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Home | Courses | Market and Systemic Risk Management
Course

Market and Systemic Risk Management

  • Teacher(s)
    Chen Zhou, Juan-Juan Cai
  • Research field
    Finance, Finance
  • Dates
    Period 5 - May 06, 2024 to Jul 05, 2024
  • Course type
    Field
  • Program year
    First
  • Credits
    3

Course description

The main objective of this course is to develop a coherent framework for evaluating market risk at the levels of individual asset, portfolios of assets, banks and insurers and the systemic risk regarding the financial system and macro economy. The main tool that we exploit in devising this framework is the statistical theory about tail risk based on from Extreme Value Theory (EVT), in combination with standard concepts from finance and macroeconomics.

The course covers a range of methods for managing financial risk, with particular attention to downside risk measures such as Value-at-Risk (VaR), Expected Shortfall (ES), semi-variance, stress tests, and worst-case scenario analysis. We also study various statistical techniques for analyzing heavy-tailed distributions, including their convolution properties, and apply EVT to stress testing and scenario analysis. Furthermore, we explore the supervisory aspects of risk management, emphasizing the link between individual risk management and


the stability of the financial system. We also discuss the fragility of the financial system and develop tools for measuring systemic stability.

Throughout the course, students will be required to submit empirical homework assignments and address theoretical questions. The rigorous treatment of some of the techniques will enable students to independently analyze market and systemic risk


Course literature

Primary reading
Lecture notes and research papers provided in lectures
Further reading
- Rocco, M. (2014) Extreme value theory in finance: a survey. Journal of Economic Surveys, 28(1), 82-108.
- Nolde, N. and Zhou, C. (2021). Extreme Value Analysis for Financial Risk Management. Annual Review of Statistics and Its Application, 8, 217-240.

- Embrechts, P., Klüppelberg, C., and Mikosch, T. (1997). Modelling extremal events: for insurance and finance (Vol. 33). Springer Science & Business Media.