FE655 Systemic Risk and Financial Regulation
Course Catalog Description
This course deals with aspects of systemic risk in financial systems. It covers a review of classical risk measures
and introduces non-classical risk measures such as Extreme Value Theory. It also covers the study of financial
systems as a system of complex adaptive systems, agent-based modeling, history and analysis of bubble formations as
a systemic risk, the role of rating agencies, the financial systems ecosystem, risk and regulatory environment, risk
and the socio-political environment. It also studies international financial inter-system risk propagation and
containment and its impact on international financial systems, the International Monetary Fund assessments and the
effect of extreme risk on poverty, international instability and globalization.
The objective of this course is to provide FE students with advanced issues of risk beyond the enterprise level.
The goals are to introduce the concepts of financial systems from a holistic perspective. This requires
understanding the financial systems as part of a larger environment in which regulation is an important
Students will gain deeper understanding of more advanced risk models responding to the failure of classical risk
models. On outcome will be to show how risk models break down under assumptions of normality in the markets and
the new methods of modeling risk. Students also develop the elementary skills of conducting research in the
Rupak Chatterjee, “Practical Methods of Financial Engineering and Risk Management”, ISBN978-1-4302-6133-9,
Springer Apress, 2014.
Systemic Risk edited by D. Evanoff and D. Hoelscher and George Kaufman, World Scientific Studies in
International Economics, 2009.
Hull, J.” Risk Management
and Financial Institutions” (ISBN: 0-13-239790-0). 2006. Prentice Hall; 1 edition
McNeil, A., Rudinger Frey
and Embrechts, P. “Quantitative Risk Management” Princeton University Press (2005)
There are 4 hw assignments for 60% and a project report and presentation for 40%.
Project Outline Description:
The project in the class follows similar outlines to any project in FE with components that determine the project
- Abstract of 300 words describing the problem, its relevance, proposed methodology and highlight results.
- ntroduction and Literature review.
- Data and methodology
- Conclusions and future work
- The deliverables are: a project document and a presentation performed at the end of the semester. The
document carries the weight of 30 points and the presentation carries 10 points.
||Introduction to systems theories and applications to financial systems
| Week 2
||Evolution of regulatory framework: Glass-Steagall to Dodd-Frank Act
| Week 3
||Classical risk metrics VaR and Extreme Value Theory. Risk types.
| Week 4
||Systemic risk definitions, model risk, contagion, shocks, jumps and rare events
| Week 5
||Methods and measures of systemic risk: Financial networks
| Week 6
||Financial networks and systemic risk
| Week 7
||Statistical analysis of financial networks
| Week 8
||Banking systems network
Example: Mortgage data analysis
| Week 9
||Agent-based modeling (ABM)
| Week 10
||Applications of ABM
| Week 11
||Legal Entity Identifier, data standards and ACTUS
| Week 12
||Case study: rating agencies, banking systems, liquidity risk.
| Week 13
||Case study: Data standards
| Week 14