1. A RISK MANAGEMENT FRAMEWORK
References: Shortreed ‘ERM Frameworks’, Chapter 7 in Fraser and Simkins (eds) Enterprise Risk Management Kolb Series in Finance, Wiley 2010.
- Defining risk and risk management
- Review of crucial risk concepts (including quantitative methods). The Enterprise Risk Management (ERM) Framework
- The bank perspective
- The corporate perspective
- Exposure types (transaction, translation, economic)
- Handling exposure uncertainty
- Case Study: BHP Billiton
Pre-Class: Statistics Review, ERM Frameworks, Introductions, Bank Scandals.
2. RISK AND THE BALANCE SHEET
References: Crouhy, Galai and Marks Chapters 3, 8 and 17.
- Asset and liability mismatch (gap analysis)
- Earnings variability, product repricing issues
- Funding liquidity risk (liquidity coverage ratio, net stable funding ratio)
- Early warning indicators and risk management for funding/liquidity risk
- Role of the Asset and Liability Committee
- Economic v. Regulatory Capital
- Risk-adjusted Return on Capital (RAROC)
- Bank regulatory frameworks
- Case Study: Lehman Brothers
3. ANALYSING MARKET RISK
References: Crouhy, Galai and Marks Chapter 7.
- Market risk in the corporate setting
- Monte Carlo simulation
- Analysing risk in trading/investment portfolios
- Some features of real-world data (violations of Normality)
- Value-at-risk and Expected Shortfall
- Regulatory trends in market risk
- Using risk measures to manage market risk
- Grappling with model risk
4. GOVERNANCE, ETHICS AND RISK
References: Crouhy, Galai and Marks Chapter 4.
- Why governance?
- Corporate governance overview
- Corporate governance and risk management
- Risk governance in banks
- Risk culture
- Designing the risk management framework
- Remuneration and Performance Measurement
- Performance based remuneration
- Equity based remuneration
- Ethical dilemmas for risk managers
- Case study: Barclays
Pre-Class: Readings, videos, online quiz and assessable forums.
5. CREDIT RISK
References: Crouhy, Galai and Marks Chapters 9, 10.
- Retail vs Commercial vs Corporate Credit Context
- Key elements of credit risk (probability of default, loss given default, exposure at default)
- Methods of credit risk management
- Regulatory trends in credit risk
- Structural approach to credit analysis
- Reduced form methods for credit analysis (hazard rate modelling)
- Credit Rating Agencies
- Principles of credit model selection
- Counterparty credit risk (introduction)
- Credit Default Swaps (introduction)
6. OPERATIONAL RISK
References: Crouhy, Galai and Marks Chapter 14.
- Definition, scope and nature of operational risk (including long tail)
- Assessing operational risk with simulation methods and structured workshops
- Regulatory trends in operational risk
- Key Risk Indicators (KRI's) for operational risk
- Risk mitigation and treatment options