Course: Instructor: Class Hours: Phone: E-mail:

Course Syllabus

Fall 2012

Risk Management (four credit hours) Orfea V. DHUCI
Friday 17:00 – 21:00
+355 – 696070770 odhuci@yahoo.com

Catalog Description

The course focuses on the risk management. The first part of the course is focusing on the risk behavior of individuals. The second part focuses on the Enterprise Risk Management which refers to the methods and processes used by the organizations to manage risks related to the achievement of their objectives. The third part, the Financial Risk Management which refers to the methods used by the organizations to manage the financial risks is focused on the management of the market, credit, operational risk and management of the main risks that associates the composition of the organization balance sheet. The last part is dedicated to the methods and techniques used to allocate the capital in order to amortize the losses in case of a risk event.

Prerequisites: Students enrolling in this course must be familiar with fundamentals of:
a) Calculus: Differentiation and Integration
b) Probability: Probability and Probability Distributions, Confidence Intervals and

Hypothesis Testing,
c) Statistics: Descriptive Statistics, Statistical Measures, Correlation and Regression; Time

Series Analysis
d) Investing: The Investment Environment; Investment Risk and Return; Fixed-Income

Securities; Options and other Derivatives; Equity, Currency and Commodity Markets

Portfolio Theory
e) Corporate Finance: Investment Decisions and Strategies, Short and Long T erm

Financing, Capital Structure
Exceptions are possible depending on the individual.

Course Purpose:

This course introduces students to the main strategies, methods and techniques used to manage the risks faced by the organizations during their on going business. Students will learn financial risk assessment and measurement techniques, how to organize and structure the financial risk management, how to manage the main financial risks: market, credit operational, liquidity, interest rate, foreign exchange risk, etc. Also students will learn how to measure and to manage the risks at

Risk Management – Course Syllabus

the corporate level. The allocation of the capital for risk management purposes is a special topic for the students of the risk management classes.

Required Readings, Text

Title

Author Publisher ISBN

: Financial Risk Management: A Practitioner’s Guide to Managing Market and Credit Risk.

: Steven Allen
: Wiley, Bk &CD-ROM edition (February 14, 2003) : 0-471-21977-0

Recommended Additional Materials:

1. Books: Title

Author Publisher

ISBN

Title Author Publisher ISBN

: Financial Risk Manager Handbook
: Philippe Jorion
: Wiley, Third Edition, 2005, Sample review test CD-ROM

included, FRM sample questions are copyright 1997-2005 by

GARP (Global Organization of Risk Professionals) : 13978-0-471-70629-8, 10 0-471-70629-9

: Risk Management
: Michel Crouhy, Dan Galai, Robert Mark : McGraw-Hill, 2001
: 0-07-135731-9

  1. Materials which will be made available to the students by the instructor: a. Slides (by e-mail)

    b. Handouts and special reading assignments (assigned and delivered during the classes)

  2. Internet resources are recommended to be used extensively
  3. The Wall Street Journal, or the Financial Times, or the Economist (recommended by the

    instructor)

  4. Published Regulations of Central Banks and other Financial Authorities (strongly

    recommended for that part of the course which is related to the financial risk management)

Course Objectives

  1. To develop a working knowledge of the enterprise risk management
  2. To understand how to identify, assess, measure and treat the main risks faced by

    organizations

  3. To develop a working knowledge of computer technology that is providing powerful risk

    analysis tools

  4. To develop a working knowledge of financial risk management techniques
  5. To understand how to allocate capital in order to amortize all the losses in case of an risk

    event.

Upon completion of this course, students should be able to:

  1. Learn how to structure the risk management process at the level of the business units and at the level of the organization
  2. Get a thoroughin-depth knowledge of the financial risk management (identification, assessment, measurement, treatment etc.)
  3. Have a rigorous training in analytical thinking and precise mathematical derivation
  4. Explain comprehensive core concepts in risk management.
  5. Gain hands-on experience with optimization, data analysis, and other quantitative techniques

used in risk management.

