Financial Risk Management Contact Information ENG MGT 6215 - - PDF document

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Financial Risk Management Contact Information ENG MGT 6215 - - PDF document

Financial Risk Management Contact Information ENG MGT 6215 (co-listed with SYS ENG 6615) n Office n 221 Engineering Management David Enke n Phone: 573-341-4749 n enke@mst.edu Professor n http://www.mst.edu/~enke/ Engineering Management and


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Financial Risk Management

ENG MGT 6215 (co-listed with SYS ENG 6615)

David Enke

Professor Engineering Management and Systems Engineering Missouri S&T enke@mst.edu http://www.mst.edu/~enke

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Contact Information

n Office

n 221 Engineering Management n Phone: 573-341-4749 n enke@mst.edu n http://www.mst.edu/~enke/

n Course information

n http://canvas.mst.edu/ n http://web.mst.edu/~enke/courses/ENGMGT6215/ 2

Course Information

n Meet on Tuesday/Thursday afternoons

n 12:30-1:45 pm central n January 22nd to May 7th n No class/lecture on: n March 12th and 14th (Spring recess - St. Pats) n Test 1 is due on March 12th n March 26th and 28th (Spring break) n May 7th (Test 2 due)

n Class Location: Library, Room G-14

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Course Textbook Online Resources

n No formal textbook is assigned for the

Financial Risk Management course

n Instructor notes available on Canvas n Students can refer to the following:

n “Risk Management and Financial Institutions,”

5th Edition, John C. Hull, Prentice Hall, 2018

n “Options, Futures, and Other Derivatives,”

10th Edition, John C. Hull, Prentice Hall, 2017

n “Investments,” 11th Edition, Zvi Bodie, Alex Kane,

Alan Marcus, McGraw Hill, 2017

Homework and Tests

n Four homework assignments

n 15% each (60% total) n Calculation problems and computer

assignments (at times using Excel)

n Two tests

n 20% each (40% total) n Take home, open book, open notes n Based on note problems, homework

problems, and lecture material

n All assignments due by 12 pm noon central 5

Homework and Tests

n Homework assignments will be made in class n Late homework will be accepted for a

maximum of two days after the original due date (weekend days count)

n 10% will be deducted for each day the

homework assignment is late

n Makeup tests that result from schedule

conflicts must be approved by the instructor at least one week prior to the test

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Course Resources

n Instructor homepage

n http://web.mst.edu/~enke/

n Course homepage and lecture schedule

n http://web.mst.edu/~enke/courses/ENGMGT6215/ n Students will be notified of major changes

to the lecture schedule (test and homework due dates, topic coverage), both in class and by email

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Course Resources

n Canvas

n http://canvas.mst.edu/

n Canvas will contain:

n Class lecture notes (presentation slides) n Class handouts n Any practice problems/solutions (if provided) n Homework assignments and solutions n Tests and solutions 8

Course Resources

n Canvas notifications and content release

n With the proper settings selected in Canvas,

students can be notified of changes to the availability of course content (notes, test and homework assignments, grades, etc.)

n Students can set the updating frequency n Tests and homework assignments will

become available at 12:30 pm central on the date defined on the lecture schedule

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Course Resources

n The lecture notes are in Adobe

Acrobat pdf format

n One, two, three, and six slide per page

formats are available

n Adobe Acrobat Reader can be used to

view the lecture notes

n http://get.adobe.com/reader/ 10

Main Course Concepts

n Volatility and its Estimation (EWMA,

GARCH, Maximum Likelihood Estimation),

n Correlation and its Estimation (EWMA,

GARCH, Copulas)

n Value-at-Risk (VaR): Model and Simulation n Liquidity, Model, and Operational Risk n Diversification, Portfolio Theory and

Portfolio Construction/Management

n Credit Risk and Credit Derivatives

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Course Topics

n Estimating Volatilities and Correlations

n Definition of volatility and implied volatilities n Estimating volatility from historical data n Monitoring daily volatility n Exponentially weighted moving average model n The GARCH(1,1) model n Choosing between the models n Maximum likelihood methods n Using GARCH(1,1) to forecast future volatility 12

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Course Topics

n Estimating Volatilities and Correlations cont.

n Definition of correlation n Monitoring correlation n Multivariate normal distributions n Using EWMA and GARCH n Copulas n Application to loan portfolios 13

Course Topics

n Value at Risk (VaR)

n Definition of VaR n VaR versus expected shortfall n Properties of risk measures n Choice of parameters for VaR n Marginal VaR, incremental VaR, and

component VaR

n Back testing 14

Course Topics

n Value at Risk (VaR) cont.

n Market Risk VaR - Historical Simulation

Approach

n VaR historical method n Accuracy n Extensions n Extreme Value Theory n Applications using historical simulation

for VaR

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Course Topics

n Value at Risk (VaR) cont.

n Market Risk VaR - Model Building Approach n The linear model n Handling interest rates n Applications of the linear model n The linear model and options n The quadratic model n Monte Carlo simulation n Using distributions that are not normal n Model building versus historical simulation 16

Course Topics

n Liquidity Risk

n Liquidity trading risk n Liquidity funding risk n Traditional view of liquidity risk n Liquidity black holes n Problems with Long-Term Capital

Management

n Liquidity versus profitability 17

Course Topics

n Model Risk

n Marking to market n The nature of models in finance n Models for nonlinear products n Physics versus finance n How models are used for pricing products n Hedging n Models for actively traded products n Models for structured products n Dangers in model building, detecting problems 18

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Course Topics

n Operational Risk

n What is operational risk? n Determination of regulatory capital n Categorization of operational risks n Loss severity and loss frequency n Forward looking approaches n Allocation of operational risk capital n Use of the power law n Insurance n Sarbanes-Oxley 19

Course Topics

n Diversification, Portfolio Theory,

Portfolio Construction, and Evaluation

n Notions of Risk, Risk and Uncertainty n Portfolio Risk, Systematic Risk, Non-

Systematic Risk, CAPM

n Mean-Variance Framework/Procedure n Diversification of Stock and Bond

Portfolios

n Recommendations for Diversification 20

Course Topics

n Credit Risk

n Estimating Default Probabilities n Credit ratings, credit indices n Historical default probabilities, recovery rates n Estimating default probabilities from bond

prices

n Comparison of default probability estimates n Using equity prices to estimate default

probabilities

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Course Topics

n Credit Risk cont.

n Credit Risk Losses and Credit VaR n Estimating credit losses n Credit risk mitigation n Credit VaR n Vasicek’s model n Credit Risk Plus n CreditMetrics 22

Course Topics

n Credit Derivatives

n Credit default swaps (CDS) n Valuation of CDS n Credit indices n CDS forwards and options n Total return swaps n Basket credit default swaps n Collateralized debt obligations (CDO) n Valuation of a basket of CDS and CDO products 23

Disclaimer

n Nothing presented or discussed in

this course should be considered a recommendation to buy or sell a security or other financial product

n The instructor is not a registered

financial analysis

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