Financial Risk Analysis and Management

The concept of risk, without exaggeration, is evident in every dimension of our everyday life. Risk is present in a wide variety of phenomena - From throwing a dice, to the next flight we are trying to catch, to the changes of interest rates in the financial market. As it can be easily perceived, there are many kinds of risks. In this course, we will only deal with a specific family of risks arising from our exposure to the financial markets, the so-called financial risks. The basic aim of the course, after introducing the concept of risk and uncertainty (according to Frank Knight), is to (a) present the main financial risks (credit risk, interest rates risk, liquidity risk, operational risk, market risk), (b) study the major/common ways of their quantification (eg., estimating the probability of default from market data, measures of duration, and modified duration,  measure of convexity, method of value at risk, etc.), and (c) present the key risk management techniques (eg., portfolio diversification, financial derivatives, etc.,). In this effort, we resort to tools from Probability Theory and Statistics as well as advanced techniques of financial engineering.