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Risk Assessment Methodologies and Techniques Nov–30 Mid-Term Exam AND Homework Assignments

Dec–07 Fundamentals of Quantitative Measurement of Risk Dec–14 Fundamentals of Quantitative Measurement of Risk Dec–21 Model Risk

  1. Jan–11  Managing Market Risk
  2. Jan–12  Balance Sheet Composition Risks Management

Jan–25 Credit Risk Management Feb–01 Operational Risk Management

Risk Measurement at the Corporate Level Feb–08 Homework Submission

Jun-08 Final Exam

Course Requirements

1. Project. nd
During the 2 class, to every student will be assigned a project described in the annex A. The

project will assist the student to understand the first part of the risk management course. The product of the project is to be turned in as if it were work product on the job. The product of the project has to be presented in 6th class. Also every work performed during the completion of the project will be delivered to the instructor during this class. A complete project will account for 8 % of the final grade. The product and the presentation will be assessed both by the students and the instructor as it is described on the annex A.

2. Term papers. nd
During the 2 class, to each student will be assigned two topics one individually selected and

the second collectively selected, upon which to research and come up with informed analysis. The lists with the topics are attached to this course syllabus (Annex B and Annex C). The students are expected to follow “The guide to writing and research on risk management” (see annex E of this course syllabus) which will be provided by the instructor to them during that class.

a) The first paper is related to the locally and internationally enterprise risk management (ERM). It has to be prepared and presented on individual basis and it is due within class 10. Please note that this paper has to be printed and delivered to the instructor immediately after presentation.

b) The second paper is related to the financial risk management and it is due within class 13. It must be prepared and presented on group basis (3-4 students in a group). Each group member shall participate in the actual presentation, as moderated by the team leader. This is a peer evaluation process; so on the scale of 1-10 points, the class shall collectively adjudge the group and allocate the relevant score. This is a serious test of character, prudence, integrity and judgment such that sober participation and decision making is mandatory. A

Risk Management – Course Syllabus

Content and the Classes’ Schedule of the Course

Date

Topic/s

Oct – 26

Introduction to Risk Management, and The nature of Risk

Nov – 02

Risk Response (Aversion, Insurance and Hedging)

Nov – 09

Organizations, Institutional Background & Risks

Nov – 16

Enterprise – Wide Risk Management (ERM)

Nov – 23

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Risk Management – Course Syllabus

point score of ‘0’ shall automatically be entered for those who choose not to participate. Please note that this paper must deliver or sent by e-mail to the instructor one week before its presentation. A printed copy, signed by all the students must deliver to the instructor.

The papers will account for 10% of the final grade (the first will account for 4 % and the second will account for 6%).

The papers (especially the FRM paper) present the results of the student’s investigations on selected topics. Based on their own thoughts and facts and ideas, students have collected from different sources, the research papers are creations that are unique theirs. The experience of gathering, interpreting, and documenting information, developing and organizing ideas and conclusions, and communicating them clearly will prove to be an important and satisfying part of the students’ education. The quality of the collectively selected paper and its presentation will be assessed both by the students and the instructor as it is described on the annex A (for the assigned project).

3. Financial Risk Management Models

In each class with a topic on the financial risk management, each student has to come up and present his financial risk management model (in excel spreadsheets) which has been assigned by the instructor in the previous classes. Each student is required to send the model/s to the instructor via e-mail. In case of falling the student is required to deliver it to the instructor by other electronic

ways. There are five mandatory financial risk management models (See Annex D of this course syllabus) and they will account for 15% of the final grade.

4. Grading and Assessment:

Each student’s assessment in this class is directly related to the ability to meet this course’s objectives- the ability to interpret the models presented in class and apply them to actual real life situations. There are no make-ups for quizzes under any circumstances. Assignment and paper turned in more than one week late will not be considered and the student will receive a ‘0’ points for that assignment/paper.

