BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE, PILANI

WORK INTEGRATED LEARNING PROGRAMMES

Digital
Part A: Content Design

Course Title Market Risk Management

Course No(s) FIN ZG 523
Credit Units 4
Credit Model
Content Authors Krishnamurthy Bindumadhavan and Ankit Shah

Course Objectives
No

CO1 Gain basic understanding of the how to measure and manage market risk
particularly in the context of banking and financial services industry.

CO2 Gain good understanding of analytical techniques used in measuring and

managing markit risk including VaR, Expected Shortfall, etc.

CO3 Gain basic understanding of banking regulations relating to Market Risk and how
to apply specialized techniques such as scenario analysis and stress testing

CO4 Learn the hands-on practical approaches towards measuring, modeling, and
managing market risk

Text Book(s)

T1 Risk Management and Financial Institutions by John C Hull, 4th Edition, published by
Wiley India

Reference Book(s) & other resources

R1 An Introduction to Market Risk Measurement by Kevin Dowd published by Wiley India

R2 Options, Futures, and other Derivatives, Ninth Edition, by Hull, and Basu, published
by Pearson Education India
R3 In addition (for some sessions) we will be referring to selected articles/ cases studies
from top journals/ publishers relevant to the topics at hand; links and/ or references
and notes for the same will be provided later by the instructor
Content Structure

1. Foundations of Market Risk

1.1. Introduction
1.2. Banks and other Financial Institutions
1.3. Trading in Financial Markets
1.4. Credit Crisis of 2007
1.5. Valuation basics
1.6. Scenario Analysis
2. Market Risk Measurement and Management
2.1. Risk Measurement
2.2. Interest rate risk
2.3. Volatility
2.4. Metrics before VaR
2.5. Value at Risk - Historical Simulation, Parametric VaR, Monte Carlo
Simulation, etc.
2.6. VaR back testing and limit monitoring
2.7. Expected Shortfall
2.8. Other approaches
2.9. Correlations and Copula
2.10. Model building approach
3. Basel framework and Regulations
3.1. Historical evolution of Basel
3.2. Basel III market risk framework
3.3. FRTB
3.4. Post crisis modifications
3.5. Economic Capital and RAROC
4. Miscellaneous
4.1. Scenario analysis
4.2. Stress testing
4.3. Other topics

Learning Outcomes:

No Learning Outcomes

LO1 Learn how to calculate VaR, Expected Shortfall and other important metrics for
measuring and managing Market Risk

LO2 Review valuation basics relating to equities, bonds, and derivatives

LO3 Describe the evolution of risk management regulation and interpret and apply
appropriate techniques for calculation of Economic Capital

LO4 Apply advanced analytical techniques such as scenario analysis, stress testing, etc.

LO5 Demonstrate solutions to "real" risk management problems by employing excel/

financial modeling in an optimal/ effective manner.
LO6 Analyze/ Evaluate real life business/ financial situations and identify/ apply the
appropriate framework/ concepts to solve it in an optimal/ effective manner.

Experiential Learning Components:

1. This course will feature experiential learning components in the form of projects and
assignments (such as case studies, financial modeling, simulation, etc.) that are designed to
enable the participants to learn by doing. This will also form part of the Evaluation
Components for the course.
2. Please note that experiential learning components are integrated into the following
modules:

Module Topic Experiential Learning Component

Module 1.5 Valuation, Scenario
Excel based modelling
and 1.6 Analysis
Module 2.2 Volatility and Interest
Excel based modelling
and 2.3 rate risk
Module 2.4, Excel based modelling and
VaR modelling
2.5, 2.6, 2.7 Simulation
Module 4.1, Scenario Analysis
Excel based modelling
4.2 and Stress Testing
Experiential learning
Overall Excel based modelling/ simulation
assignment

3. We will be building financial models and doing simulation using Microsoft Excel,
hence students will need a laptop/ PC preloaded with Microsoft Excel 2010 (or later) for
facilitating experiential learning.
 4.

Part B: Learning Plan

Academic Term Second Semester 2017-2018

Course Title Market Risk Management
Course No FIN ZG 523
Lead Instructor Ankit Shah

Contact Hours 1 and 2

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 1.1 Review Course Handout/ List your

expectations from this course

During 1.1 Introduction to Financial Markets Notes/ Slides

CH and participants

Post 1.1 Review reference chapters from Chapter 1,2,3,4,5 of text (T1)
CH textbook; do the assigned
homework/ experiential learning
activities

Contact Hours 3 and 4

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 1.2 Review previous week's topics. Notes/ Slides

During 1.2 Credit Crises, Valuation and Notes/ Slides

CH scenario analysis

Post CH 1.2 Review reference chapters from Chapter 6,7 of text (T1)
textbook; do the assigned
homework/ experiential learning
activities

Contact Hours 5 and 6

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 1.3 Review previous week's topics. Notes/ Slides

During 1.3 Basic statistics – correlation, Notes/ Slides
CH distribution, covariance, copulas

Post 1.3 Review reference chapters from Chapter 11 of text

CH textbook; do the assigned (T1)
homework/ experiential learning
activities

Contact Hours 7 and 8

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 2.1 Review previous week's topics. Notes/ Slides

During 2.1 Volatility and Interest rate risk Notes/ Slides

CH

Post 2.1 Review reference chapters from Chapter 9,10 of text

CH textbook; do the assigned (T1)
homework/ experiential learning
activities

Contact Hours 9 and 10

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 2.2 Review previous week's topics. Notes/ Slides

During 2.2 Value at Risk and Expected Notes/ Slides

CH shortfall

Post CH 2.2 Review reference chapters from Chapter 5 of text (T1)

textbook; do the assigned
homework/ experiential learning
activities

Contact Hours 11 and 12

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 3.1 Review previous week's topics. Notes/ Slides

During 3.1 Value at Risk and Expected shortfall Notes/ Slides (T1),
CH Notes/ Slides

Post 3.1 Review reference chapters from Chapters 9, 11 of text

CH textbook; do the assigned (TI)
homework/ experiential learning
activities

Contact Hours 13 and 14

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 3.2 Review previous week's Notes/ Slides

topics.

