IC303: Management of Risk

Module code: IC303

Module provider: ICMA Centre; Henley Business School

Credits: 20

Level: 6

When you'll be taught: Semester 1

Module convenor: Dr Yueting Cui, email: y.cui@icmacentre.ac.uk

Module co-convenor: Dr Pei Ling Lee, email: peiling.lee@henley.edu.my

Pre-requisite module(s): BEFORE TAKING THIS MODULE YOU MUST TAKE IC102 AND TAKE IC104 OR ( TAKE ST1PS AND TAKE IC101 ) OR TAKE MM1F27 OR ( TAKE AC110 (Compulsory)

Co-requisite module(s):

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: na

Academic year: 2024/5

Available to visiting students: Yes

Talis reading list: No

Last updated: 19 November 2024

Overview

Module aims and purpose

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.

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.

The module lead at the °ÄÃÅÁùºÏ²Ê¿ª½±¼Ç¼ Malaysia is Dr Pei Ling Lee.

Module learning outcomes

By the end of the module, it is expected that students will be able to:

• Implement several techniques to measure market and credit risk: Value-at-Risk and expected shortfall of a portfolio of assets under normality and without distributional assumptions; measuring credit risk as in the JP Morgan’s RiskMetrics model. 
• Assess the accuracy/reliability of a Value-at-Risk estimates (Backtesting) and apply risk management tools such as Component VaR and Best Hedge. 
• Describe and discuss bank capital, risk and the difference between economic and regulatory capital, the latest bank capital regulation, credit rating systems, and stress testing, and the overall global context.
• Work together to develop team-building skills, appreciate and value diversity and multiculturalism.

Module content

1. Risk Management: An Overview, Types of financial risks, How to measure risk, Capital and Risk and Capital Regulation 
2. 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. 
3. Back-testing: Likelihood ratio test, Type 1 and 2 errors, Regulatory back-testing 
4. Risk Management Tools and Variance Forecasting: Component VaR and Best Hedge, Risk Metrics’ EWMA 
5. Credit Risk: Credit Rating systems and JP Morgan’s CreditMetrics. 
6. International financial crises, international bank regulation and risk management and measurement techniques that are common in large banks worldwide.

Structure

Teaching and learning methods

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

This module may be taught in a different Semester if you are studying at our campus in Malaysia.

For students studying at our campus in Malaysia: This module may be taught in a different semester and the breakdown of study hours may differ to those set out in the Study Hours table (please refer to the Module Handbook for the correct breakdown). In addition, you will be required to complete an additional 40 hours of study, taking the total number of study hours to 240 for this module. This is to comply with the Malaysian Quality Agency (MQA).

Study hours

At least 32 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

40%

Summative assessment

Penalties for late submission of summative assessment

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

Assessments with numerical marks

• 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 three working days;
• the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three working days after the original deadline (or any formally agreed extension to the deadline), no penalty shall be imposed;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three working days of the deadline (or any formally agreed extension of the deadline): no penalty will be applied;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension of the deadline): a grade of Fail will be awarded.

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

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

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

Reassessment

Additional costs