Classroom discussion of topics and current economic application is highly encouraged. The student positively participation in class will account for 5% of his/her final grade.

5. Examinations.

Both midterm and the final exam will cover all materials.

Test format may combine a mixture of short answers, true/false, matching, multiple choice questions, short exercises, and essay questions covering all readings, textbook, lecture, and hand- out and class discussion content.

a) Mid Term Examination:

There shall be one such examination during class six and seven of the semester, from the content so far covered. It will account for 30% of the final grade

b) Final Examination
The final examination will account for 32% of the final grade.

General Requirements

1. Class Format
The class format will be a mix of lecture and group discussions. Students should

complete the assigned readings (textbook chapter/s’ handouts, financial press and magazines article etc,) in advance of class and come prepared to contribute to the class discussions. Students who are disruptive in class will be asked to leave. Disruption includes anything that negatively interrupts the flow of lecture or discussion. Cellular phones should be put on mute or vibration mode during class. Students not to answer their cell phones during class, or leave the room to do so unless you clear it with the instructor

Class attendance is mandatory. If a student is absent for more than 20% of the course (i.e. 9 hours), then ‘F’ will be the grade awarded for the course. In the event of illness or emergency, contact your instructor IN ADVANCE to determine whether special arrangements are possible.

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Risk Management – Course Syllabus

During the class the instructor will call on students to describe the key concepts, define the important issues or present solution to assigned homework problems. Everyone gets called upon about the same number of times through the course. When e student is called upon he will receive a 2, 1 or 0 depending upon his/her response. He/she will receive 2 points when it is clear that he/she has gone the extra mile in preparing for class. No points will awarded if it is clear that the student is not prepared for class.

Also, part of the class is the modeling in Excel. Every model, the student is required to build, will start under the instructions of the instructor in the class and will be completed home.

2. Individual work
Individual preparation for the classes and exams involves careful reading of

assignment material and working of assignment homework. The workload assumes that students are spending 1.5 hours studying for every one hour in class. For this session that means that students should expect to study for about 6 hours outside of the class time, not including the time spent on assignments

3. Teamwork
Students are encouraged to work together and help each other out as much as

possible in terms of discussing and reviewing the material. However, each student must turn in or complete in class work they have completed originally for this class.

  1. University Policies and Rules
    The University’s rules on academic dishonesty (e.g. cheating, plagiarism, submitting

    false information) will be strictly enforced. Please familiarize yourself with the student honour code, or ask your instructor for clarification.

  2. Syllabus Changes
    This syllabus is subject to changes which are not affect the total quality and amount of

    work required of the students.

Criteria for Determination of Grade, including Evaluation Methods

The grading scale listed below is the official UNYT

Project

8%

Term Papers

10% (4% + 6%)

FRM Models

15%

Class Discussion

5%

Midterm Exam

30%

Final Exam

32%

Letter Grade

Percent (%)

Generally Accepted Meaning

A

96-100

Outstanding work

A-

90-95

B+

87-89

Good work, distinctly above average

B

83-86

B-

80-82

C+

77-79

Acceptable work

C

73-76

C-

70-72

D+

67-69

Work that is significantly below average

D

63-66

D-

60-62

F

00-59

Work that does not meet minimum standards for passing the course

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Risk Management – Course Syllabus

Technology Expectations:

  1. Student should use the Text Book resource site
  2. Power point notes and graphics should also be used
  3. Students must keep copies of all assignments and projects sent by e-mail.
  4. Assignments are to be typed.
  5. Continuing and regular use of e-mail is expected.

October 5, 2012 Prepared by Orfea Dhuci

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Risk Management – Course Syllabus

Annex A. Details of the Assigned Project

Project: Measuring the attitude of the UNYT’s students toward financial risk.

