the subjects covered in the program.

Teaching tools

Portfolio case study. Computer exercises.

Office hours

See the website of Umberto Cherubini