Risk Management

Course Number: 46954

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

Using tools and models developed in the Stochastic Calculus sequence, this course expands on interest rate, credit risk, and default modeling, including the Heath-Jarrow-Morton framework for interest rates. The course gives an overview of risk and common measures of risk. It provides methods for calculating Value-at-Risk (VaR), followed by a discussion of three pricing adjustments, credit valuation adjustment (CVA), debit valuation adjustment (DVA), and funding valuation adjustment (FVA), that have been adopted since the financial crisis of 2007-2008. The course discusses calculations that front office quants in banks do to support the determination of regulatory risk capital. The course concludes with a detailed discussion by an industry expert, Leif Andersen, of the momentous consequences of the phase-out of the London Interbank Offered Rate (LIBOR) as the reference rate for trillions of dollars of fixed-income deals.