The Mechanics of Risk Management - Distance Learning Course is designed to cover the following key topics:

Module 1: Introduction to Risk Management

• The contrast between risk and uncertainty
• Principal types of enterprise risk
• Risk management as part of an organisation's culture
• Methodological principles of Value at Risk (VaR) as indicator of portfolio risk
• The need for an integrated approach to risk management in the aftermath of the 2008 financial crisis.

Module 2: Interest Rate and Currency Risk

• Key drivers affecting portfolio risk from variations in interest rates and foreign exchange
• Mathematics underlying risk of fixed income instruments: banks, asset managers, borrowers and lenders
• Foreign exchange forward rates, covered interest parity, how to hedge risk of assets/liabilities denominated in foreign currencies
• Explain the key concepts behind managing interest rate risks with swaps
• Explain the key concepts of duration, convexity, interest rate hedging and portfolio immunisation

Module 3: Market Risk

• Symbiotic relationship between financial risk and investment returns
• Differentiate between systematic risk and idiosyncratic risk
• Capital Asset Pricing Model (CAPM) view of risk management and Modern Portfolio Theory (MPT)
• Strengths and weakness of such theories especially in the wake of the 2007/9 financial crisis.
• Explore the view that for relatively uncorrelated asset returns there can be considerable risk reduction achieved through portfolio construction techniques designed to achieve diversification from combining assets in a systematic fashion
• Explain the key characteristics of risk adjusted returns

Module 4: Credit Risk

Learning Objectives

• Contrast between the notion of liquidity used by accountants in assessing balance sheet liquidity and the very different notion relating to depth and quality of transaction facilitation in financial markets
• Contrast between normal market liquidity conditions enabling transactions to be conducted with minimal transaction costs, temporary bouts of illiquidity which impair ability to transact, and critical episodes of illiquidity in which markets “seize up”
• Explain the linkage between maturity transformation and financial intermediation and the necessary presence of reasonably liquid markets
• Explore as a case study the dysfunctional nature in late 2008 of money markets for inter-bank funding, repos, commercial paper and “normal” arbitrage operations

Module 5: Operational Risk

• Illustrate how enterprises have substantial risks
• Illustrate with actual examples how operational failures from financial institutions
• Examine the loss scenarios of operational failures on both financial and non-financial enterprises and what internal control procedures

Module 6: Credit and Counter-Party Risk

• Examine the various facets of credit risk which hinge on losses sustained from failure of a counter-party to honour contractual obligations
• Distinguish the separate components of credit risk:
• Understand the mechanics of credit default swaps
• Understand the concepts of credit rating and scoring, the role of the major Credit Ratings Agencies (CRA’s), methods used to determine credit ratings, implications of ratings downgrades, how useful are ratings for determining actual risk of default?

Module 7: Systemic and Sovereign Risk

• Examine the dilemma that linkages between financial intermediaries may, up to a point, contribute to systemic stability
• Outline the observations that kurtosis and skew of financial asset returns leads to left tail dependencies with heightened probability of joint defaults in a liquidity crisis which can be systemically threatening.
• Illustrate how systemic risk might can emerge from a common shock (exogenous or endogenous?).

Module 8: Regulation and Risk Management

• Statutory regulation is a primary method by which safeguarding the public interest in risk management is implemented in modern economies
• Regulations pertaining to risk control at the national and trans-national levels and examine the dichotomy that regulation by nation states must contend with
• National vs transnational financial risks
• Examine the role of major global regulators, supervisory and (quasi) regulatory bodies
• Major statutes underpinning regulations of financial and non-financial enterprises and review proposed measures and accords
• Examine the practice of regulatory arbitrage