37009 Risk Management
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particular session, location and mode of offering is the authoritative source
of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.
Subject handbook information prior to 2024 is available in the Archives.
Credit points: 8 cp
Result type: Grade and marks
Requisite(s): 24 credit points of completed study in spk(s): STM91543 Core Subjects (Mathematics)
These requisites may not apply to students in certain courses. See access conditions.
Anti-requisite(s): 25878 Risk Management
Description
Designed specifically for quantitative finance students, this subject provides the disciplinary knowledge in the area of risk management by providing a comprehensive and rigorous exposition of the theory and practice of financial risk measurement and management. It focuses on the tools and techniques for identifying, measuring and managing market risk. It covers the value-at-risk measure and expected shortfall. Parametric and non-parametric techniques, including historical and Monte Carlo simulation, are covered in depth. The subject also provides an overview of liquidity risk and introduces credit risk models. Issues in measuring operational risk are explored.
The subject consists of a large practical component involving the implementation of the various approaches to quantifying the market risk of large portfolios consisting of various financial instruments.
The combination of theory and practical, real-world examples and complex problems presented promote enquiry and critical thinking. Innovation and creativity are required to successfully solve the problems in the assessment tasks where communication is also critical to clearly explain methods used and the results obtained.
Subject learning objectives (SLOs)
Upon successful completion of this subject students should be able to:
| 1. | Explain the regulatory environment for financial risk as specified in the Basle Accord framework. |
|---|---|
| 2. | Identify the range of financial risks facing corporations. |
| 3. | Value financial instruments across different asset classes in complex portfolios. |
| 4. | Quantify market risk of complex portfolios using value-at-risk techniques. |
| 5. | Understand and apply stress testing and backtesting techniques |
| 6. | Quantify liquidity risk and explain operational risk. |
Course intended learning outcomes (CILOs)
This subject also contributes specifically to the development of following course intended learning outcomes:
- Appraise advanced knowledge and critically evaluate the information's source and relevance, with a focus on applications of mathematical methodologies to quantitative finance problem solving. (1.1)
- Investigate complex and challenging real-world problems in the areas of quantitative finance by critically evaluating information and solutions and conducting appropriate approaches to independent research. (2.1)
- Practice professionally adhering to confidentiality requirements, ethical conduct, data management, and organisation and collaborative skills in the context of applying mathematical and statistical modelling to quantitative finance problems. (3.1)
- Reflect and evaluate the value, integrity, and relevance of multiple sources of information to derive responsive, innovative solutions, show creativity, innovation and application of technologies in complex quantitative finance problems. (4.1)
- Develop and present complex ideas and justifications using appropriate communication approaches from a variety of methods (oral, written, visual) to communicate with mathematicians, data analysts, scientists, industry, and the general public. (5.1)
Contribution to the development of graduate attributes
The Faculty of Science has determined that our courses will aim to develop the following attributes in students at the completion of their course of study. Each subject will contribute to the development of these attributes in ways appropriate to the subject, thus not all attributes are expected to be addressed in all subjects.
This subject will provide a thorough understanding of the range of the risks facing financial institutions and other corporations. Students will develop a theoretical and practical knowledge of how to quantify market risk using the value-at-risk measure and its extensions. Students will apply state-of-the-art risk measurement and risk management techniques which are tractable in practice to complex portfolios. This subject will also provide an introduction to liquidity risk and an overview of the issues involved in assessing operational risk.
This subject contributes to the development of the following graduate attributes:
GA 1. Disciplinary Knowledge -students will acquire detailed specialised quantitative finance knowledge and the professional competency required to work as a quantitative finance analyst in the modern finance industry. In this subject, students will acquire extensive knowledge in the area of risk management, particularly market risk.
GA 2. Research, inquiry and critical thinking - students will develop the ability to apply and demonstrate critical and analytical skills to developing innovative solution to complex real world problems techniques. This will be developed through the applied work and the assessment tasks.
GA 3. Professional, Ethical and Social Responsibility - develop an enhanced capacity to work ethically and
professionally using collaborative skills in the workplace. This graduate attribute is developed in this subject through the students’ understanding of the importance of professional and ethical conduct in risk management.
GA 4. Reflection, Innovation, Creativity - The ability source and analyse multiple sources of data to develop innovative solutions to real world problems in quantitative finance. Student's will be required to acquire data from multiple sources to assess the market risk of complex real world portfolios in this subject.
GA 5. Communication - Effective professional communication skills for a range of technical and non-technical
audiences. This graduate attribute will be developed through the written report that is part of the major assessment task for this subject.
