MSc in Financial Risk Management Timetable and Modules
Note:Modules offered each academic year are subject to change. Listed below are the modules and timetables for 2023/24
Michaelmas Term |
Hilary Term |
Trinity Term |
|---|---|---|
|
|
|
Preliminary Modules (early September)
- Accounting
- Mathematics
- Economics
- Data Analysis
Michaelmas Term (September to December)
Hilary Term (January to April)
Electives (Choose 1 in Michaelmas Term)
- Financial Markets and Institutions
- Financial Statement and Analysis
- Credit and Fixed Income Instruments
- Sustainable Finance
Electives (Choose 2 in Hilary Term)
- Enterprise Risk Management
- Advanced Data Analysis
- Wealth Management through Sustainable Investing
- Derivatives
- Treasury Management
- Sustainability Reporting and Analysis
- International Finance and Sustainability
- Energy Finance and Trading
- Business Ethics
Module Descriptions
Credit Risk Management (5 ECTS)
This course analyses credit risk management in the modern global economy – how it arises, how it is managed and the critical impact that effective and ineffective management can have on the Global financial system and hence on the Global Economy. Fundamental Credit Analysis is examined as well as market based measures and how these measures interact. The development of credit modelling both for regulatory and IFRS9 purposes is examined and the differences between the regulatory and accounting approaches to deteriorating asset quality debated. The evolving regulatory landscape is also examined in the context of mitigating the risk of future shocks.
Having successfully completed this module, the student should be able to:
- Understand the nature of credit risk, the types of transactions in which it arises and how it is typically managed
- Understand the critical importance of how credit risk is managed in the main international financial institutions and the principles of good governance
- Understand measurement issues including exposure measurement, probability of default, expected loss.
- Understand how modelling techniques can be used to estimate these measures and gain a detailed insight into current modelling methods
- Compare and contrast fundamental credit analysis and market measures such as Moody’s KMV, bond prices and Credit Default Swap prices
- Appreciate how regulatory measures are intended to mitigate risks in the system and how they are currently being implemented in practice.
- Understand the principles of IRFS 9, how modelling approaches are developed and the key differences to regulatory models
- Understand the importance of impairment provisions and capital buffers and their interrelationship
Corporate Finance (5 ECTS)
Every single business across every single industry in every single economy in the world is trying pull off the same simple but difficult trick; invest funds productively. Those businesses which can do this well, repeatedly, over time, will be successful and grow. Those businesses which cannot, will not flourish. This module will examine and study that trick from a number of different perspectives. Firstly, businesses must decide where to get money from (the capital structure decision). Then they must decide which assets to buy with that money and crucially, how much to pay for them (the capital allocation decision). Businesses need to then manage their assets to generate sufficient return to keep their capital providers happy (cost of capital and financial management). This module will also look at other concepts that are important to maximising firm or business value including corporate governance, working capital management, mergers and acquisitions and risk management.
Having successfully completed this module, the student should be able to:
- Evaluate the financial health of a company and analise its capital structure
- Calculate the cost of capital for a firm and use financial models that incorporate the cost of capital for decision-making
- Understand capital budgeting techniques and capital allocation decisions
- Understand the intersection and interactions between capital markets and the firm
- Value bonds and equities using a variety of quantitative methods
- Critique the corporate governance structure of a firm and its impact on firm value
Financial Econometrics (5 ECTS)
The module is designed to enable students to understand a broad range of models and techniques within the field of financial econometrics. The course will explore the classical model, time series, choice models and panel data components. The module will be both applied and theoretical in nature and students will be exposed to the use of software and academic articles containing econometric output.
Having successfully completed this module, the student should be able to:
- Reflect upon the classical model, the selection of functional forms and the violations of the classical model.
- Demonstrate the ability to generate various econometric tests across the classical model, time series models and panel data models.
- Hypothesise on the meaning of econometric output from software packages.
- Interpret econometric output as contained in Journal articles.
- Demonstrate the role of econometrics in research.
Mathematics of Contingent Claims (10 ECTS)
The aim of this course is to introduce the mathematical ideas and frameworks behind models of financial assets and apply mathematical tools used in basic derivative pricing. The module then develops the idea of stochastic processes in discrete and continuous time and describes the relevance of these systems for evaluating contingent claims. Topics covered will include arbitrage, random walks, Brownian motion, Ito calculus, and the Black-Scholes-Merton equation. The focus throughout the course is on calculations to ensure students are able to carry out computations from models they may study or develop in subsequent courses.
Having successfully completed this module, the student should be able to:
- Describe properties of probability models, stochastic variables, and processes in discrete and continuous time.
