The course examines risk management for financial institutions. These firms continually develop new products and profit opportunities. Successful financial institutions identify the attendant risks and manage them. The course analyzes interest rate, market, credit, and foreign exchange risk; capital adequacy; securitization; synthetic securities; and the financial crisis.
- Insurance companies, pension funds, mutual funds, and hedge funds
- Financial instruments
- How traders manage risk, interest rate risk
- Value at risk
- Correlation, copulas
- Market risk VaR, historical simulation and model building approach
- Credit risk, estimating default probabilities
- Credit risk losses and credit VaR
- The credit crisis, stress testing, liquidity risk, model risk
- Economic capital and RAROC, career-ending mistakes
This course provides a background in building advanced financial models, including lattice models, numerical methods, and Monte Carlo simulation; programming techniques to value complex derivatives and portfolios; and analyses of financial risk problems with Excel, VBA, and higher level programming languages.
- Modeling Linear and Nonlinear Risk Factors
- Financial Times Series, Volatility Models and Risk Estimation
- Introduction to Simulation Methods
- Modeling Risk Exposures with VaR
- Multivariate Risk Models
- Introduction to Extreme Value Theory (EVT) Applications
- Financial Time Series, Volatility Models and Risk Estimation
- Modeling Risk Exposures with Value at Risk (VaR) and Expected Shortfall (ES)
- Multivariate Risk Models
- Introduction to Simulation Methods (Monte Carlo Simulation, Historical Simulation)
- Backtesting and Stress testing
The purpose of this course is to understand risk-return relationship in the stock market, the money management industry, and stock options. The first part of this course begins with modern asset pricing models for stock returns. Then, we apply and extend our knowledge about risk-return relationship in the stock market to the money management industry and study how to evaluate the performance of money managers, particularly in the hedge fund industry. The second part of this course introduces stock options.Â We learn binomial trees and the Black-Scholes-Merton model as the valuation method of stock options. Finally, we examine how to measure and manage a different dimension to the risk in a option position using “Greeks” and scenario analysis.
- Index Models
- The CAPM
- Multifactor Models
- Performance Evaluation
- Hedge Funds
- Properties of Stock Options
- Binomial Trees
- Wiener Processes and Ito’s Lemma
- The Black-Scholes-Merton Model
- The Greek Letters
The goal of this course is to provide you with an understanding of the common types of fixed income securities and their valuation, the major risks associated with investing in fixed income securities, the standard measures of those risks and approaches to managing those risks. In addition, you will be introduced to the basics of modeling interest rate processes and valuing securities with embedded options.
- Terminology associated with fixed income securities
- Taxonomy of Risks
- The Federal Reserve and Fixed Income Markets
- Introduction to Repo Market and Treasury Auctions
- Measuring Bond Price Volatility
- Term Structure of Forward Rates
- Modeling Uncertain Future Discount Factors
- Introduction to Fixed Income Derivatives
- Valuing Complex Fixed Income Securities with Lattices
- Forward & Futures Contracts
- Introduction to Mortgage Pass-Through Securities (MBS)
- Structured Securities
Strategies and Risk Management in Alternative Investments: This course is the first part of a two-part seminar series on applications in risk management. The course will introduce students to the current practice in the application of various risk management tools and techniques to real life situations. The material in this class will be delivered through several sections, and include papers and articles written by both academics and practitioners.
- Introduction to Financial Regulation
- Recent US Financial Regulatory Reform
- Theory for Risk-Based Regulation of Financial Intermediaries
- The Treatment of Market Risk
- Addressing Credit Risk and its Capital Requirements
- Operational Risk
- Basel Accord Pillars I, II and III
- Towards Basel III
- National Implementation
- Comparison/Contrast between Sell-Side & Buy-Side Risk Management
- Buy-Side Firms
- Intro to Credit & Counterparty Risk Management Practices
- Margin, Collateral, and Leverage
- Prime Brokerage Risk
- Introduction to Hedge Fund Risks
- Strategies in Hedge Funds
The purpose of this course is to study modern credit risk methodology. There are three major steps in modeling credit risk: (1) estimating the probability of default (by a statistical logit regression, a structural approach, or transition matrices), (2) estimating loss given default, and (3) estimating default correlations. After mastering three steps, we learn how to measure credit portfolio risk with the asset value approach by CreditMetrics. A Monte Carlo simulation is used to obtain the portfolio loss distribution. Finally, we examine modeling aspects in CDSs and CDOs.
- Basel II and Internal Ratings
- Estimating Credit Scores with Logit
- Structural Approach to Default
- Prediction and Valuation
- Transition Matrices; Prediction of Default and Transition Rates
- Prediction of Loss Given Default Modeling and Estimating Default
- Correlation with the Asset Value Approach
- Measuring Credit Portfolio Risk with the Asset Value Approach
- Credit Default Swaps and Risk-Neutral Default Probabilities
- Risk Analysis and pricing of Structured Credit: CDOs
Strategies and Risk Management in Alternative Investments: Continuation from 2nd Semester. The objective of the second seminar course is to examine the financial regulatory environment and explore advanced issues and strategies in financial risk management.
- Introduction to Financial Regulation
- Dodd-Frank Wall Street Reform and Consumer Protection Act
- Risk Management Toolkit
- Compliance Regimes and Strategies
- Predicting Risk
- Credit Risk Management in Action
- Framing the Risk Management Process
- Mitigating Credit Risk Exposure
- Corporate Governance and Accountability
- Ethics in Finance
Graded as part of Capstone class
The MSFRM Program is designed to provide a “Real World Approach to Risk Management Theory.” The most important way the Program delivers on this is via its Experiential Learning Requirement, which must be met by each student. Though there is a wide range of options that can be chosen by the student, they all deliver the real world experience that this requirement demands.
These options include:
Group Student Project: participation in a company-sponsored risk management project that has been approved by the Program Staff. Submission of a final report to the Program Staff is required, and it must be approved by the Program Director or his designate.
Individual Student Project: similar to the Group Student Project, but without project co-workers, this project requires a proposal to be submitted to the Program Staff for approval prior to project work starting, and then a final report that must be approved by the Program Staff.
Internship: either a full-time or a part-time, paid or unpaid internship with a Program Staff-approved company or organization. This requires a completed application that indicates risk management-related responsibilities/tasks, and that must be approved by Program Staff.
Global Risk Management Research Paper: similar to the Individual Student Project option, this Research Paper requires a proposal to be submitted to the Program Staff for approval prior to work starting, and then the final submission to be approved by the Program Staff. Unlike the Individual Student Project, however, this Research Paper will not be focused on a company-sponsored topic but rather on a global risk management topic of the student’s choosing. Examples of topics include Risks Inherent in Business Expansion into a (specific) Foreign Country and Risks of Conducting Business in a (specific) Foreign Country.