THE UNIVERSITY OF HONG KONG

School of Economics and Finance

FINA0601 Quantitative Risk Management
GENERAL INFORMATION
Instructor:

Grace Xing Hu

Email: gracexhu@hku.hk
Office: 1108 K.K.Leung
Phone: 2219-4178
Office Hours: By appointment
Tutor: TBA
Pre-requisites: FINA0402 Mathematical Finance, FINA0404 Spreadsheet Modeling
Course Website: http://www.sef.hku.hk/~gracexhu/FINA0601_2012/index.htm
COURSE DESCRIPTION
The objective of this course is to introduce concepts, techniques and framework for quantitative risk
management at financial institutions. Financial firms, with their complicated list of positions in a
mixture of instruments, are exposed to various sources of financial risk. This class focuses mainly
on market risk, the risk of unexpected changes in prices and rates. The first part of the course
introduces basic concepts in risk management and builds the toolkit for measuring risk
quantitatively. The second part of the course is devoted to studying the widely accepted Value at
Risk (VAR) systems, including calculations, back testing and flaws of VAR. The course also touches
on other aspects of financial risk such as liquidity risk, credit risk and operational risk.

COURSE LEARNING OBJECTIVES (CLOs)

1. Learn the general concept of risk and risk management. Understand different sources of risk
faced by financial institutions, how they manage risk internally and the related regulation
requirement.
2. Acquire quantitative tools for measuring risk and know how to apply these techniques for
hedging.
3. Understand the framework of Value-at-Risk. Use both analytic and simulation approaches to
estimate VaR for single derivatives and complicated portfolios. Understand the pros and cons of
different VaR estimation methods.
4. Know how to do back testing for VaR using historical data. Understand the limitation and flaws
of VaR.

COURSE LEARNING OUTCOMES

Course Learning
Aligned Programme Learning Outcomes
Outcomes

PLG1. Acquisition and internalization of knowledge of economics and

CLO1, COL2, COL3

CLO2, COL3, COL4

finance
PLG2. Application and integration of knowledge

CLO1, CLO3

PLG3. Inculcating professionalism and leadership

CLO1

PLG4. Developing global outlook

CLO1, CLO4

PLG5. Mastering communication skills

COURSE TEACHING AND LEARNING ACTIVITIES

Course Teaching and
Learning Activities
T&L1. Lectures and Class

Expected contact
hour
36

Study Load
(% of study)
64%

T&L2.
Assigned Individual
Participation

16%

T&L3.
Group Projects
Homework

16%

T&L4. Consultation

4%

56

100%

Total
Assessment Methods
A1.
A2.
A3.
A4.

Brief Description
(Optional)
Class Participation

Weight

Aligned Course Learning

Outcomes

5%

COL1,COL2,COL3,COL4

Three Individual
Assignments

15%

COL1,COL2,COL3,COL4

One Group Project

20%

COL1,COL2,COL3,COL4

Final Exam

60%

COL1,COL2,COL3,COL4

Total

100%

STANDARDS FOR ASSESSMENT

Course Grade Descriptors

Strong evidence of superb ability to fulfill the intended learning

outcomes of the course at all levels of learning: describe, apply,
evaluate, and synthesis.
A+, A, AB+, B, BC+, C, CD+, D
F

Strong evidence of the ability to fulfill the intended learning

outcomes of the course at all levels of learning: describe, apply,
evaluate, and synthesis.
Evidence of adequate ability to fulfill the intended learning
outcomes of the course at low levels of learning such as describe
and apply but not at high levels of learning such as evaluate and
synthesis
Evidence of basic familiarity with the subject.
Little evidence of basic familiarity with the subject.

COURSE CONTENT AND TENTATIVE TEACHING SCHEDULE

Week 1

Introduction of Market Risk, Liquidity Risk, Credit Risk and

Operational Risk. Regulation, Basel 1 and Basel 2.

Week2,3

Interest Risk, Distribution of Asset Returns and Volatility Models.

Week4

Tools for Measuring Risk. Greeks, Taylor Series Expansion and

Hedging.

Week5

Introduction of VaR.

Week 6,7

Analytical Approaches.

Week 8,9

Simulation Approaches.

Week10
Week11

Back Testing. Limitation and Flaws of VAR. Scenario Analysis and

Stress Testing.
In-class discussion of HBS Case 1 and Guest Lecture.

Week12

Review Session and Group Project Presentation of HBS Case 2.

REQUIRED/RECOMMENDED READINGS & ONLINE MATERIALS

Textbook:
John C. Hull. Risk Management and Financial Institutions. Second Edition. Prentice Hall.
Cases:
1. Value At Risk by Stephen Lynagh and Sanjiv R. Das.
2. F&S Investments: Understanding Value at Risk by Stephen Sapp.
References:
1. Philippe Jorion. Value at Risk, the new benchmark for managing financial risk. Third Edition.
McGraw Hill.
2. Alexander J.McNeil, Rudiger Frey and Paul Embrechts. Quantitative Risk Management:
Concepts, Techniques and Tools. Princeton University Press.
3. John C. Hull. Options, Futures, and other derivatives. Eighth Edition. Prentice hall.

COURSE POLICY
Class Conduct
Students are required to attend all classes on time. If students are 30 minutes late or more, they
will be regarded as not having attended the class. In case you have to leave the class early, please
inform the instructor before the class begins. Please sit near the door and exit quietly. If you fail to
inform the instructor before you leave, no credit will be given for your class attendance.
Respect your instructor and your fellow students. Be considerate to others.
Academic Dishonesty
The University Regulations on academic dishonesty will be strictly enforced! Please check the
University Statement on plagiarism on the web: http://www.hku.hk/plagiarism/.
Academic dishonesty is any act that misrepresents a persons own academic work or that

compromises the academic work of another. It includes (but not limited to) cheating on
assignments or examinations; plagiarizing, i.e., representing someone elses ideas as if they are
ones own; sabotaging anothers work.
If you are caught in an act of academic dishonesty or misconduct, you will receive an F grade for
the subject. The relevant Board of Examiners may impose other penalty in relation to the
seriousness of the offense.