- Understand the concept of arbitrage and verify the existence of arbitrage in a practical setting.
- Define Brownian motion and derive its main properties
- Understand Ito formula and applications
- Price basic instruments using risk neutral pricing and the Black-Scholes-Merton model
- Understand the concept of greeks and build corresponding hedging strategies.
Derivatives (5 ECTS)
This module examines the primary types of derivatives (forwards, futures, options and swaps), shows how they are used to achieve various hedging and speculating objectives, outlines a framework for pricing derivatives and studies several applications of derivative pricing techniques outside derivative markets.
Having successfully completed this module, the student should be able to:
- Provide an understanding of derivatives and introduce the analytics of derivative valuation;
- Demonstrate how to value forward, futures, swaps and options;
- Describe and appraise how derivatives can be used to achieve various hedging and speculative strategies;
- Discuss various types of derivatives such as options on stock indices and currencies, futures options and exotic options;
- Evaluate previous derivative mishaps and what we can learn from them.
Credit and Fixed Income Instruments (5 ECTS)
Starting from the perspective of the difference between a fixed income and other asset class, the module examines a number of perspectives. We derive a consistent pricing mechanism for the general class of fixed income (bond) assets; we then examine issue such as bonds with embedded derivatives, bonds with special provisions, bonds with equity like characteristics and other forms of bonds. The characteristics of the Sukuk market will also be analised. Credit derivatives are examined from the perspective of their use in hedging, and we examine bond portfolio and bond refinancing issues.
Having successfully completed this module, the student should be able to:
- Describe and differentiate the various types of credit and fixed income instruments;
- Explain the risks related to these investment vehicles and how to manage them;
- Evaluate various types of bonds and assess the factors affecting their price;
- Describe the main types of asset backed securities;
- Explain the main fixed income derivatives and their use;
- Differentiate the various credit instruments;
- Explain the main credit derivatives and their use;
- Contrast Sukuk with bonds.
Market Risk Measurement and Modelling (10 ECTS)
This module provides an overview of market risk, focusing on the market risk measurement and management for financial institutions. The module intends to provide both theoretical underpinning and some understanding of practical issues which may face market risk managers at commercial or investment banks, fund managers (traditional and alternative) or pension funds. We will discuss different definitions of risk, and approaches to its measurement, quantification, and forecasting of risk.
The theoretical aspects of the course will be taught in parallel with an introductory course on financial modelling with Python. The objective of the modelling aspect of the course is develop financial modelling skills and to apply these to practical problems in market risk measurement.
Having successfully completed this module, the student should be able to:
- Understand the nature of market risk and the principal measures used to quantify this risk; price-sensitivities, Value at Risk (VaR) and Expected Shortfall.
- Understand the principles of modern portfolio theory.
- Describe the three principal approaches to the estimation of VaR; variance covariance, historic simulation, and Monte Carlo simulation.
- Describe the use of Cholesky decomposition of correlation matrices, and principal component analysis (PCA) to generate correlated random numbers for Monte Carlo VaR models.
- Understand the principal approaches to back-testing risk measures such as VaR.
- Gain familiarity with the principles of coding in Python, applying these principles to practical problems related to market risk.
Operational Risk (5 ECTS)
This module will explore the fundamentals of Operational Risk Management. It will assist participants in understanding and implementing effective tools, policies and frameworks. Using interactive sessions and real-life case studies, participants will be helped to apply the knowledge gained in the sessions to real life situations. They will be shown how to design effective operational risk policies which are integrated with the firm’s risk culture, appetite, and tolerance.
The intention is to demonstrate how effective operational risk management can truly add value to enterprises. The current best practice frameworks will be discussed, and extensive case studies drawn from not only financial services but also organizations that operate in the “real” economy will be used.
This course is designed to introduce students to several different aspects of Operational Risk. As well as attending lectures, students will be expected to participate in class discussions and to complete a group assignment.
Having successfully completed this module, the student should be able to:
- Know how to design a comprehensive operational risk framework, devise effective operational risk policies, and implement operational risk best practices.
- Gain insight into implementing and monitoring the operational risk culture, appetite, and tolerance.
- Know how to categorize operational risks effectively.
- Know how to design and employ risk and control self-assessments, key risk indicators and operational risk metrics.
- Understand the benefits associated with effective collection of external and internal operational loss event data
- Implement various measurement approaches to quantify the operational risk regulatory and economic capitals.
- Distinguish between the approaches, outputs, reports and challenges of the Scenario Analysis and Stress Testing techniques.
