42198 - Risk Analysis and Management

Learning outcomes

At the end of the course the student knows the kinds of risk of the financial intermediation activity, and the tools available. In particular, the student is able to:- use the techniques to build a measure of market risk - define and estimate the models for the quantitative evaluation of credit risk - apply the management and hedging techniques of market and credit risk.

Course contents

Part I. Market Risk

1. Market risk: definition, the concepts of mark-to-market, risk factor sensitivities and replicating portfolios

2. Risk management techniques for market risk: swap contracts and options

3. Mapping techniques and reporting of market risk for portfolios

4. Techniques for the computation of Value-at-Risk: parametric approach, Monte Carlo simulation and historical simulation

5.Market risk: frontier issues

Part II Credit and liquidity risk

1. Risk credit definition and hedging istruments: credit derivatives

2. Structural models of credit risk: credit risk as option

3. Reduced form model of credit risk: default intensity and loss-given-default

4. Measurement and management of credit risk for portfolios: copula functions and securitization deals.

5. Counterparty risk and liquidity risk

Readings/Bibliography

U. Cherubini - G. Della Lunga: Il rischio finanziario, McGraw-Hill Italia, 2000

A. Sironi: Rischio e valore nelle banche: misura, regolamentazione, gestione, EGEA, 2008

Teaching methods

Lectures

Assessment methods

The assessment consists of an oral exam in which both the main elements of market and credit risk are reviewed. As for market risk, the student is required to be able to describe the techniques of transformation of financial products in their replicating portfolios, mapping techniques of the exposures to market risk factors, the techniques to compute VaR and the critiques moved to VaR based on the theory of coherent risk measures. As for credit risk, the student must show to know the structural models of credit risk and the reduced form models, their calibration with univariate credit derivatives, the measurement of credit risk for portfolios and the hedging techniques with multivariate credit derivatives, copula functions for securitization deals and personal guarantees, the concept of CVA applied to counter party risk in derivatives, the main concepts and techniques or risk measurement of liquiidity risk.

Teaching tools

Lab exercises in Excel and VBA

Office hours

See the website of Umberto Cherubini