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 0
Introduction: Risk Management – intersection between Mathematics, IT and regulation
Part 1 Monte Carlo Methods
Monte Carlo integration (code)
Generation of randon 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
1) Historical approach (code)
2) Analytical approach
3) Monte Carlo simulations (code)
Optional: Basel II regulations
Part 3 Credit Risk
Basic risks in a default-free setting: duration and convexity
Structural Models
Rating based 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
| Author | Title | Publisher | Year | ISBN | Note |
| A. F. McNeil, R. Frey, P. Embrechts | Quantitative Risk Management:Concepts, Techniques and Tools | Princeton University Press | 2015 | ||
| John C. Hull | Risk Management e Istituzioni Finanziarie (Edizione 4) | LUISS University Press | 2015 | 978-88-6105-223-9 |
The final exam consists of
a) a project work to be completed individually or in small groups.
b) a written exam.
