Econometric Risk Management in Finance

Highly changing demand and supply structure in the market, in­creasing effect of glo­balization, economic fluctuations, environmental disasters are just some of the chal­lenges that economies have to con­sider. For these reasons Risk Management became one of the vital steps to be taken as an important part of the economic poli­cy. This course provides an overview on the risk management techniques, espe­cially, on fi­nance by using econometric and statistical techniques. The main parts of the course are quantitative analysis and the com­ponents of risks related to finan­cial mar­kets. The quantitative part contains characterizing random variables, linear trans­for­mation of random variables and their distributions, simulation technique, simu­lation of Markov processes and stochastic yields. Risk measures, their properties, VaR, CVaR methods, time varia­tion at risk to measure the risk, GARCH to measure the volatility will be shown. Correlation analyses using copula methods will be presented with examples from finance. Adjusted performance measures, risk and risk aversion with utility functions and expected values, stress testing and back testing. Risk manage­ment practices introduce the analyses of market, credit, operational and investment risk in general. Case studies discussing current examples of the lack of proper risk management in world-wide known companies in last decade constitute the appli­ca­tion part of the lecture which will be covered during the lectures and tutorials. The targets proposed will be achieved through the assignments and a term project to be submitted at the end of the semester.

1. Risk management definition, steps and major techniques; risk aversion, utility and expectation, Jensen’s inequality, optimal insurance premium, utility theory
   
2. Quantitative Analysis: Random variable, linear transformation of random variables, sum and portfolios of random variables and their distributions, Simulation tech­niques
   
3. Risk Management practices: Market risk management, credit risk management, operational risk management, investment risk management, Basel II, Solvency II.
   
4. Risk Measures, VaR, CVaR, Markov process, stochastic differential processes
   
5. Risk adjusted performance measures, The mean-variance criterion, stress and backtesting
   
6. Linear models, time variation at risk: GARCH, GLM, GAM
7. Dependency measures: Copulas
   
8. Case studies

Intermediate Econometrics

As the number of participants will be limited, please apply until

Monday, October 16th, 2023 at the latest

by mail at Sekretariat with your

• CV,
• current transcript.
   

Oral presentation and term paper

The seminar materials will be available on ILIAS. The ILIAS password required for access will be sent by e-mail after seminar registration.
 

The seminar is open for:

M.Sc. Economics for all profiles. Students from the profile Finance will be given priority.

M.Sc. VWL

• Accounting, Finance und Taxation,
  

• Empirical Economics,

• Business Analytics.
  
  

• Quantitative Risk Management: Concepts, Techniques and Tools by Alexander J. McNeil, Rüdiger Frey, Paul Embrechts, Princeton University Press, 2005.
• Financial Risk Manager Handbook by Philippe Jorion, 6^th Ed., John Wiley and Sons, 2009.
• Risk Management and Financial Institutions, J. C. Hull 2015.