Module Details
The information contained in this module specification was correct at the time of publication but may be subject to change, either during the session because of unforeseen circumstances, or following review of the module at the end of the session. Queries about the module should be directed to the member of staff with responsibility for the module.
Title QUANTITATIVE RISK MANAGEMENT
Code MATL485
Coordinator Dr S Mitra
Mathematical Sciences
Sovan.Mitra@liverpool.ac.uk
Year CATS Level Semester CATS Value
Session 2016-17 Level 7 FHEQ Second Semester 15

Aims

1.     The aim of this moduleis to describe the risk management process from the perspective of financialinstitutions as the process by which various risk exposures are identified,measured, and controlled. It also aims to introduce students to variousquantitative techniques that are widely used in financial risk management.

2.    To provide students with a conceptual introduction to thebasic principles and practices of modern quantitative financial riskmanagement, and to give them experience of carrying out the calculations involvedusing appropriate software (e.g., MatLab, R, C++, VBA, etc.).

3.Students will be able to apply theirknowledge to set standard financial models in order to manage the risk of afinancial and insurance companies’ cash flow, reserve, portfolio etc.

4. To provide enough knowledge and skillsto make student able of using the relevant financial models for regulatorypurposes based on rules in Basel accords and Solvency 1 and 2.

5. Students will be aware of thestatistical and numerical limitations of these models and know about modernapproaches to tackle those issues.

Learning Outcomes

Categorize the main sources of risks

Estimate market risk, credit risk, operational risk, etc.

Choose an appropriate method for assessing the risk

Model multivariate financial time series forrisk management

Discuss Basel Accords and Solvency I and II

Implement risk management procedures in one of the popular programming languages in financial and insurance industry e.g., MatLab, R, C++, VBA, etc.

Syllabus
1   



Risk overview.


    • Risk, history of risk management, regulation, Basel accords and Solvency I and II, review risk type: financial risk, credit risk, liquidity risk, operational risk, model risk, systematic risk, etc.,
  1. Fundamentals.
    • Economic and financial risk fa ctors, loss distributions, risk measures: value at risk, expected shortfall. Standard models: Black-Scholes-Merton, Heston, CIR, OU, etc. Factor models. Multivariate normal distribution, elliptical distributions, principal components. Basic concepts in time series including auto-regressive, unit root, fractional and heteroskedastic time series: AR, MA, ARMA, ARIMA, ARFIMA, GARCH models, inference in time domain, multivariate time series
  2. Risk management, institutional application.
    • Portfolio risk management, Risk sharing problem, reinsurance contracts, hedging and hedging-strategies in incomplete markets, capital allocation
  3. Risk management, regulatory application.
    • Estimating risk measures: historical simulation approaches, parametric and non-parametric approaches and Monte Carlo simulation approaches. Risk measurement using Extreme Value Theory. Conditional risk measurement, backtesting, Economic Scenario Generators, Stress testing.

Recommended Texts
Reading lists are managed at readinglists.liverpool.ac.uk. Click here to access the reading lists for this module.
Explanation of Reading List:

Pre-requisites before taking this module (other modules and/or general educational/academic requirements):
BSc Maths/Financial Maths or BSc in Physics 

Co-requisite modules:
 

Modules for which this module is a pre-requisite:
 

Programme(s) (including Year of Study) to which this module is available on a required basis:
MPFA - Financial & Actuarial Mathematics

Programme(s) (including Year of Study) to which this module is available on an optional basis:
 

Assessment
EXAM Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
Unseen Written Exam  150  End of Semester  80  Yes    Exam Notes (applying to all assessments) Assessment 1: computer-based coursework Assessment 2: exam with rubric `Full marks will be awarded for correct answers to FIVE questions.' 
CONTINUOUS Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
Coursework    During the Semester  20  Yes  Standard UoL penalty applies  Computer-based coursework