Measurement of Market Risk

Brief description

Introduction of the risk factors (interest-rate-discount-factors for different maturities and currencies, spreads for different maturities, currencies, ratings, industries, stock prices or indices, foreign exchange, commodity prices, etc.); Modelling and estimation of the distribution of risk factor changes: Simple approaches such as a joint normal distribution with historical estimators (moving-average estimators); Refinement of the parameter estimation for a joint normal distribution (exponentially weighted moving average EWMA, ARCH & GARCH); Short presentation of more advanced, alternative models: e.g. modelling of stochastic differential equations (SDEs) for interest rate models, including the parameter estimation for such models, and conducting a Monte Carlo simulation; Product mapping: delta approach and delta-gamma-approach; VaR-estimation: variance-covariance approach, historical simulation, Monte Carlo simulation; Back-testing of VaR-models; Stress Testing

Mode of delivery

face to face

Type

compulsory

Recommended or required reading and other learning resources/tools

Alexander, C., 2008, Pricing, Hedging and Trading Financial Instruments, John Wiley & Sons; Alexander, C., 2008, Value-at-Risk Models, John Wiley & Sons; Hull, J., 2018, Risk Management and Financial Institutions, 5th edition, Wiley

Planned learning activities and teaching methods

Interactive teaching (lecture and discussion), blended learning (online exercises are mandatory), application of models on practical problem sets

Assessment methods and criteria

49% assignment projects and online-quizzes, 51% final exam

Prerequisites and co-requisites

FOEC10, FUFI10, FUMS10, MUME10, PRDA10, TSAN10

Infos

Degree programme

Quantitative Asset and Risk Management (Master)

Cycle

Master

ECTS Credits

4.00

Language of instruction

English

Curriculum

Part-Time

Academic year

2024

Semester

2 SS

Incoming

Yes

Learning outcome

After the successful completion of the course students are able to master the various different computational approaches to estimate market risk measures (historical simulation, variance-covariance approach, advanced alternative simulation approaches). They are also able to test the quality of already implemented risk measurement models (back-testing) and they can conduct stress tests that analyse the impact of scarce extreme events.

Course code

0613-09-01-BB-EN-09