Students should have passed Derivatives, Financial Markets and Fixed Income courses. Professor: Raquel Bujalance - Head of ALM Models (Santander Analytics)

This course introduces the different types of risk financial entities face, with a special focus on market and liquidity risks, 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, focusing on liquidity risk metrics (survival horizon, maturity gap) and interest rate risk metrics (repricing gap, market value of equity, net interest margin, duration gap). Finally and given the increasingly important role of regulators in the banking industry, the course summarizes the current European regulatory framework: players and requirements related to both liquidity and interest rate risks.

1-Introduction to Risk Management Types of Risk Approaches to Risk Management Risk Management Failures Regulatory Framework 2-Hedging Risks Introduction Option Greeks and Hedging Strategies Hedging Strategies with Derivatives Portfolio Insurance 3-Market Risk I Introduction Measure at Risk - VaR - ES - Coherent risk measure Strengths and Limitations 4- Market Risk II Methodologies - Analytical - Historical Simulation - Monte Carlo Simulation Strengths and Limitations 5- Market Risk III Backtesting Stress Testing Regulatory Framework: FRTB 6- Balance Sheet Management I Introduction to ALM (Asset and Liabilities Management) IRRBB: Interest Rate Risk in the Banking Book Calculation Methods Risk Monitoring and Stress Test Regulatory Framework: EBA Guidelines IRRBB 7- Balance Sheet Management II Liquidity Risk Calculation Methods Risk Monitoring and Stress Test Regulatory Framework: EBA Guidelines LCR y NSFR

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.