Lecturers

Course Outline

Detailed Curriculum Program

Part I(12 hours): Finance Theory, Market and Instruments

Content

1.-Market and Instruments:  The Money Market. Fixed-income capital market, Stock markets, FX market, Derivative markets. Futures and forward contracts. Commodities. Swaps.

Financial  Basic Concepts: Risk and Return of stocks and portfolios. Risk aversion. Arbitrage. Efficient market hypothese. Mathematical model of financial markets .

2.-Portfolio Management: Portfolio Optimization. Markowitz mean-variance method. Efficient frontier. Equilibrium in capital markets: CAPM, ATP  model. Market beta’s.

 3.-Pricing: The principle of pricing.  Risk neutral probability. Binomial CRR Model. Pricing European options. Call-Put parity. Black-Scholes model. Risk neutral probability in continuous trading. Pricing European and American Options. Greeks.

Pricing futures and options on currency. Pricing exotic options.

4.- Fixed Income instruments: Compounding methods. Bonds. Interest rate models. Term structure. Pricing bonds.

Part II (3 hours): A Review of the Mathematical Foundations of Risk Management

Content

 Calculus: Ordinary and partial derivatives. Taylor Series Expansions. Optimization. Ordinary and Partial Differential Equations.

Linear Algebra:  Matrix algebra and Determinants. Eigenvalues and Eigenvectors.  Cholesky factorization.

Probability and Statistics: Random Variables. Probability distributions. Moments. Covariance and correlation matrices. Monte Carlo simulation. Linear Regression. Basic Statistical Tests.

 Numerical Methods.

Part III (9 hours): Risk Management in Practice: Market Risk

1.- Market Risk: Identification. Assessment. Control. Market Risks in Funds, Banks and non-financial firms. Market sensitivities. Greeks.

2.- Value-at-Risk(VaR): Value-at-risk. Calculation of VaR in linear portfolios. Analytical, Historical and Monte Carlo Methods. Covariance Matrix construction.

3.- Advances in Risk Measures: Stress Testing. Volatility cluster and VaR. Non-normality VaR. Decomposition of VaR. Principal Component Analysis. Scenario Analysis. Alternative Risk Measures. Extreme Value Theory.

Part III (Continuation) (12 hours): Credit Risk, Operational Risk

1.- Basic Credit Risk: Foundations of Credit Risk Management. Credit Exposure. Default and Credit Migration. Credit Ratings. Credit scores and internal rating models. Implied default probabilities. Credit spreads.

2.- Advanced  Credit Risk Models: Structural Merton Model. Intensity Models. Portfolio models for credit loss. Credit Risk capital calculation.

3.- Operational Risk: Operational Risk management framework. Operational Risk process Model. Operational VaR.

Case Studies

1.- Case Studies: Barrings, Metallgesellschaft, LTCM, Northwest Toys. Goodrich-Rabobank.

Bibliography:

The professional Risk Managers’ Handbook.

A Comprehensive Guide to Current Theory and Best Practices.

Edited by Carol Alexander and Elizabeth Sheedy

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