Trading Psychology and Behavioural Analysis (5 ECTS)
This module will, through practical application, highlight the realities of taking decisions of risk in today’s financial markets. Since the financial crisis and more recently the Covid-19 global pandemic, loose monetary policy has expanded asset price valuations beyond what a fundamental approach to analysis may dictate. However recent high inflationary readings have led to a tightening of global financial conditions and as such has led to increased volatility in part driven by behavioural finance and trading psychology. As candidates take and manage decisions of risk in live market prices, core behavioural theory will be explored in relation to the variability of their trading performance.
Having successfully completed this module, the student should be able to:
- Understand the different objectives and pressures on buy-side and sell-side financial institution trading operations.
- Communicate with confidence how asset values have been impacted by behavioural factors in 2022/23
- Appreciate your own strengths and weaknesses within different roles within the industry, helping to better align a career path to your skill sets
- Understand through practice the impact of liquidity and volatility on market makers
- Understand the importance of relationship management in order for an investment bank to facilitate client flow
- Understand through practice the challenges facing portfolio managers when it comes to construction and managing a multi asset portfolio through major market volatility
- Learn how to manage risk within an environment of uncertainty
- Build and execute their own macro + technical trading strategies in live market prices
- Appreciate the impact of technical levels on asset prices
Wealth Management Through Sustainable Investing (5 ECTS)
The Wealth Management Through Sustainable Investing (WMTSI) module provides a deep insight into the key tools which investment decision makers utilise when developing investment strategies in the current global investment landscape. It builds the practical requirements for investment management, portfolio execution, long-term estate planning, and risk management for organisations and individuals. The module is heavily influenced by the critical drivers of best practice ESG investing, putting investing sustainably at the centre of developing investment strategy, in prioritising investments which mitigate climate change, and aid the transition to Net Zero by 2050. Bringing together a combination of live market analysis, current views on the economic outlook, and the setting of the investment landscape within historical boundaries, the module provides students with a comprehensive journey through the risk and return trade offs which face investors planning for short, medium and long term objectives. In a world in which competing regional views on climate change continue, the module will look at the challenges which face investors in driving
sustainable investing mandates and imbedding ESG principles within investment frameworks.
Having successfully completed this module, the student should be able to:
- Utilise the foundations of the portfolio management process to build multi-asset portfolios as part of the overall asset allocation decision making process.
- Understand the practical challenges which both institutional and individual investors face in managing sustainable investment portfolios to provide long term stable returns to meet long term liabilities.
- Design and evaluate strategies for managing institutional and individual wealth, while incorporating key ESG principles
- Evaluate and recommend the most suited wealth management strategy for a range of potential economic scenarios. Understand how economic conditions can impact investment returns and investment strategies.
- Clearly understand the risks in implementation and execution of a wealth management strategy and how those risks can be minimised.
- Develop a strong familiarity with Lifecycle investing and the importance of Human Capital in selecting individual asset allocations for longer pension planning.
- Recognise the critical importance of ESG factors when developing investment portfolios, with emphasis on assessing investments which mitigate climate change, and aid the transition to Net Zero by 2050.
International Finance and Sustainability (5 ECTS)
As the international company becomes the norm rather than the exception, the need to internationalise the tools of financial analysis is critical. This module is divided into two sections. The first section examines the global financial environment. It analyses exchange rate systems and international financial markets, and details the theory and evidence on exchange rate determination. It also focuses on international portfolio investment analysis. The second section concentrates on global risk management. The objective is to provide a good grounding in techniques and approaches for the management of financial risks, with an emphasis on exchange rate risks. This section defines the primary types of derivatives (forwards, futures, options and swaps), shows how they are used to achieve various hedging and speculating objectives.
Concluding the module, we will turn our attention to the urgent sustainability challenges confronting our planet. We will examine the critical role that international companies play in progressing towards and achieving the United Nations' Sustainable Development Goals (SDGs).
Having successfully completed this module, the student should be able to:
- Evaluate corporate governance systems around the globe.
- Understand the evolution of the current international monetary systems and the role of the main international financial institutions.
- Critically appraise the extent to which the theories of exchange rate determination explain exchange rate movements in today's globalised economy.
- Compare, contrast and evaluate the main parity relationships in international finance.
- Understand the role of derivative instruments in managing international financial risk, and evaluate alternative approaches to international financial risk management within the firm.
- Appraise the benefits of international portfolio investment vis-a-vis domestic-only diversification.
- Assess global sustainability challenges and the role of international companies in achieving sustainable development objectives.
