Risk Management

Course Number: 46954

This course covers quantitative methods in risk management, both on the buy-side and the sell-side. Since the 2007-2008 financial crisis, risk management has taken on a large role in financial firms because of the need to satisfy regulators (sell-side) and for internal decision making (sell-side and buy-side). Efficient risk capital allocation can have an effect on revenue that is an order of magnitude greater than the effect of trading desk operations. The quantitative skills needed to perform this function are at least as great as those required anywhere in the finance industry. The course begins with an overview of risk and common measures of risk. It provides methods for calculating Value-at-Risk (VaR) in the context of market risk. This is followed by a discussion of buy-side risk management. Next, credit risk is covered in depth, including structural and reduced-form models for default, credit and debit valuation adjustments (CVA and DVA), and portfolio credit risk. Swap trades will be used as a case study. Further valuation adjustments involving funding and margining considerations are covered. The course ends with a discussion of the FRTB (Federal Review of the Trading Book) and Basel 3 risk capital rules. Non-MSCF students may not take this course without written permission from the instructor. To be eligible, you must be a BSCF student, or a graduate student enrolled in an MSCF participating college/department (Stats & Data Science, Heinz, Tepper, Computer Science Dept.,or Math Sciences). PhD students with relevant research may be eligible with permission from the instructor

Concentration: Mathematics
Semester(s): Mini 5
Required/Elective: Elective
Prerequisite(s): 46944, 46932