COURSE INFORMATION
Course Title: RISK MANAGEMENT AND INSURANCE
Code Course Type Regular Semester Theory Practice Lab Credits ECTS
BAF 422 B 2 3 0 0 3 7.5
Lecturer and Office Hours: Orfea Dhuci NA
Second Lecturer(s): NA
Teaching Assistant(s) and Office Hours: NA
Language: English
Compulsory/Elective: Compulsory
Classroom and Meeting Time: E212, 18:00
Course Description: Corporate finance and microeconomics are applied to matters of importance to commercial bankers. Among the subjects treated are bank asset portfolio construction, lending policies, liabilities management, bank capital structure, short run cash management, financial market rates and flows, and quantitative models for bank management. Commercial bank management is analyzed from an internal viewpoint in terms of what bank managers should look for in asset management and why; what market conditions they should be aware of; and what techniques they can use to meet changing economic and financial conditions.
Course Objectives: The course is designed to provide the students with the structure of the risk management process, deeper knowledge of the financial risk management, analytical thinking and precise mathematical derivation, comprehensive core concepts of risk theory and risk management
COURSE OUTLINE
Week Topics
1 Syllabus Review, Course Programming Decision-Making: Actions, Events, States of Nature, Actions Outcomes, Mathematically Calculated Probability, The Decision on Action, Setting the Action’s Objective
2 Risk Definition, Risk Fallacies and Risk Misperceptions The Epistemological Status of Risk
3 The Decision-Maker’s Risk Attitude: The Utility Theory and the Risk Attitude Toward the Risk, Other Theories Regarding the Individuals Risk Attitude. Integration of the Risk Attitude into the Decision Making Process The Risk Aversion and the Attached Probability to the Risky Event
4 The Risk Response to the Risk: Residual Risk vs. Inherent Risk, Risk Acceptation, Risk Mitigation, Risk Sharing (Hedging and Insurance) Risk Avoidance. The Risk Response of a Group of Decision Makers vs. Risk Response of a Decision Maker.
5 Enterprise-Wide Risk Management (ERM): The Five Stage Model of ERM (Objectives Setting, Identification, Assessment and Measurement, Risk Treatment, Risk Monitoring). Risk Appetite and Risk Tolerance, The Role of Systems and Risk Officers in Risk Management Process
6 Risk Anomalies: Moral Hazard, Adverse Selection, Pyramid Schemes, Winners Curse, Mismatch Between Risk Position Requirements and the Risk Attitude of the Position Assignee
7 Taxonomy of Risks for Individuals and Companies: Event-Driven Risk Classification, Diversified vs. Undiversified Risk, Financial vs. Business risk
8 Measurement/Evaluation of Risk: Qualitative Assessment/Evaluation of Risk
9 Measurement of Risk Quantitative Methods used to Measure the Risk, Probabilistic Approaches vs. Non-Probabilistic Approaches
10 Management of Market Risk
11 Credit Risk Management
12 Liquidity risk Management
13 Management of Interest Rate Risk
14 Foreign Currency Risk: Measurement and Management, Management of Operational Risk
Prerequisite(s): - Calculus: Differentiation and Integration - Probability: Probability and Probability Distribution, Confidence Intervals and Hypothesis Testing - Statistics: Descriptive Statistics, Statistical measures, Correlation and Regression, Time series Analysis - Investing: Investing Risk And return, Fixed Income securities, Options and Other Derivatives, Currency and Commodity Markets Portfolio Theory - Corporate Finance: Investment Decisions and Strategies, Short and Long Term Financing, Capital Structure
Textbook: Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk, Second Edition Author: Steven Allen Published Online: 2 OCT 2015 10:16PM EST Print ISBN: 9781118175453 Online ISBN: 9781119203209
Other References: Books: Title: Financial Risk Manager Handbook + Test Bank: FRM Part I/Part II Author: Philippe Jorion, GARP, Publisher: Wiley Finance, Sixth Edition, 2010 ISBN: ISBN 13: 978-0470904015 ISBN 10: 0470904011 Title: The Essential of Risk Management Author: Michel Crouhy, Dan Galai, Robert Mark, Publisher: McGraw-Hill, 2005 ISBN: ISBN 13: 978-0071429665 ISBN 10: 0071429662 Other Materials: a) Available from the instructor b) Internet sites recommended by the instructor (about risk management cases) c) Central banks regulations regarding the risk management and capital
Laboratory Work: NA
Computer Usage: word, excel
Others: No
COURSE LEARNING OUTCOMES
1 Full understanding of risk, risk attitude and risk response.
2 Understanding the risks and the anomalies of companies and their taxonomy.
3 Basic approaches used to assess or to measure the risks
4 Understanding the management of the main risks faced by the companies
5 Understanding the role of the allowances and capital needed to amortized the losses
6 Other Outcomes:  Vocational Outcomes : Enhancement of the knowledge required for the master degree education  Enhancement of knowledge, skills and attitudes that are necessary and significant for master students to be effective in their vocational pursuits in finance and personal pursuits  Increase the level at a point that is appropriate for post-master education level  Reflection of the present and, most significantly, the anticipated future requirements for the work place in finance, financial institutions and society  The gained risk knowledge, risk management skills and the consolidation of the risk attitudes are assisting the master student to the greater extent possible, in adapting in changes, by being applicable to a variety of work in finance and life context  Essential Employability Skills  Communication skills: The master student will display communication and responds skills enabling to ensure the effective communication on risks and expected revenues  Numeracy and logical skills: Builds and runs probabilistic and non-probabilistic models used to measurement and management of the risk, understands and calculates the probability of a risky event, the loss given risk and the exposure at risk, able to calculate for a single asset and portfolio of assets the value at risk, able to attach probabilities to different risky event etc.  Critical Thinking Skills: The student will be able to apply a systematic approach to solve problems related to the risk management, and will be able to use a variety of thinking skills to anticipate and solve these problems  Interpersonal skills: The master student will show respect for diverse opinion, values and contribution of other students. He will interact with other in groups/teams in ways that contribute to effective working relationships and achievement of the company goals  Information Management Skills: The student by the end of the course will be able to locate, select, organize and document data. Using the information system he will be able to analyze, evaluate and use the information received from the information system  Personal skills: The student will be able to manage the time and other resources to complete the projects, models, and paper works. He will take responsibility and will enhance the accountability for his actions, decisions, and consequences of such decisions  Post Master Education Skills  Skills to structure a research works  Skills to state the null and alternative hypothesis in a research work  Skills to create information systems and financial models  Skills to Write a research article and presenting a research project to the direct supervisor/jury/commission/committee
COURSE CONTRIBUTION TO... PROGRAM COMPETENCIES
(Blank : no contribution, 1: least contribution ... 5: highest contribution)
No Program Competencies Cont.
MSc BAF Program
COURSE EVALUATION METHOD
Method Quantity Percentage
Homework
5
3
Midterm Exam(s)
1
30
Project
1
5
Term Paper
2
4
Final Exam
1
32
Attendance
10
Total Percent: 100%
ECTS (ALLOCATED BASED ON STUDENT WORKLOAD)
Activities Quantity Duration(Hours) Total Workload(Hours)
Course Duration (Including the exam week: 16x Total course hours) 16 3 48
Hours for off-the-classroom study (Pre-study, practice) 16 4 64
Mid-terms 1 17.5 17.5
Assignments 2 11 22
Final examination 1 21 21
Other 5 3 15
Total Work Load:
187.5
Total Work Load/25(h):
7.5
ECTS Credit of the Course:
7.5