Certificate Program: Managing Risk in Emerging Markets
Ethical Dimensions of Risk Management
This one-credit seminar will provide a critical, historically-informed introduction to ethical theories and their relevance for financial risk management. The seminar will introduce students to the theoretical foundations and practical implications of ethics-related concepts insofar as they are relevant to financial risk management, for example: the notion of fiduciaries and fiduciary relationships; the concept of agency and agent-principal relationships; moral duty in general, and the duty of loyalty and duty of care in particular; conflicts of interest and self-dealing; and the aims and limits of regulation. Along the way, attention will be given to the various meta-ethical theories that frequently underwrite ethical decision-making in the context of financial risk management, including the meta-ethical theories of: utilitarianism, contractarianism, deontology, and classical natural law and virtue theory. Students will also be introduced to key ethical and jurisprudential concepts, such as: the distinction between the voluntary and the involuntary; the meaning and scope of moral responsibility; the meaning and requirements of justice; and the nature and justification of rights. No prior acquaintance with philosophy or ethical theory is assumed; the relevant concepts will be developed in class. A final paper will be required to show evidence of a student’s ability to apply the concepts they have learn in class.
Economics of Risk Management:
This course serves as a solid introduction to the basic building blocks of risk management. The financial and economic theories underpinning modern risk management are reviewed with particular attention to utility theory and the maximization of utility under uncertainty as well as theories of interest and asset pricing. Essential elements of probability and statistics are covered along with their application to risk management techniques, including Monte Carlo simulations and VaR (value at risk). The characteristics of key financial cash market and derivative instruments and their markets – fixed income, equity, and currencies - are introduced.
Professors: Quinlan, Rengifo
Credit and Operational Risk Management:
This course delves more deeply into specific areas of credit and operational risk and risk management. Various methods of measuring default risk – from an actuarial as well as a market price perspective – will be reviewed. Techniques for measuring credit and managing credit risk exposure will be covered along with a treatment of credit derivatives and structured credit products. Significant topics in operational risk and firm-wide risk management will be covered in this course. This will include a discussion of risk capital, RAROC (risk-adjusted return on capital), and an introduction to extreme-value theory.
Financial Econometrics for Risk Management
This course reviews the essential econometric techniques used in risk management. An introduction to multivariate statistics will be presented with emphasis in copula theory. Single- and multi-variable regression will be covered along with methods for identifying and handling the common problems that arise in their use, such as auto-correlation and heteroscedasticity. Useful applications of regression analysis in the context of risk management will be introduced including Logit and Probit models used in default estimation as well as principal components analysis. The analysis of time series and its use in risk management will be explored with particular attention to ARCH (auto-regressive conditional heteroscedasticity) and GARCH (generalized auto-regressive conditional heteroscedasticity) models and their use in the modeling and forecasting of volatility.
Professor: Rengifo, Karnik
Hedging and Derivatives
This course focuses on market risk; its sources and means for managing it. Tools and techniques for hedging both linear and non-linear models are covered, including through the use of options and other derivative instruments. Many of the skills learned in the financial econometrics class will be applied here. Managing market risk in a portfolio context will be explored including a discussion of techniques appropriate for traditional (long only) portfolio management as well as more sophisticated (hedge fund) environments. In addition, specialized topics may be introduced, including mortgages and swaptions, the hedging of exotic options, and static option replication techniques.
Risk and Regulation
This course covers the significant features of the regulatory environment that are most important to the risk management of financial institutions. An overview of the structure of modern financial institutions and the markets in which they exist will precede a review of the institutional regulatory framework in which they operate. This will include a discussion of the important regulatory bodies, such as the Federal Reserve, Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC), Financial Services Authority (FSA), and the Bank for International Settlements (BIS). Major regulations and their implications for risk management will be covered with particular attention to Basel II. In addition, important accounting and tax-related issues will be reviewed, where applicable.
Professor: Girling, May