IC303-Management of Risk

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:6
Terms in which taught: Autumn term module
Pre-requisites: IC102 Introductory Finance/Trading Simulation I and IC104 Introductory Quantitative Techniques for Business and Finance or ST1PS Probability and Statistics and IC101 Introductory Securities and Markets or MM1F27 Business in Practice: Accounting for managers or AC110 Introduction to Accounting
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2023/4

Module Convenor: Dr Laima Spokeviciute
Email: l.spokeviciute@icmacentre.ac.uk

Type of module:

Summary module description:

This module introduces students to a set of techniques to measure and manage market and credit risks in banks. It also covers recent developments in bank regulation. Financial press articles are extensively used to provide context and show the relevance of the teaching material to current risk management issues. Popular portfolio risk models and stress testing frameworks used by risk managers and central banks are explored in detail. This course will help students develop those critical risk management skills that are now considered indispensable for anyone willing to undertake a career in the financial sector.��

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Aims:

The course focuses on (1) risk management lessons from past financial crises (2) alternative risk metrics: value-at-risk and expected shortfall (3) bank capital regulation (4) stress testing (5) risk management tools (6) back-testing (7) market risk modelling (8) liquidity risk modelling (9) credit risk modelling and Monte Carlo simulations.��

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Assessable learning outcomes:

By the end of the module, it is expected the students will:��

• Be able to implement several techniques to measure market and credit risk.��


• Describe the connection between bank capital and risk and the difference between economic and regulatory capital.��


• Discuss the latest bank capital regulation.��


• Calculate the Value-at-Risk and expected shortfall of a portfolio of assets under normality and without distributional assumptions.��


• Explain the impact of holding period and confidence level on Value-at-Risk measures.��


• Be able to assess the accuracy/reliability of a Value-at-Risk estimate (Backtesting).��


• Apply risk management tools such as Component VaR and Best Hedge.��


• Be able to measure credit risk as in the JP Morgan’s RiskMetrics model.��


• Describe credit rating systems.��


• Evaluate the importance and implementation issues of stress testing.

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Additional outcomes:

The module offers students the chance to work together to develop team-building skills��

Outline content:

• Risk Management: An Overview, Types of financial risks, How to measure risk, Capital and Risk and Capital Regulation��


• Basic Statistics, Returns, Value at Risk: mean, variance and covariance (time series and frequency approach), arithmetic and geometric returns, time aggregation, Value at Risk (parametric and non-parametric), VaR time horizon, confidence level and expected shortfall.��


• Back-testing: Likelihood ratio test, Type 1 and 2 errors, Regulatory back-testing��


• Risk Management Tools and Variance Forecasting: Component VaR and Best Hedge, Risk Metrics’ EWMA��


• Credit Risk: Credit Rating systems and JP Morgan’s CreditMetrics.��

Global context:

The module covers international financial crises, international bank regulation and risk management and measurement techniques that are common in large banks worldwide.��

Brief description of teaching and learning methods:

The core theory and concepts will be presented during lectures. Problem sets will be solved in seminars.��

Summative assessment- Examinations:

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Summative assessment- Coursework and in-class tests:

1 multiple choice test of 1 hour and 30 minutes in week 1 of the Spring Term (50%).

Oral presentation (10%): students will present a preliminary qualitative risk analysis of the portfolio assigned to them for the group project, with presentations scheduled in week 9 or 10 of the Autumn Term. The submission consists of supporting slides (maximum 20).

Group project: students will be required to submit a group project (40%) on current topics in risk management by around week 1 (or 2) of the Summer Term. The project consists of a risk management report of up to 3,000 words, and a separate Excel file with supporting calculations.

Formative assessment methods:

Question sets discussed during the seminars with feedback provided during those seminars and on Blackboard. Non-graded quizzes during lectures help students to receive formative feedback and prepare for their summative assessment. Use of discussion boards on Blackboard.

Penalties for late submission:

The Support Centres will apply the following penalties for work submitted late:

where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;

where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

The University policy statement on penalties for late submission can be found at: /cqsd/-/media/project/functions/cqsd/documents/cqsd-old-site-documents/penaltiesforlatesubmission.pdf

You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Assessment requirements for a pass:
40%

Reassessment arrangements:

By Individual Project

Additional Costs (specified where applicable):

Hull, J. C. (2023) “Risk Management and Financial Institutions, 6th ed.”, Wiley Finance. ISBN-: 978-1-119-93248-2, circa £95.00

Last updated: 28 September 2023