The objectives of the project: Main Objectives:

a) The measurement of the attitude of the UNYT’s Students toward financial risk b) Writing a report on the attitude of the UNYT’s Students toward financial risk

Other Objectives:

  1. a)  Learning to create a paper-based survey questionnaire which will be used to

    collect measurable data from a specific group of people

  2. b)  Learning to attract and motivate their respondents, make them eager to

    participate and answer to all questions

  3. c)  Learning to score the participants based on their answers.

The project product assessment:
The product of the project will be assessed both by the students and the instructor. Students

should evaluate what is good about the project and what could be improved. Students must avoid being too negative or destructive. They must constructively think when are assessing the projects and the project products of other students.

The average grade (in percentage) assigned to all students is 81-83%. If the project is prepared and presented in group, students of the same group must be assessed based on the individual contribution of each of them.

The project assessment form is delivered by the instructor before the presentation of the project. This form has to be signed by each student and should be submitted to the instructor.

Note: All other details on the project and on the assessment of the project product will be explain by the instructor during the 2nd class of the course.

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Risk Management – Course Syllabus

Annex B. Suggested ERM Topics (Individually Selected)

The student, based on its judgment and assessment, is allowed to select an ERM topic. However, the following are some ERM indicative topics which may be individually selected.

  1. ERM and The Role of the Strategic Objectives Setting
  2. The Risk Appetite and Risk T olerance
  3. Risk Identification as a Process
  4. Risk Events and Influencing Factors
  5. Risk Event Categories
  6. The Risk Identification Techniques
  7. Risk Assessment as a Process
  8. The Inherent and the Residual Risk
  9. The Likelihood and The Impact
  10. Risk Treatment as a Process
  11. The Risk Response
  12. ERM and the role of the Risk Control
  13. Risk Information and Communication
  14. Risk Monitoring as a Process
  15. ERM and the role of Creditors and Delegated Monitors
  16. The Chief Risk Officer in ERM
  17. ERM world-wide standards
  18. The Firm’s Risk Culture

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Risk Management – Course Syllabus

Annex C. Suggested FRM Topics (Collectively Selected)

These are some Indicative FRM topics to be collectively selected: Other Topics regarding Financial Risk Management are acceptable, as well.

1. Risk Adjusted Performance Measures
2. Is the Risk Management a Value-Added Activity?
3. Stress-T esting & Scenario Analysis
4. Duration Analysis an Important tool for Risk Management in Banking Industry
5. The efforts and the History of the Integrated Frameworks for Enterprise-Wide Risk

Management
6. The Framework for Operational Risk Management (in Banking Industry) 7. The Framework for Market Risk Management (in Banking Industry)
8. The Framework for Credit Risk Management (in Banking Industry)
9. The Framework for Integrated Management of Financial Risks

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Risk Management – Course Syllabus

Annex D. Financial Risk Management Models

  1. Interest Rate Sensitivity Analysis – GAP Analysis
    a. Bank’s Assets’ Repricing Model
    b. The model of Interest Rate Sensitivity of Bank’s Net Income
  2. Interest Rate Sensitivity Analysis – Duration Analysis
    a. Calculation of a Bond Duration and its VAR
    b. The model of Interest Rate Sensitivity of Bank’s Net Economic Capital
  3. Measurement of Foreign Exchange Risk
    a. The Model of Foreign Exchange Position
  4. Value at Risk Measurement
  5. Stress T esting

    a. Market Risk
    b. Credit Risk
    c. Foreign Exchange Risk d. Liquidity Risk
    e. Interest Rate Risk

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Risk Management – Course Syllabus

Annex E. Guide to Writing and Research on Risk Management

I. The purpose of the research paper

The primary purposes for formal research on Risk Management are the following:

  •   The student should learn to find and understand raw data and information regarding the financial risks that organizations are facing.
  •   The student should enter the discourse, or conversation, of other writers and scholars in its field of interest.
  •   The student should learn how others in its field of interest use primary and secondary resources of information

II. Subject selection

The subject or the topic should be one from the Topics/Subjects provided by the instructor of Financial Risk Management. You, also, may choose another subject/topic, if you think it is presenting an academic interest or it is a preference of yours. Before starting the work with the topic /subject selected by you consult your instructor to make sure that the selected subject is an adequate subject related to Financial Risk Management.

