Quantitative Risk Management

The next course will take place: Tuesday 23 - Friday 26 April 2019

 

Syllabus

  • Behavioural finance
  • Credit risk
  • Counterparty credit risk
  • Options in incomplete markets: The lectures discuss the valuation and hedging of European claims in incomplete markets via utility-based methods. A basis risk model is used as the main example of an incomplete market. Utility indifference valuation and hedging is described, and the performance of utility-based strategies in the basis risk model is demonstrated. The case with partial information on asset price drifts is discussed. Convex duality for optimal investment in incomplete markets is described, leading to a dual approach to utility-based valuation, and the the basis risk model is re-visited via duality
  • XVA Modelling
    • deriving a general mathematical framework for quantifying Credit, Debit, Funding and Capital Valuation Adjustments (collectively known as XVA)
    • illustrating the creation of an XVA simulation engine in the context of a hybrid multi-currency FX/IR risk factor model
  • Bayesian risk management
    • Why we need a different approach to risk management
    • Introduction to Probabilistic Graphical Models
    • Bayesian Nets in the discrete and continuous case
      • Conditional probability tables and sparse regression systems
      • The Master Formula
      • Automatic learning algorithms
      • Dynamic Bayesian Nets
    • Markov Random Fields in the discrete and continuous case
      • Potentials representation and sparse connections systems
      • Representation of networks of firms as Markov Random Fields
      • Automatic learning algorithms
    • Chain Graphs as the union of Bayesian Nets and Markov Random Fields
    • Application to the design of a stress testing scenario
    • Application to portfolio theory and optimization
    • Application to macro-hedging
    • Application to economic capital models of loan portfolios

Please note that in exceptional circumstances it may be necessary to cancel or alter a particular lecture, so that these details are subject to small variation.

 

For students enrolled on course

Course Materials - including student instructions, lecture notes, assignment and submission link