ICM207-Market Risk

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites: ICM103 Quantitative Methods for Finance
Modules excluded:
Current from: 2019/0

Email: e.lazar@icmacentre.ac.uk

Type of module:

Summary module description:

This module has three broad parts: (1) it covers the main methodologies of measuring market risk (mostly VaR and ES models); (2) it discusses the applications of these models to equity & FX, interest rate-sensitive products and derivatives markets; and (3) it introduces students to the relevant regulations (Basel & FRTB) regarding bank capital calculation for the trading book.

Aims:

This module provides an understanding of the Value-at-Risk (VaR) and Expected Shortfall (ES) framework for market risk assessment and control. The module has a significant practical component with computer-based workshops that are designed to support the lecture material.

Assessable learning outcomes:

By the end of the module, it is expected that students will: Understand the latest developments in banking regulations that are the main driving force behind changes in our approaches to risk measurement; Outline the foundations of market risk analysis and the basic models for assessing market risk; Describe the market risk measurement techniques that are used daily in the front and middle offices of banks; particular emphasis is placed on the appraisal of the covariance matrices that are used to measure the market risk of portfolios; Be able to build various Value-at-Risk (VaR) and Expected Shortfall (ES) models for market risk for international portfolios of equities, FX, interest rate products, commodities, derivatives etc.

Additional outcomes:

This course is aimed at the synthesis of the mathematics, statistics and banking that they have learned in Part 1 of their MSc. Students will find that the Market Risk course will fuse together their knowledge of finance that is gained in Securities, Futures and Options, with their knowledge of econometrics that is gained in Quantitative Methods for Finance.

Outline content:

•ÌýÌýÌýÌýÌýÌýÌý The characteristics of markets and market risk

•ÌýÌýÌýÌýÌýÌýÌý Capital requirements

•ÌýÌýÌýÌýÌýÌýÌý Risk models

•ÌýÌýÌýÌýÌýÌýÌý Advanced Risk models

•ÌýÌýÌýÌýÌýÌýÌý Applications to Equities

•ÌýÌýÌýÌýÌýÌýÌý Applications to Foreign exchange

•ÌýÌýÌýÌýÌýÌýÌý Applications to Interest rate products

•ÌýÌýÌýÌýÌýÌýÌý Applications to Derivatives

•ÌýÌýÌýÌýÌýÌýÌý Applications to Fund management, banking & non-financial firms

•ÌýÌýÌýÌýÌýÌýÌý Fundamental Review of the Trading Book

Brief description of teaching and learning methods:

The topics are introduced in the lectures which are then followed by assignments and practical workshops. Via the assignments and throughout the practical workshops students will be expected to build and use specially designed Excel spreadsheets.

Summative assessment- Examinations:

One written final exam (closed book) of length 2 hours.

Summative assessment- Coursework and in-class tests:

5 written assignments (take home, open book) with submission dates in weeks 3, 4, 6, 8 and 9.

Two class tests (open book) of length 1 hour 30 minutes.

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:

By written examination only, to be taken in August/September, as part of the overall examination arrangements for the MSc programme.

Additional Costs (specified where applicable):

1) Required text books: Carol Alexander: Market Risk Analysis, volume IV: Value-at-Risk Models John Wiley &Sons, 2009, ISBN-10: 0470997885, £62.99. 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification: 6) Travel, accommodation and subsistence:

Last updated: 8 April 2019