III. Structuring the research paper

For the formal or primary academic research assignment, where you will take your place in the scholarly conversation, consider an organizational pattern typically used for primary academic research. This organization consists of these sections—introduction, methods, results, discussion, and conclusions and recommendations.

The research paper flows from the general to the specific and back to the general in its organization. The introduction uses a general-to-specific movement in its organization, establishing the thesis and setting the context for the conversation. The methods and results sections are more detailed and specific, providing support for the generalizations made in the introduction. The discussion section moves toward an increasingly more general discussion of the subject leading to the conclusions and recommendations, which then generalize the conversation again.

The formal structure of the paper should be the following:

  1. Title Page (Title, Author(s), Abstract, Keywords, Corresponding Author, and acknowledgements)
  2. An Introduction or an Overview
  3. Methods
  4. Results/Findings
  5. Discussions
  6. Conclusions/Recommendations
  7. References
  8. Annexes (if any)

IV. The Title Page

a. Title: Tells the reader what to expect in the paper. Sometimes the title has two parts. Readers use such academic titles to select articles and to get a quick sense of what an article is about. Academic titles can state the research question, summarize the thesis or purpose, or be written as a two-part title with a colon. As in this example, the first part of the title gives the context of the article, the academic discussion, and the second part gives the slant of the article, this writer’s special research space in the conversation. Sometimes the title may have two parts. Readers use such academic titles to select articles and to get a quick sense of what an article is about. Academic titles can state the research question, summarize the thesis or purpose, or be written as a two-part title with a colon. As in this example, the first part of the title gives the context of the article, the academic discussion, and the second part gives the slant of the article, this writer’s special research space in the conversation.

b. Author(s): Most papers are written by one or two primary authors. The remaining authors have reviewed the work and/or aided in study design or data analysis.

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c. Abstract: “Abstract” is a standard for a research paper on Financial Risk Management. It should be a summary/synopsis of the paper.

Risk Management – Course Syllabus

d. Keywords: Include all the words or their combinations you think are helping the readers (instructors) to better understand the relation of your work with other previous or current research works.

e. Corresponding Author: Full name and affiliation for the primary contact author for persons who have questions about the research.

f. Acknowledgements: Name people who contributed to the work, but did not contribute sufficiently to earn authorship. You must have permission from any individuals mentioned in the acknowledgements sections

V. Introduction or Overview:

In this section of the paper you have to present the “why did you do the study” and you have to set the scene or foundation or background for the paper.

Many students will find that writing a structured introduction gets them started and gives them the needed focus that significantly improves their entire paper. Usually, you will not actually begin writing here, but in a later section, wherever you think you have the most information. Because introductions are so highly structured, you may actually write your introduction last.

Introductions usually have three parts:

 presentation of the problem or the research inquiry
 purpose and focus of the current paper
 summary or overview of the writer’s position or arguments

As you can see, a thoughtfully written introduction or overview can provide a blueprint for the entire research paper.

In the first part of the introduction present the problem, or the research inquiry, state the problem or express it so that the question is implied. Then, sketch the background on the problem and review the literature on it to give your readers a context to show them how your research inquiry fits into the conversation currently ongoing in your subject area. You may tell why this problem has been a problem, why previous attempts have failed to solve it, or why you think this particular slant or angle to the problem is important. You can also mention what benefits are to be gained from solving this problem or exploring this topic from your perspective.

In the second part of the introduction, state your purpose and focus. Here, you may even present your actual thesis. Sometimes your purpose statement can take the place of the thesis by letting your reader (instructor) know your intentions. Some students like to delay presenting their thesis, especially if their readers (or instructors) may not be ready to accept it.

