Banking Risk Management

Objectives

The aim of this course is to provide students with fundamental theoretical and practical knowledge of risk management in banking institutions. It will present the different types of risk and the regulatory environment, as well as the models and indicators deployed to quantify the main risks – market, credit and operational.

Course outline

Chapter 1: Introduction
1. Risk Management
2. Panorama of banking risks
3. Bank balance sheet and bank capital
4. Theory of risk
5. The regulatory framework: from Basel I to Basel IV

Chapter 2: Market Risk
1. Market Risk generalities
2. Market Risk sensitivities
3. Value-At-Risk and Expected Shortfall
3.1. Historical approach
3.2. Parametric approach
3.3. Monte Carlo approach
3.4. Non-linear Instruments
3.5. Backtesting
4. Stress Testing
5. Regulatory Framework
5.1. Basel IV (FRTB): Standardized Approach
5.2. Basel IV (FRTB): Internal Model Approach

Chapter 3: Credit Risk
1. Key Concepts of Credit Risk
1.1. Credit Risk Definition
1.2. Credit Risk measures
2. The market of Credit Risk
2.1. Loan market
2.2. Bond market
2.3. Securitization and Credit Derivatives
3. Regulatory framework
3.1. Basel II: The Standardized approach
3.2. Basel II: Internal ratings-based approach
4. Credit Risk Modelling
4.1. Probability of default
4.2. Loss Given Default
4.3. Exposure at Default

Chapter 4: Counterparty Credit Risk and Credit Value Adjustment
1. Counterparty Credit Risk
1.1. Counterparty Credit Risk definition
1.2. Counterparty risk exposure definition and metrics
1.3. Counterparty risk mitigation
1.4. Regulatory Framework (Basel III)
2. Credit Value Adjustment
2.1. Credit Value Adjustment definition
2.2. Unilateral and Bilateral Credit Value Adjustment
2.3. Credit Value Adjustment in practice
2.4. Regulatory Framework (Basel III)

Chapter 5: Operational Risk
1. Operational Risk definition
2. Operational Risk classification
3. Regulatory framework
3.1. Basel II: Basic Indicator approach
3.2. Basel II: Standardized approach
3.3. Basel II: Advanced measurement approaches
3.4. Basel IV: Standardized Measurement Approach
4. Loss Distribution approach
4.1. Loss Distribution estimation
4.2. Capital charge calculation
4.3. Incorporating scenario analysis

Prerequisites

Market finance courses, basics of stochastic calculus, mastery of common statistical tools