Introduction

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.

Course Description

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 determinant.

Course Outcomes

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 field.

Textbook

Rupak Chatterjee, “Practical Methods of Financial Engineering and Risk Management”, ISBN978-1-4302-6133-9, Springer Apress, 2014.

Additional References

Globalization and 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)

Grading Policies

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 success:

• Abstract of 300 words describing the problem, its relevance, proposed methodology and highlight results.
• ntroduction and Literature review.
• Data and methodology
• Results
• 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.