Companies must take risks if they are to survive and prosper. The primary role of risk management is to understand and manage these risks.
This course helps to develop relevant knowledge and understanding of risk management practices, for students aiming to advance their careers in the competitive world of global finance, in fields such as asset management, hedge funds, investment analysis or risk management.
The course starts with an introduction to the classification of risk, diversification and hedging strategies, and optimal portfolio choice. This will include an overview of the Capital Asset Pricing Model, which describes the relationship between systematic risk and the expected return of assets - particularly stocks - and is widely applied for the equilibrium pricing of risks.
You will learn about the methods to manage market risk for fixed income and equity portfolios, the use of Value at Risk (VaR) for measuring the level of risk in a firm or portfolio, and its application to real-world risk management practices.
You will also learn about endogenous risks to demonstrate how financial risks originate within the financial system, examine important behavioural aspects of risk and discuss important limitations of current risk management practices.
Finally, we will turn to credit risk, with a focus on ratings-based and structural models, cover credit risk on portfolios and credit derivatives, and discuss the recent credit crisis and the regulatory response to it.
The course is hands-on, with the use of real examples and extensive practical work in the computer lab throughout.
Dates: 12 – 30 July 2021
Lecturers: Dr Georgy Chabakauri and Dr Cameron Peng
Level: 200 level. Read more information on levels in our FAQs
Fees: Please see Fees and payments
Lectures: 36 hours
Classes: 18 hours
Assessment*: Two written examinations
Typical credit**: 3-4 credits (US) 7.5 ECTS points (EU)
*Assessment is optional
**You will need to check with your home institution
For more information on exams and credit, read Teaching and assessment
Basic mathematics and statistics. Introductory Finance (to the level of FM250) or Introductory Microeconomics (to the level of EC101).
- Foundations of risk measurement and risk finance theory
- Basic risk management instruments: Forwards, futures, swaps and options
- Market risk management: Methods for hedging risk in equity and fixed income portfolios; Delta and Gamma, Duration and Convexity
- Value-at-Risk: Definition, implementation and evaluation of risk forecasts. Alternative risk measures
- Credit risk: Merton model, the KMV approach, and ratings based models
- Introduction to credit derivatives and mortgage-backed securities
- Limitations and failures of risk models
- Endogenous risk
- Some ideas from behavioural finance: noise trader risk, limits to arbitrage, bubbles
- The impact of the credit crisis and its implications for risk management and regulation
- Learn the main tools and practices needed to assess and evaluate financial risks
- Understand risk management practices in an industry setting
- Gain the ability to critically assess risk management reports and research
LSE’s Department of Finance enjoys a pre-eminent reputation for the excellence of their teaching and research, and for their leading role in public-policy issues. The Department of Finance has grown in recent years to become one of the largest and most highly-regarded finance groups in the UK and Europe.
LSE’s Department of Finance is closely associated with LSE’s Financial Markets Group and Systemic Risk Centre which regularly hosts a wide variety of seminars, conferences and public addresses by leading academics and practitioners. The Department, along with the Departments of Accounting and Management, was ranked as the UK leader for Business and Management Studies in the 2014 Research Excellence Framework. The Department’s excellence in research and world-class faculty set them apart as global leaders in the field of finance.
On this three-week intensive programme, you will engage with and learn from full-time lecturers from the LSE’s finance faculty.
J. Hull, Risk Management and Financial Institutions (4th Edition), Wiley, 2015.
*A more detailed reading list will be supplied prior to the start of the programme
**Course content, faculty and dates may be subject to change without prior notice