Introduction

• Theoretical Introduction
  • The importance of risk management for a financial institution (internal management, supervisory authorities)
  • Risk – return trade – off
  • Financial institutions’ management incentives and the importance of supervisory control
• Technical Introduction
  • Volatility (definitions, assumptions, valuation methods, possible problems)
  • Correlation (definitions, assumptions, valuation methods, possible problems)
  • Copulas (definitions, assumptions, valuation methods, possible problems)

Market Risk

• Risk Management: Standalone & Cumulative
• Standalone
  • Derivatives – Greek letters
• Cumulative
  • RiskMetrics – Value at Risk (VaR)
  • Expected Shortfall
  • VaR estimation:
    • From historical data – Historical Simulation
    • Theoretical model
    • Monte Carlo simulation

Credit Risk

• Credit Ratings
• Altman’s Z-score
• Default probability based on historical data
• Default recovery rates
• Default probability estimation (bond prices)
• Default probability estimation: historical data vs bond prices
• Default probability estimation (stock prices)
• Distance to Default (Merton’s Model)
• Credit VaR
• Credit Risk Plus
• CreditMetrics

The goal of the course “Credit Risk Management” is the in-depth examination on the measurement and management of risks faced by financial institutions and the financial system. The main type of risks that are being analysed during the course are the Market Risk and the Credit Risk. The presentation of these risks is being done through the usage of realistic examples.

With the successful completion of the course, a student:

• Will be aware of how financial institutions operate, as well as the risks they face.
• Will be able to understand the theoretical framework and apply the statistical tools to measure the different types of risk.
• Will be able to solve risk management problems by effectively using the technical approaches used by financial institutions to manage risk.

• Retrieve, analyze and synthesize data and information, with the use of necessary technologies
• Decision making
• Work in an international context
• Advance free, creative and causative thinking

Final written exam (100%):

–  Multiple choice questions

–  Risk valuation exercises

– Recommended Bibliography: Instructor notes and policy aricles for the ECB, the Fed, the BIS.

– Related scientific journals:

Greek:

• Γ. Σαπουντζόγλου & Χ. Πεντότης, Τραπεζική Οικονομική, Τόμος Α’

English:

• Saunders & M.M. Cornett, Financial Institutions Management: A Risk Management Approach, McGraw Hill
• John C. Hul, Risk Management and Financial Institutions, Pearson Education
• John C. Hul, Options, Futures, and Other Derivatives, Pearson Education
• Lars Peter Hansen, CHALLENGES IN IDENTIFYING AND MEASURING SYSTEMIC RISK, NBER, Working Paper 18505, November 2012
• Adrian, Tobias; Brunnermeier, Markus K., CoVaR, American Economic Review, Volume 106, Number 7, July 2016, pp. 1705-1741 (37).

Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon and Matthew Richardson, Measuring Systemic Risk, Review of Financial Studies (2017) 30 (1): 2-47