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| FINA0064-1 | Financial Risk Modeling
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| Duration : | 30h Th |
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| Number of credits : |
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| Lecturer : | Aline Muller |
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| Coordinator : | Aline Muller |
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Language(s) of instruction :
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| English language |
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Organisation and examination :
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| Teaching in the second semester |
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Course contents :
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| Financial Risk Modeling is divided in two parts.
The first part of the course focuses on market risk. It provides a detailed introduction on how risk, return, and price behavior of securities may be analyzed in financial markets and how risk may be characterized. The course focuses moreover on how investors and fund managers monitor and manage their myriad risk exposures. The implementation of sound quantitative risk models is a vital concern for all financial institutions. This course provides a comprehensive treatment of the theoretical concepts and modeling techniques. A large part of the course will be devoted to volatility (univariate and multivariate) modeling and their use in financial practice. Volatilities are used for risk management, portfolio choice, Value at Risk, intraday trading analysis, and correlations and tail dependencies between asset's returns.
The first second part of the course reviews credit risk models as implemented in major financial institutions and discusses the improvements that have been made (or could be made) in light of the financial crisis. Particular emphasis is given on the mathematical development of these models as well as on the foundations required to build the models. |
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Learning outcomes of the course :
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| At the end of this course students will be able to
- understand and estimate single and multi-factor models,
- decompose the risk of stock portfolios,
- optimize portfolios,
- calculate tracking errors,
- measure and model variance, volatility, covariance and correlation,
- measure the VaR of a stock portfolio using GARCH models,
- estimate time-varying sensitivities,
- trade on implied vs realized volatility,
- understand how credit models work,
- develop and improve credit models.
Specific skills and competences trained during this course. At the end of this course students will have:
- strengthened their knowledge and understanding of basic management disciplines in order to use them to perform a rigorous analysis of a management situation and provide pertinent solutions;
- gained knowledge and understanding of financial engineering and be able to mobilize them in order to solve concrete management problems or cases;
- developed their ability to speak in English;
- strengthened their capacity to research autonomously and methodically the information needed to solve a complex, transversal management problem, to perform a rigorous analysis of it and to suggest pertinent solutions;
- developed their understanding and ability of using modelization methods when seeking a solution for a concrete management problem;
- developed their capacity to design concrete solutions to a management problem, integrating a dimension of technology, innovation or production;
- developed team work abilities;
- developed their critical sense (arguing);
- strengthened their capacity for creative conception of solutions;
- strengthened their professional capacity for oral communication;
- and strengthened their professional capacity for written communication. |
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Prerequisites and co-requisites/ Recommended optional programme components :
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| Students attending this course are expected to have studied basic courses of investment and portfolio management and have good understanding of asset pricing models. |
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Planned learning activities and teaching methods :
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| The course is lecture-style with active discussions of many practical examples and quantitative case-studies. The course has been developed to effectively combine theoretical sessions with real-business case-studies.
Each week students are required to hand in solutions to case-studies. They are invited to work in groups (2-3 students). |
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Mode of delivery (face-to-face ; distance-learning) :
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| The course is face-to-face lecture and group-meeting style. Some topics will be handled through distance learning. |
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Recommended or required readings :
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| The required textbook that will be used throughout the course is:
Market Risk Analysis: Practical Financial Econometrics by Carol Alexander ISBN-10: 0470998016 | ISBN-13: 978-0470998014 | Edition: Volume II |
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Assessment methods and criteria :
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| The final grade will be determined by
Written exam
Ability to analyze the risk characteristics of a portfolio, to build optimal portfolio strategies, to monitor and manage risk exposures, to build a well-articulated comprehensive answer
Part I : 50%
Part II: 100%
Case-studies and Problem sets
Ability to analyze the risk characteristics of a portfolio, to build optimal portfolio strategies, to monitor and manage risk exposures, to build a well-articulated comprehensive answer
Part I: 40%
Part II: 0%
Participation
Attending class and actively discussing material in class
Part I: 10%
Part II: 0% |
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Work placement(s) :
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| none |
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Organizational remarks :
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| Finance is definitively an analytic field. As a consequence, this course will require students to understand models, do calculations and numerical analysis. Problem sets are to be handed in at the time and date as announced in class. The purpose of problem-based assignments is to understand issues, not to replicate answers. There are no "right answers" to the cases, only good arguments and weak arguments supporting the decision to take specific actions.
Students are expected to do their own work (or work within their group). At no time is it tolerated to use materials from former academic years or other sources. No plagiarism of any kind will be tolerated.
This course will conclude with a three-hour closed-book exam, consisting entirely of open questions. Students need only bring a non-programmable calculator and writing utensils to class. Distribution tables and formula sheet will be provided. Absences from exams are allowed only for validated medical reasons. Unexcused absences from exams will lead to a zero score in the calculation of the final grade. |
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Contacts :
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| Julien Poncelet
HEC - Management School of the University of Liège (Belgium)
Rue Saint Gilles 35, Bldg. N2, B-4000 Liège Belgium
tel : 0032 4 232 7431 / fax: 0032 4 232 7376 / email : jponcelet@ulg.ac.be / website: www.finance.hec.ulg.ac.be |
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| Items online : |
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| online notes |
The core materials for the course consist of the required textbook readings Lecture notes will be available on the course web page on the morning each week prior to class. Other items such as problem sets will also be available on the course web page. Some additional readings on materials related to the course over the term may be provided throughout the course via the course web page.
Please refer to LOLA to access the course web page. |
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