Teaching and learning strategies
The subject is presented in the form of a lecture and practical workshop format. The theoretical concepts are presented in lectures and students work on real-world practical exercises in the workshops. Students have the opportunity to work collaboratively and will receive feedback on their solutions.The teaching and learning strategies in this subject enable students to experience a seamless integration of online and face-to-face learning.
The subject will be consistent with the UTS Learning Futures model where students will have access to online learning resources and will undertake preliminary learning tasks prior to coming to classes where they engage in further learning and practical workshops.
Off campus, students will have access to resources to help introduce theory and concepts before class. These learning resources can be accessed by students at their convenience. In the lectures and workshops, the theory and concepts are further reinforced with real-world examples.
Relevant and challenging problem sets will also be provided for each lecture and students are required to solve these after class. The problems sets will prepare students for the successful completion of the subject assessment tasks and will encourage critical thinking and innovation.
Students will receive verbal feedback on their work during workshops. Students will receive summative feedback on their assignment solutions.
Content (topics)
- The Basel regulatory environment and capital requirements for financial risks.
- Identification of risk factors and risk factor mapping.
- Measuring Market Risk: Standard techniques for value-at-risk. Extensions of the VaR approach with practical workshops.
- Stress testing and backtesting with practical workshops.
- Estimating liquidity risks.
- Issues in measuring operational risk.
Assessment
Assessment task 1: Assignment Task 1 - Valuation and Basic VaR
| Intent: | This assignment task will contribute to the development of the following graduate attributes: |
|---|---|
| Objective(s): | This assessment task addresses subject learning objective(s): 2 and 3 This assessment task contributes to the development of course intended learning outcome(s): 1.1, 2.1 and 4.1 |
| Type: | Project |
| Groupwork: | Individual |
| Weight: | 15% |
| Criteria: | This assignment will be assessed accuracy of answers, workings and clear explanations of solutions. |
Assessment task 2: Assignment Task 2 - Market Risk Measurement with VaR
| Intent: | This assignment task will contribute to the development of the following graduate attributes: 1. Disciplinary Knowledge |
|---|---|
| Objective(s): | This assessment task addresses subject learning objective(s): 1, 2 and 4 This assessment task contributes to the development of course intended learning outcome(s): 1.1, 2.1, 3.1 and 5.1 |
| Type: | Report |
| Groupwork: | Individual |
| Weight: | 35% |
| Criteria: | The assignment will be assessed accuracy of answers, workings and clear explanations of solutions. The clarity and integrity of the written report will also be assessed. Detailed criteria of the assignment will be provided in class. |
Assessment task 3: Exam
| Intent: | This final exam will contribute to the development of the following graduate attributes: 1. Disciplinary Knowledge |
|---|---|
| Objective(s): | This assessment task addresses subject learning objective(s): 1, 2, 4, 5 and 6 This assessment task contributes to the development of course intended learning outcome(s): 1.1, 2.1 and 4.1 |
| Type: | Examination |
| Groupwork: | Individual |
| Weight: | 50% |
| Criteria: | The final exam will assess disciplinary knowledge in terms of the integrity and correctness of the answers and the accuracy of explanations. Innovation, creativity and critical reflection in the answers to questions in the final exam are assessed and recognised. Critical thinking will be integral to successfully solving questions in the final exam. |
Minimum requirements
Students must achieve at least 50% of the subject’s total marks.
Required texts
There are no required texts for this subject. Lecture notes and other materials shall be made available on the subject Canvas site.
Recommended texts
The following references may be useful to supplement the lectures and activities in the subject:
- Danielsson, J. (2011). Financial Risk Forecasting: The Theory and Practice of Forecasting Market Risk with Implementation in R and Matlab. John Wiley & Sons, Ltd.
- Deutsch, H.-P. & Beinker, M. W. (2019). Derivatives and Internal Models: Modern Risk Management. (5th edition). Palgrave Macmillan.
- Hull, J. C. (2022). Options, Futures, and Other Derivatives. (11th edition). Pearson Education, Inc.
- Jorion, P. (2007). Value at Risk: The New Benchmark for Managing Financial Risk. (3rd edition). McGraw-Hill.
- McNeil, A. J., Frey, R. & Embrechts, P. (2015). Quantitative Risk Management: Concepts, Techniques, and Tools. (revised edition). Princeton University Press.
- Miller, M. B. (2019). Quantitative Financial Risk Management. John Wiley & Sons, Inc.