Postgraduate Course: Risk Management and the Basel Accords (CMSE11165)
Course Outline
| School | Business School |
College | College of Humanities and Social Science |
| Course type | Standard |
Availability | Available to all students |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Credits | 15 |
| Home subject area | Common Courses (Management School) |
Other subject area | None |
| Course website |
None |
Taught in Gaelic? | No |
| Course description | Managers 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 |
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Co-requisites | |
| Prohibited Combinations | |
Other requirements | None |
| Additional Costs | None |
Information for Visiting Students
| Pre-requisites | None |
| Displayed in Visiting Students Prospectus? | No |
Course Delivery Information
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| Delivery period: 2012/13 Semester 2, Available to all students (SV1)
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WebCT enabled: Yes |
Quota: None |
| Location |
Activity |
Description |
Weeks |
Monday |
Tuesday |
Wednesday |
Thursday |
Friday |
| No Classes have been defined for this Course |
| First Class |
First class information not currently available |
| Exam Information |
| Exam Diet |
Paper Name |
Hours:Minutes |
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| Main Exam Diet S2 (April/May) | Risk Management and the Basel Accords | 2:00 | | |
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.
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Assessment Information
Exam, 2 hours, 70%
Assignment: 30%;
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Special Arrangements
| None |
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.
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| Transferable skills |
Not entered |
| Reading list |
Not entered |
| Study Abroad |
Not entered |
| Study Pattern |
Not entered |
| Keywords | Not entered |
Contacts
| Course organiser | Prof Jonathan Crook
Tel: (0131 6)50 3802
Email: |
Course secretary | Ms Samantha Rice
Tel: (0131 6)51 5332
Email: |
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