Students should have passed Derivatives, Financial Markets and Fixed Income courses. Professor: Marcos de Castro Riesco - Senior Advisor Freelance.

This course introduces the different types of risk financial entities face, with a special focus on market risk, and the guidelines that they follow to properly manage them. Students will learn different hedging techniques and assess the market risk of a portfolio with the traditional measures used in the industry (Value at Risk and Expected Shortfall), understanding their differences and limitations and testing their accuracy through backtesting analysis. In addition to managing the risk of a portfolio, the course provides an overview of how the structural risk is managed in financial entities Finally and given the increasingly important role of regulators in the banking industry, the course summarizes the current European regulatory framework.

1 Quantitative Analysis Overview of continuous probability Distribution. Uniform, Normal and Log-Normal Simulation Techniques: Random Numbers generation Variable Simulation Correlated variables simulation Modeling dependence: correlations and copulas Overview of Equity and FX option valuation Model: Black Scholes Term structure models of interest rates: Hull-White Model 2-Introduction to Risk Management Types of Risk Measurement and management tools Risk governance and corporate governance 3-Hedging Risks Introduction Option Greeks and Hedging Strategies Hedging Strategies with Derivatives 4-Market Risk I Introduction Measure at Risk - VaR - ES - Coherent risk measure -Extreme Value Theory (EVT) 5- Market Risk II Methodologies - Analytical - Historical Simulation - Monte Carlo Simulation Strengths and Limitations 6- Market Risk III Backtesting Stress Testing Regulatory Framework: FRTB 7- Balance Sheet Management Liquidity Risk Calculation Methods Risk Monitoring and Stress Test

Theoretical concepts will be presented using slides that will be available before each lecture. To be consistent with GARP rules for the FRM exams, students must demonstrate their ability to solve problems and exercises by using just a calculator in both the mid-term and the final exam. In addition, students will solve two different assignments in Excel and Matlab in which they will have to calculate some risk metrics of a portfolio of assets (VaR, ES) using real data.