Checking date: 28/01/2019

Course: 2018/2019

Risk Management
Study: Master in Finance (261)

Coordinating teacher: MAYORAL BLAYA, SILVIA

Department assigned to the subject: Department of Business Administration

Type: Compulsory
ECTS Credits: 3.0 ECTS


Students are expected to have completed
Students should have passed Derivatives, Financial Markets and Fixed Income courses. Professor: Esther Caceres, FRM (ALM Supervisor en Mirai Advisory)
Competences and skills that will be acquired and learning results.
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.
Description of contents: programme
1. Foundations of Risk Management - Definition of risk - Types of risk - Enterprise Risk Management (ERM) - Measuring risk - The risk management process - The risk manager¿s role - Risk management failures 2. Hedging risks - Introduction to hedging - Unitary hedging - Optimal hedging - Hedging derivatives ¿ The greeks 3. Value at Risk I - Definition - Methodologies - Limitations 4. Value at Risk II - Coherent risk measures - Expected Shortfall - Stress testing and scenario análisis - Backtesting 5. Liquidity risk - Definition - Types of liquidity risk - Asset liquidity risk - Liquidity VaR - Introduction to funding liquidity risk 6. Asset and Liability Management I - Introduction to ALM - Managing funding liquidity risk - Managing interest rate risk 7. Asset and Liability Management II - Regulatory framework - Liquidity risk ¿ Basel Accords - Interest rate risk ¿ IRRBB
Learning activities and methodology
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 in which they will have to calculate some risk metrics of a portfolio of assets (VaR, ES¿) using real data.
Assessment System
  • % end-of-term-examination 50
  • % of continuous assessment (assigments, laboratory, practicals...) 50
Basic Bibliography
  • John C. Hull. Options, futures, and other derivatives. Prentice Hall . 2012
  • Philippe Jorion. Financial Risk Manager Handbook. Wiley Finance. 2009
Additional Bibliography
  • Kevin Dowd. Measuring Market Risk.. West Sussex, UK: John Wiley & Sons.. 2005
  • Linda Allen, Jacob Boudoukh and Anthony Saunders. Understanding Market, Credit and Operational Risk: The Value at Risk Approach.. New York, NY: Wiley-Blackwell. 2004
  • Philippe Jorion. Value at Risk. The New Benchmark for Managing Financial Risk. McGraw-Hill. 2007

The course syllabus and the academic weekly planning may change due academic events or other reasons.