Course overview
This course examines the process and instruments of treasury and risk management from both a financial institution and a non-financial institution perspective. Students first build the market-risk measurement toolkit: volatility estimation with EWMA and GARCH models, value-at-risk and expected shortfall, the model-building approach, and historical simulation with extreme value theory. The course then turns to managing the measured risks: designing risk-transfer strategies with futures, swaps and options, managing the residual risk of derivatives positions with the Greek letters, and validating the measures through backtesting, scenario analysis and stress testing. The final part of the course extends the same measurement logic to credit risk (default probabilities and credit value at risk) and to regulatory capital under the Basel framework, connecting the course’s internal models to the capital requirements they support. Emphasis is placed on critical analysis and problem solving, preparing students to measure, hedge and appraise risk as treasury and risk professionals.
- Measuring Market Risk
- Hedging and Stress Testing
- Credit Risk and Regulatory Capital
Course learning outcomes
- Measure the market risk of the exposure portfolios of financial and non-financial firms using volatility models (EWMA and GARCH), value-at-risk and expected shortfall via the model-building and historical-simulation approaches, and validate the measures through backtesting, extreme value theory, and scenario-based stress testing.
- Design, evaluate, and communicate risk-transfer strategies for financial and non-financial firms using futures, swaps, and options, including optimal hedge ratios, and manage the residual risk of a derivatives book using the Greek letters.
- Estimate default probabilities from credit ratings, credit spreads, and the Merton structural model, and measure the aggregate credit risk of a portfolio using the Vasicek/Gaussian-copula credit value-at-risk framework.
- Evaluate regulatory capital under the Basel framework (Basel III capital, the internal-ratings-based credit formula, and the Fundamental Review of the Trading Book market-risk charge) and appraise how a firm’s internal risk models map into its regulatory capital requirements.