Financial Markets and Institutions (5 ECTS)
In this module we will discuss the role of a well-functioning financial system. The main types of financial institutions and financial markets are described. We will then cover the role of national and supranational financial institutions, and their involvement in recent events in financial markets. We will look at a number of financial crises that have occurred in recent decades, their causes and their effects. We will then examine the role of regulation and the regulatory changes that have been implemented to attempt to prevent future crises.
Having successfully completed this module, the student should be able to:
- Understand the role of the financial system and its importance to a well-functioning economy;
- Describe the main financial assets and the markets in which they are traded;
- Understand the role of the main financial institutions and the purpose they are designed to serve;
- Describe some of the financial crises that have occurred, their causes and effects and the regulation that has been put in place to try to prevent future crises
Advanced Data Analysis (5 ECTS)
This module has two broad objectives: (1) To enhance students’ state-of-the-art knowledge on advanced econometrics and application in a rapidly growing field of study – the panel data – which combines features of both cross-sectional and time series data within single estimation framework. (2) To enrich students’ knowledge in terms of both theory and application on the study of panel data under alternative estimation environment, using semi-parametric and non-parametric methods. The module offers a comprehensive introduction to Advanced Panel Data Models. You will learn various analytical tools to enable you to analyse economics and financial data.
Having successfully completed this module, the student should be able to:
- Demonstrate knowledge and understanding of econometric models of panel data;
- Demonstrate the importance of heterogeneity in empirical applications where data combine features of both temporal and cross-sectional units;
- Show competence in using an econometric software package (STATA, EVIEWS and/or R);
- Undertake rich analysis financial and economic data;
- Evaluate model performances based on parametric, semi-parametric and non-parametric methods which would lend realistic approximations to complex financial and economic problems;
- Interpret statistical output;
- Relate real life financial/economic data to strategic decision making;
- Critically evaluate statistical models and forecasting tools;
- Analyse financial/economic data;
- Develop quantitative models.
Enterprise Risk Management (5 ECTS)
The aim of the course is to provide students with a comprehensive study of enterprise risk management and conceptual guidance for enterprise risk management (ERM) implementation. Some sources have referred to ERM as a new risk management paradigm. Under ERM, all risk areas (for example, insurance, foreign exchange risk, operational risk, credit risk and commodity risk) would function as parts of an integrated, strategic, and enterprise-wide system. Leading global credit ratings agencies now include whether firms have ERM programs as part of the credit ratings process.
Having successfully completed this module, the student should be able to:
- Discuss the history and foundation concepts that expand traditional risk management into an enterprise risk management (ERM) structure;
- Examine the benefits and best practices of ERM;
- Compare and contrast the importance of management, culture, and control as it relates to ERM and the problems associated with implementation;
- Investigate ERM tools and techniques;
- Identify and evaluate the types of risk as they relate to ERM;
- Evaluate various facets of the ERM process as they apply to real world applications;
- Analyse case studies to bridge the gap between the theory and practice of ERM.
Energy Finance and Trading (5 ECTS)
This module starts with an overview of energy finance and trading by first covering the current energy outlook, introduction to the oil and gas industry, and industry structure and terminology. After covering financial statement analysis of oil and gas companies, the module turns to capital budgeting and risk analysis of energy projects. In the remainder of the module, energy derivatives, energy risk management, and energy trading is discussed and applied to problems and situations.
Having successfully completed this module, the student should be able to:
- Discuss basic knowledge, terminology, industry structure, supply and demand issues, and related concepts about the "energy value chain";
- Analyze the financial statements of oil and gas companies including energy ratio analysis and conduct competitive benchmarking;
- Conduct capital budgeting and risk analysis in the oil and gas industry;
- Describe strategies that energy firms apply during challenging times;
- Identify energy derivatives markets around the world;
- Apply energy risk management techniques;
- Investigate energy trading strategies in the industry.
Business Ethics (5 ECTS)
In this module, we will consider the role that businesses and multinational corporations play in our society. Alongside the positive and indispensable role of business are questions around balancing impacts. In the face of serious economic, social and environmental damage, this module explores the extent to which the legitimacy of business into the future is linked to increased transparency and accountability.
We will explore current debates and initiatives related to ethical business, corporate social responsibility and business and human rights to prepare students to engage with the responsibility of business and business leaders vis-à-vis society and future generations. Students are encouraged to think critically about corporate responsibility in the real world and appraise the impact of business decisions on a variety of stakeholders. This is an unfolding area with no easy answers. Our approach is that learning to effectively manage ethical, social, human and environmental rights issues will produce positive results for the manager, business and for society at large.
