The goal of the lecture is to present the theoretical foundations and the models employed by financial institutions to manage different sources of financial risk. A particular focus will be put on numerical methods (Monte Carlo simulations) and their implementation using modern IT-Tools (Java, Eclipse).
Part 1: Monte Carlo Methods Basic notions: expectation, Lp spaces, classical inequalities (Markov, Chebychev etc...) Classical numerical integration Monte Carlo integration (code) Generation of random draws and discretization of stochastic processes (code) Variance reduction techniques (code)
Part 2: Market Risk Introduction: IR, Equity, FX, Commodities, Options Risk Measures: general theory VaR/ES calculation
Part 3: Credit Risk Basic risks in a default-free setting: duration and convexity Structural Models Rating based models Reduced form models Optional: Basel II regulations
Part 4: Counterparty Credit Risk Funding and collateral (xVA) CVA DVA FVA Monte Carlo for xVA (code) Optional: Basel III/Basel IV regulations
|Baesens, B., Backiel, B. and Vanden Brouke, S.||Beginning Java Programming: The Object-Oriented Approach (Edizione 1)||Wrox Pr Inc||2015||978-1-118-73949-5|
|Bielecki, T. and Rutkowski, M.||Credit Risk: Modeling, Valuation and Hedging (Edizione 2)||Springer||2004||978-3-662-04821-4|
|A. F. McNeil, R. Frey, P. Embrechts||Quantitative Risk Management:Concepts, Techniques and Tools||Princeton University Press||2015|
The exam consists of two parts: the first is a Project Work that has to be completed by using the Java programming language. The mark on the project work has a weight of 30% on the final grade.
The Project Work can be completed by groups consisting of up to 4 people.
Aims of the project work are:
Student get access to the written exam only if the project work has a positive valuation. Those who do not submit any solution will not be accepted to the exam.
The second part of the exam consists of a written exam on all topics of the lecture. The exam contain theoretical and practical exercises together with programming questions related to the Java programming language. The grade of the written exam has a weight of 70% on the final mark.