Postgraduate Course: Financial Risk Theory (MATH11132)
Course Outline
| School | School of Mathematics |
College | College of Science and Engineering |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Availability | Not available to visiting students |
| SCQF Credits | 10 |
ECTS Credits | 5 |
| Summary | This course presents approaches to model various financial risks. The
purpose is to learn the basic underlying mathematical concepts, to understand the economic rationale behind them through simple examples and to get an idea about how these methods can be implemented in practice.
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| Course description |
- Mean and variance. A quick look at Markowitz portfolio theory.
- Utility functions, certainty equivalent.
- Value-at-risk, calculation methods (historical, Monte Carlo). Drawbacks.
- Convex and coherent risk measures, examples.
- Measures of dependence: from covariance to copulas.
- Some statistical techniques (dimension reduction, factor analysis).
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Entry Requirements (not applicable to Visiting Students)
| Pre-requisites |
Students MUST have passed:
Probability, Measure & Finance (MATH10024) OR
Stochastic Analysis in Finance (MATH11154)
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Co-requisites | |
| Prohibited Combinations | |
Other requirements | The central point of this course (FRT) is built around risk measures. It is thus required that anyone taking this course needs to have a solid understanding of the concept of Equivalent Martingale Measures (and of the associated theory - Girsanov theorem; Radon-Nikodym derivative; Lebesgue integration).
At UG level, the above topics are taught in MATH10024 Probability, Measure and Finance. At PGT level, they are taught in MATH11154 Stochastic Analysis in Finance.
Note that PGT students on School of Mathematics MSc programmes are not required to have taken pre-requisite courses, but they are advised to check that they have studied the material covered in the syllabus of each pre-requisite course before enrolling. |
Course Delivery Information
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| Academic year 2024/25, Not available to visiting students (SS1)
|
Quota: None |
| Course Start |
Semester 2 |
Timetable |
Timetable |
| Learning and Teaching activities (Further Info) |
Total Hours:
100
(
Lecture Hours 18,
Seminar/Tutorial Hours 4,
Summative Assessment Hours 3,
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
73 )
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| Assessment (Further Info) |
Written Exam
80 %,
Coursework
20 %,
Practical Exam
0 %
|
| Additional Information (Assessment) |
Examination: 80%
Coursework: 20% |
| Feedback |
Not entered |
| Exam Information |
| Exam Diet |
Paper Name |
Hours & Minutes |
|
| Main Exam Diet S2 (April/May) | Financial Risk Theory (MATH11132) | 2:00 | |
Learning Outcomes
On completion of this course, the student will be able to:
- Demonstrate knowledge of, and a critical understanding of, Markowitz portfolio theory.
- Demonstrate knowledge of, and a critical understanding of, the utility functions theory.
- Demonstrate knowledge of, and a critical understanding of, the Value-at-risk approach.
- Demonstrate understanding of, and critical assessment of, different convex and coherent risk measures.
- Demonstrate understanding of, and critical assessment of, different measures of dependence.
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Reading List
- Follmer-Schied: Stochastic finance, Walter de Gruyter, 2004.
- Embrechts-Frey-McNeil: Quantitative risk management, Princeton University
Press, 2005.
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Additional Information
| Graduate Attributes and Skills |
Not entered |
| Special Arrangements |
MSc Financial Modelling and Optimization, MSc Computational Mathematical Finance and MMaths students only. |
| Keywords | FRT |
Contacts
| Course organiser | Prof Sotirios Sabanis
Tel: (0131 6)50 5084
Email: S.Sabanis@ed.ac.uk |
Course secretary | Miss Gemma Aitchison
Tel: (0131 6)50 9268
Email: Gemma.Aitchison@ed.ac.uk |
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