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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Risk Management and the Basel Accords (CMSE11165)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Course typeStandard AvailabilityAvailable to all students
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) Credits15
Home subject areaCommon Courses (Management School) Other subject areaNone
Course website None Taught in Gaelic?No
Course descriptionManagers in charge of the risk function in banks have to have a knowledge of how to measure and predict the amount of operational, credit and market risks the bank faces and how these amounts affect the amount of regulatory and economic capital a bank should retain to protect depositors and the market from unexpected events. Such a manager would also need to know how to allocate that capital between functions within the bank. The aim of this course is to give the student a detailed technical knowlege and understanding of how to do this using the latest methodologies.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Additional Costs None
Information for Visiting Students
Displayed in Visiting Students Prospectus?No
Course Delivery Information
Delivery period: 2013/14 Semester 2, Available to all students (SV1) Learn enabled:  Yes Quota:  None
Web Timetable Web Timetable
Course Start Date 13/01/2014
Breakdown of Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 20, Seminar/Tutorial Hours 8, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 117 )
Additional Notes
Breakdown of Assessment Methods (Further Info) Written Exam 70 %, Coursework 30 %, Practical Exam 0 %
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)Risk Management and the Basel Accords2:00
Learning Outcomes
On completion of this course, the student will be able to:
1. Knowledge and Understanding

After completing the course the student will

¿Have a detailed knowledge of a range of techniques for measuring financial risk of a portfolio of assets when returns are correlated using value at risk, aknowledge of how simulations and stress tests are carried out and of strengths and weakness of VaR; how to estimate probability of default (PD) for corporate loans based on spreads and on structural models; what loss given default means and a knowledge of empirical studies that have tried to model it; different approaches to allocating a rating to an exposure; an understanding of how proprietory portfolio credit risk models predict credit risk; an understanding of what operational risk is and how to measure it; a deep conceptual understanding of how to compute the Basel II and III capital requirements and of techniques for computing economic capital and allocating capital between activities.

¿Have an understanding of the strengths and weaknesses of the techniques

¿An appreciation of the importance of risk evaluation and of the uncertainties and complexity of the methods that can be used.

2. Cognitive Skills

On completion of the course a student will be able to

¿interpret assessments of operational, credit and market risk;
¿apply models to assess different types of risk within banks;
¿synthesise reviews of research on specific topics such as LGD;
¿critically review assessments of operational, credit and market risk.

3. Professional/subject specific/practical skills

On completion of the course a student will be able to

¿use appropriate techniques to evaluate the risk of a portfolio of assets using VaR;
¿use capital market models to compute the PD for specific corporate exposures;
¿compute loss given default and recovery risk;
¿compute unexpected loss using portfolio models;
¿compute the regulatory capital requirement for a bank given specific inputs.

4. Transferable skills

During the course a student will develop skills to

¿communicate complex technical issues coherently and precisely;
¿quantitatively analyse concepts concerning the nature of risks;
¿work intensively and methodically to understand technical issues.
Assessment Information
Exam, 2 hours, 70%
Assignment: 30%;
Special Arrangements
Additional Information
Academic description Not entered
Syllabus Lecture 1 Risk Measurement
Value at Risk, sensitivity of a portfolio to market factors, mapping of risk positions.

Lecture 2 Simulation Models
Nature of simulation, historical simulations, hybrid approaches, bootstrapping, Monte Carlo simulation, stress testing, evaluation of VaR models, backtesting.

Lecture 3 Capital Market Models
Estimating PD from corporate bond spreads, structural models based on stock prices: Merton¿s model, KMV model; evaluation.

Lecture 4 Loss Given Default
Types of LGD, estimation of LGD, empirical results of LGD studies, recovery risk, relationship with default risk.

Lecture 5 Rating Systems
Difference between internal and agency ratings, assignment of ratings, converting ratings into PD: statistical approach, actuarial approach; validation.

Lecture 6 Portfolio Models
Choice of time horizon; Creditmetrics¿ Portfolio Manager¿, Creditportfolioview ¿, Credit Risk +¿, evaluation of credit portfolio risk models.

Lecture 7 Operational Risk
Main factors affecting operational risk, measuring operational risk, estimating the probability of such risky events, estimating expected loss and unexpected loss.

Lecture 8 Basel II & III
History of capital requirements regulation, aim of the accord, Pillar 1 minimum capital requirements, standardised approach, internal ratings approach, Pillar 2; Pillar 3. Basel III. Evaluation of Basel II. Impact of Basel II.

Lecture 9 Basel II & III (contd)
Pillar 1 : operational risk. Evaluation. Basel III.

Lecture 10 Capital management
Defining capital, constraints imposed by regulatory capital, optimising regulatory capital.
Transferable skills Not entered
Reading list Not entered
Study Abroad Not entered
Study Pattern Not entered
KeywordsNot entered
Course organiserDr Fernando Moreira
Tel: (0131 6)51 5312
Course secretaryMiss Malgorzata Litwinska
Tel: (0131 6)51 3028
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