Risk measurement and management in securities market

The course has a strong focus on the analytical tools used in problems of financial risk measurement and management. It is based on the book Value at Risk by Philippe Jorion. We will also draw upon the material that is covered in the course syllabus in the FRM/PRM certification programs that pertain to risk measurement. There will be papers and material that will be referred in class material as the course progresses.

Course content

Introduction

• What is risk in finance? [Slideshow 1]
• Types of risk
  1. Price/market risk
  2. Credit risk
  3. Liquidity risk

Measures of risk:

1. Value at Risk (VaR) [Slideshow 3]
2. Coherent measures of risk [Some references]
3. Implications of the coherent risk framework for risk management [Slideshow 4]
4. Risk factors driving risk measures [Slideshow 5]
5. Comparing measures of risk [Some references]
• Data issues

An Sweave-R-Latex demo.

Framework to test alternative risk measures/models

• Comparing risk measures using VaR forecasts [Slideshow 6]
• Comparing risk measures using portfolio optimisation [Slideshow 7]

Models to measure risk

• Examples [Slideshow 8]
• Estimating structural changes in volatility [Code]

Analytics of VaR

• Nuances of measuring VaR for portfolios [Slideshow 9]
• Portfolio risk measurement using VaR [Slideshow 10]
• Normal linear VaR for portfolio risk [Slideshow 11]
• Dynamic volatility models for portfolio VaR [Slideshow 12]
• Expected Tail Loss [Slideshow 13]

• Homework could be given at the end of the week and expected to be submitted at the start of the week.
• Quizzes could be conducted in any class.
• All quantitative work will be done in the R statistical package.
• You will be expected to attend the fortnightly sessions of the IGIDR Finance Research Group.
• There will be a project (40%) and a final examination (60%). The final will be based on the entire course content. There will be a presentation of the project material in the first week of March, and a final presentation in the last week of April. Project submissions are expected in LaTeX formatted PDF files, and is due on the day of the final exam.