Having successfully completed this module, the student should be able to:
- Analyse complex business situations and be conscious of the underlying ethical dilemmas facing businesses and individuals.
- Demonstrate an understanding of the potential effects on businesses stemming from their choices and the impact of their operations on society.
- Critically assess initiatives related to ethical business, corporate social responsibility and business and human rights.
- Demonstrate awareness of future directions in policy and regulation.
- Appraise the ways in which businesses, managers and stakeholders are responding to increased focus on these issue.
Financial Econometrics (5 ECTS)
An important element of this module will be the provision of the ability to apply cross sectional, panel and time series analysis as they are used in portfolio management. It introduces the students to modern techniques in modelling financial returns, volatilities and correlations. The students will be introduced to ARCH/ GARCH models, dynamic conditional correlation models, copulas and Value at Risk estimation.
Having successfully completed this module, the student should be able to:
- Understand the classical model and its limitations;
- Be comfortable with time series techniques such as ARCH/GARCH and stationarity;
- Be aware of choice models;
- Be comfortable with introductory material in relation to panel data techniques;
- Generate and interpret EVIEWS output.
- Have knowledge about the role of econometrics in research;
- Find journal articles more user friendly.
Sustainable Finance (5 ECTS)
This module seeks to supplement the earlier corporate finance and statistical methods modules through providing in-depth subject area knowledge on finance and sustainability issues, and in doing so, provide insights into the financial ecosystem as a whole. There are many definitions of sustainability, but they can be taken to encompass the wellbeing and maintenance of the biosphere, the natural and human worlds. At the level of the firm, sustainability may be taken to encompass environmental and social responsibility; it could also be taken to encompass the wellbeing of the firm itself and its human capital as a site of productive activity, rather than an agglomeration of resources to be captured and reallocated. Firms may actively seek capital through directly raising green bonds, engaging in green or sustainability orientated crowdfunding through the many dedicated platforms for this purpose, or aim to attract investors that prioritise sustainability over immediate returns. In turn, institutional investors may seek to promote sustainability as a general principle, or as a focused part of their activities.
Treasury Management (5 ECTS)
The aim of this module is to gain an understanding of the entire treasury management process, i.e. the ways in which organizations (corporations and sovereigns) manage financial risks, funding and liquidity. Because of the general relevance of the topics covered (e.g., hedging and credit ratings), the knowledge gained in this course can be applied in many other areas (e.g., rating, investment banking, risk management).
Sustainability Reporting and Analysis (5 ECTS)
This module provides students with a broad range of skills in sustainability reporting and in the analysis of reported sustainability information. It seeks to familiarise students with fundamental data required to report the impact of a firm’s activities on the environment and society, and also the impact that environmental and social issues have on the firm and its value chain. The module introduces key European and international sustainability reporting guidelines and standards. A primary aim of the module is to enhance students’ appreciation of the importance of integrity, reliability and comparability in sustainability reporting. The module will employ methods of integrating sustainability metrics with financial information such that firm financial performance may be assessed in a manner which accounts for the interests of a range of stakeholders in addition to shareholders. Students assess relevant key performance indicators and conduct materiality assessments using primary social, environmental and financial data. They will examine published sustainability and integrated reports to interrogate the success of a range of firms in generating financial returns in an environmentally and socially sustainable manner, and to make forecasts about firms’ future performance from a financial, environmental and social perspective.
Having successfully completed this module, the student should be able to:
- Comprehend sustainability data and compute key metrics of performance in sustainable and responsible business performance.
- Report on firms’ environmental and social impact, and the impact of environmental and social issues on the firm, in line with European and international sustainability reporting standards and guidelines.
- Evaluate the reliability, integrity and comparability of reported sustainability information.
- Integrate sustainability metrics with financial performance metrics.
- Apply double materiality assessments of the impact of environmental and social issues.
- Analyse firm financial performance in a manner that accounts for environmental and social responsibility.
Dissertation (30 ECTS)
The objective of the project is to allow students to demonstrate and apply the techniques and knowledge acquired from the taught courses to a problem of real-world academic or managerial concern. To complete this module, which is worth 30 ECTS credits and is compulsory, students should:
- Demonstrate that they have a good knowledge of the relevant literature on their chosen topic
- Identify an interesting question associated with that topic and analise this question using the techniques and tools learned, showing that they have a good grasp of the applicability of these techniques (statistical, numerical or theoretical);
- Present the results of their analysis in a clear and convincing manner, within the word limit of no more than 12,000 words;
- Show their ability to communicate their work to a broad audience via the creation of an executive summary which should be 1500 words or less and which should be in the form of an academic article or managerial report.