2017-2018 / FINA0023-4

Financial Risk Management


30h Th

Number of credits

 Master in economics : general (120 ECTS)5 crédits 
 Master in management (120 ECTS)5 crédits 


Georges Hübner

Language(s) of instruction

English language

Organisation and examination

Teaching in the first semester, review in January

Units courses prerequisite and corequisite

Prerequisite or corequisite units are presented within each program

Learning unit contents

This advanced finance course provides an overview of the risk management function and scope in a financial institution, and reviews the main financial risks: Market Risk, Interest-Rate Risk, Credit Risk, Operational Risk, Liquidity Risk... Basic risk management concepts will also be detailed (stochastic processes, hedging, Greeks, duration, dependence and copulae, Value-at-Risk...)
This course features in the framework of the CFA Institute University Recognition Program. It spans a significant portion of the CFA Programe Candidate Body of Knowledge (CBOK), and explicitly prepares for the CFA certification.
A) Foundations of Financial Risk Management A. 1. The scope of financial risk management A. 2. Creating value with risk management A. 3. Principles of hedging A. 4. Enterprise risk management
B) Derivatives and Risk Hedging B. 1. Derivative securities and markets B. 2. Hedging linear exposures/instruments B. 3. Hedging options
C) Hedging Fixed Income Instruments C. 1. Yield curve dynamics C. 2. Duration and convexity C. 3. Duration hedging C. 4. Interest rate derivatives
D) Regulation and risk management D. 1. The need for RM in financial institutions D. 2. The Basel regulatory process D. 3. Basel III  (self study)
E) Quantitative market risk models E. 1. Value-at-Risk E. 2. VaR characteristics E. 3. Portfolio VaR E. 4. Historical VaR systems E. 5. Monte-Carlo VaR systems E. 6. VaR backtesting E. 6. Expected Shortfall
Appendix 1: Modified VaR Appendix 2: EVT VaR
F) Credit, Operational and Liquidity risks, and Stress tests F. 1. Fundamentals of Credit Risk F. 2a. Default Probabilities F. 2b. Credit Rating Systems F. 3. The Copula model F. 4. Operational Risk F. 5. Liquidity Risk F. 6. Stress tests
Appendix 1: Leading credit risk models
An introductory lecture is organized at the beginning of the course with a guest speaker occupying a function of Chief Risk Officer (CRO) or equivalent in a prominent financial institution. Other external guests (financial consulting experts) will also share their knowledge and experience in risk management.
To illustrate and practise the concepts, a set of interactive exercise sessions will be organized. An assignment will also provide a synthetic point of view on the whole course.

Learning outcomes of the learning unit

The course pursues two main objectives: 1. To provide students with the body of knowledge necessary to understand the challenges of financial risk management, with a strong quantitative focus, and to possibly prepare a professional certification in the area of risk management; 2. To train students to the application of risk management concepts in realistic situations through exercises sessions in the trading room and case studies
Intended Key Learning Outcomes:
In concordance with the Key Learning Outcomes of the Master in Management Sciences, this course aims to enable the student to:
- Strategy: Establish a strategy in order to optimize the value chain of a company, an organization or a project       * based on the analysis of its financial and economic context.       * taking into account its legal constraints.       * adopting the position of a specialist in the field of management of his / her finality.       * demonstrating a critical mind and scientific precision. - Implementation: Take charge of the everyday management of a company, an organization or a project        * implementing the strategy that was established for this company, organization or project.       * in a holistic perspective, taking into account the interactions between its different functions.       * capitalizing on the characteristics of a more and more digitalized world.       * analyzing his/her managerial practice with a critical and ethical mind. - Control: Plan and implement the performance and quality control in a company, an organization or a project       * in a holistic perspective, taking into account the interactions between its different functions. - Communication: Communicate efficiently, internally and externally, about a company, organization or project        * in English. - Adaptability: Adapt his/her managerial practice to the needs of a fast-evolving world.       * being conscious of its societal, economic, political and environmental issues.       * showing curiosity and a scientific precision of academic level.       * showing creativity, autonomy and entrepreneurial spirit.

Prerequisite knowledge and skills

- Financial Derivatives (or equivalent) - Investments and Portfolio Management (or equivalent) A solid background in probability theory, statistics and econometrics is required.

Planned learning activities and teaching methods

- Theory sessions (including illustrations and practical examples)
- Presentations by external guest experts
- 2 x 3 hours of exercise sessions, featuring the resolution of practical exercises involving the measurement and evaluation of financial risks as well as the identification of most appropriate management/hedging decisions

Mode of delivery (face-to-face ; distance-learning)

Theory + Exercise sessions 
Guest lectures:

  • CRO of a financial institution
  • Consultant spécialized in risk management
  • Expert in modelling
 Assignment (graded)

Recommended or required readings

Powerpoint presentations (available on the university's website lol@). John C. Hull's book "Risk Management and Financial Institutions" (Pearson Educ. Edition).

Assessment methods and criteria

The final assessment will be in several parts:

  • closed-book written exam (80% final grade - individual)
  • practical assignment (20% final grade - individual)

Work placement(s)

Organizational remarks


Teacher Georges Hübner N1, Office 111
g.hubner@ulg.ac.be 04/2327428 Assistant   Thomas Bonesire N1, Bureau 111