MATH40720 Fin.Risk Measurement & Mngmt

Academic Year 2021/2022

This module covers the techniques of financial risk measurement, with specific reference to liquidity and market risk. Topics include: an introduction to financial markets and to market and liquidity risk; mean variance analysis and portfolio theory; analysis of historic price data, computation of asset returns, measurement of mean and variance of asset returns, correlation and covariance; market risk measures for derivative securities; principal component analysis; value at risk (VaR); back-testing VaR; limitations of VaR.

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Curricular information is subject to change

Learning Outcomes:

Understand financial markets, types of markets, including equity, debt, derivative, and alternative investments.
Understand the nature of market risk and liquidity risk, how these risks manifest themselves in different financial instruments and also their impact on financial institutions.
Understand the main sensitivity measures used to quantify market risk including interest rate duration, equity beta and option Greeks.
Understand the use of Principal Component Analysis to model interrelated systems of random variables such as yield curves and applying this technique to market risk measurement problems.
Quantification of market risk using Value at Risk and Expected Tail Loss. Understanding the main types of VaR models, variance covariance, historic simulation, and Monte Carlo simulation.
Back-testing VaR and ETL models.

Student Effort Hours: 
Student Effort Type Hours
Lectures

36

Tutorial

12

Autonomous Student Learning

152

Total

200

Approaches to Teaching and Learning:
Lectures, tutorials, enquiry and problem-based learning. 
Requirements, Exclusions and Recommendations
Learning Requirements:

Students must have taken first courses in Calculus, Mathematical Analysis and Probability, equal or equivalent to MATH10350, MATH10320 and STAT20110, respectively. Students must also have taken first and second courses in Linear Algebra, equal or equivalent to MATH10340 and MATH20300.

MATH40430 must be taken concurrently if the student hasn't already taken a first course in Measure Theory and Integration equal or equivalent to MATH30360/MATH40430. The same applies to ACM30080 if the student hasn't already taken a first course in Partial Differential Equations equal or equivalent to ACM30080/ACM30220.


Module Requisites and Incompatibles
Not applicable to this module.
 
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade
Continuous Assessment: Continuous assessment:
-Homework 1 (10%)
-Homework 2 (10%)
-Mid term exam
Throughout the Trimester n/a Standard conversion grade scale 40% No

30

Examination: Final exam 2 hour End of Trimester Exam No Standard conversion grade scale 40% No

70


Carry forward of passed components
No
 
Resit In Terminal Exam
Spring Yes - 2 Hour
Please see Student Jargon Buster for more information about remediation types and timing. 
Feedback Strategy/Strategies

• Group/class feedback, post-assessment

How will my Feedback be Delivered?

Not yet recorded.

C. Alexander, Market Risk Analysis, Volume I, Quantitative Methods in Finance, John Wiley & Sons 2010.
C. Alexander, Market Risk Analysis, Volume IV, Value at Risk Models, John Wiley & Sons 2010.
J. Hull, Options, Risk Management and Financial Institutions (Fifth Ed.), Wiley 2018.
J. Hull, Options, Futures, and Other Derivatives (Tenth Ed.), Pearson 2018.