The third part, the summary or overview of the paper, briefly leads readers through the discussion, forecasting the main ideas and giving readers a blueprint for the paper.

By reviewing the introductions to other FRM papers (in discipline in which you are writing your research paper) you can get an idea of what is considered the norm for that discipline. Study several of these before you begin your paper so that you know what may be expected. If you are unsure of the kind of introduction your paper needs, ask your instructor (teacher) for more information. As an added note, the introduction is usually written in present tense.

VI. Methods:

In this section of the paper you will describe “how did you do the study.”

The methods section of your research paper should describe in detail what methodology and special materials, if any, you used to think through or perform your research. You should include any materials you used or designed for yourself, such as questionnaires or interview questions, to generate data or information for your research paper. Also you have to include any methodologies that are specific to your particular field of study.

Next to your own critical review of the scholarship in your discipline, your instructor is the best source of what methodologies are used in it. Many writers of research begin with this section because it is often the easiest to write. This section is usually written in past tense.

VI. Results:

In this section you have to present “what did you find”. How you present the results of your research depends on what kind of research you did, your subject matter, and your readers’ expectations. Quantitative information, data that can be measured, can be presented systematically and economically in tables, charts, and graphs. Quantitative information includes

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Risk Management – Course Syllabus

quantities and comparisons of sets of data. If you are unfamiliar with the conventions, you may find it challenging to present quantitative findings. You may include some commentary to explain to your reader what your findings are and how to read them.

The distinction between the results section and the discussion section is not always so clear- cut. Although many writers think you should simply present and report your findings on the data you have collected, others believe some evaluation and commentary on your data may be appropriate and even necessary here. You and your teacher can decide how strict you want to be in this decision.

Qualitative information, which includes brief descriptions, explanations, or instructions, can also be presented in prose tables. This kind of descriptive or explanatory information, however, is often presented in essay-like prose or even lists.

There are specific conventions for creating tables, charts, and graphs and organizing the information they contain. In general, you should use these only when you are sure they will enlighten your readers rather than confuse them. In the accompanying explanation and your discussion, always refer to the graphic by number and explain specifically what you are referring to. Give your graphic element a descriptive caption as well. The rule of thumb for presenting a graphic is first to introduce it by name, to show it, and then to interpret it. The results section is usually written in past tense.

VII. Discussion:

This section is a place for interpreting the results. In this part of the paper, you should generalize on what you have learned from your research. One way to generalize is to explain the consequences or meaning of your results and then make your points that support and refer back to the statements you made in your introduction. Your discussion should be organized so that it relates directly to your thesis. You want to avoid introducing new ideas here or discussing tangential issues not directly related to the exploration and discovery of your thesis. This section, along with the introduction, is usually written in present tense.

VIII. Conclusions and Recommendations: (optional)

Some academic research assignments might end with the discussion and not need a separate conclusions and recommendations section. Often, in shorter assignments, your conclusion is just a paragraph or two added to the discussion section. In many of your research assignments, however, you will be asked to provide your conclusions and recommendations in your research

paper. Conclusions unify your research results and discussion and elaborate on their significance to your thesis. Your conclusion ties your research to your thesis, binding together all the main ideas in your thinking and writing. By presenting the logical outcome of your research and thinking, your conclusion answers your research inquiry for you and your readers. Your conclusions should relate directly to the ideas presented in your introduction section and not present any new ideas.

You may be asked to present your recommendations separately in your research assignment. If so, you will want to add some elements to your conclusion section. For example, you may be asked to recommend a course of action, make a prediction, propose a solution to a problem, offer a judgment, or speculate on the implications and consequences of your ideas. The conclusions and recommendations section is usually written in present tense.

Also, in this part you have to offer the perspectives for future work.

IX. References

Of course, your research paper is not complete without your list of references.

In this section you have to put all the Annexes (Tables, Calculation Sheets, etc). Fix a number and a title for each Annex included in this section.

X. Annexes (if any)

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