During 3.2 Value at risk models Notes/ Slides

CH

Post 3.2 Review reference chapters Chapters 12,13,14 of text (T1),

CH from textbook; do the Notes/ Slides
assigned homework/
experiential learning
activities

Contact Hours 15 and 16

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 3.3 Review previous week's Notes/ Slides

topics.

During 3.3 Model building approach Notes/ Slides

CH

Post CH 3.3 Review reference chapters Chapters 12,13,14 of text (T1),

from textbook; do the Notes/ Slides
assigned homework/
experiential learning
activities

Contact Hours 17 and 18

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 4.2 Review previous week's topics. Notes/ Slides

During 4.2 Excel simulation VaR, expected Notes/ Slides

CH shortfall
Post CH 4.2 Review reference chapters Chapters 12,13,14 of text (T1),
from textbook; do the Notes/ Slides
assigned homework/
experiential learning
activities

Contact Hours 19 and 20

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 5.1 Review previous week's Notes/ Slides

topics.

During 5.1 Excel simulation VaR, expected Notes/ Slides

CH shortfall

Post 5.1 Review reference chapters Chapters 12,13,14 of text (T1),

CH from textbook; do the Notes/ Slides
assigned homework/
experiential learning
activities

Contact Hours 21 and 22

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 5.2 Review previous week's Notes/ Slides

topics.

During 5.2 Risk Regulatory landscape Notes/ Slides

CH (BASEL, FRTB, Others)

Post 5.2 Review reference chapters Chapters 15, 16, 17 of text

CH from textbook; do the (T1), Notes/ slides
assigned homework/
experiential learning
activities

Contact Hours 23 and 24

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 5.3 Review previous week's Notes/ Slides

topics.

During 5.3 Risk Regulatory landscape Notes/ Slides

CH (BASEL, FRTB, Others)

Post 5.3 Review reference chapters Chapters 15, 16, 17 of text

CH from textbook; do the (T1), Notes/ slides
 assigned homework/
experiential learning
activities

Contact Hours 25 and 26

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 5.5 Review previous week's Notes/ Slides

topics.

During 5.5 Stress Testing Notes/ Slides

CH

Post CH 5.5 Review reference chapters Chapter 22 of text (T1)

from textbook; do the
assigned homework/
experiential learning
activities

Contact Hours 25 and 26

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 6.1 Review previous week's Notes/ Slides

topics.

During 6.1 Sensitivity analysis Notes/ Slides

CH

Post CH 6.1 Review reference chapters Chapter 22 of text (T1)

from textbook; do the
assigned homework/
experiential learning
activities

Contact Hours 27 and 28

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 6.2 Review previous week's Notes/ Slides

topics.

During 6.2 Liquidity Risk Notes/ Slides

CH

Post CH 6.2 Review reference chapters Chapter 24 of text (T1) (T1)

from textbook
 Contact Hours 29 and 30
Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 6.3 Review previous week's Notes/ Slides

topics.

During 6.3 Economic Capital, RAROC and Notes/ Slides

CH Enterprise Risk Management

Post CH 6.3 Review reference chapters Chapter 26, 27 of text (T1)

from textbook; do the
assigned homework/
experiential learning
activities

Contact Hours 31 and 32

Type Content Topic Title Study/HW Resource
Ref. Reference

Pre CH 7.1 Review previous week's Notes/ Slides

topics.

During 7.1 Miscellaneous including Notes/ Slides

CH Sensitivity Analysis, Scenario
Analysis, ERM, etc.

Post CH 7.1 Review reference chapters Notes/ Slides

from textbook; do the
assigned homework/
experiential learning
activities

Evaluation Scheme:
Legend: EC = Evaluation Component; AN = After Noon Session; FN = Fore Noon Session
No Name Type Duration Weight Day, Date, Session, Time
EC-1 Quiz-I Online - 5% February 1 to 10, 2018
Quiz-II 5% March 1 to 10, 2018
Experiential 15% March 20 to 30, 2018
Learning
Assignments
EC-2 Mid-Semester Test Closed 2 hours 30% 03/03/2018 (AN) 2 PM – 4 PM
Book
EC-3 Comprehensive Open 3 hours 45% 21/04/2018 (AN) 2 PM – 5 PM
Exam Book
Notes:
Syllabus for Mid-Semester Test (Closed Book): Topics in Session Nos. 1 to 16 (contact
hours)
Syllabus for Comprehensive Exam (Open Book): All topics (Session Nos. 1 to 32) (contact
hours)

Important links and information:

Elearn portal: https://elearn.bits-pilani.ac.in
Students are expected to visit the Elearn portal on a regular basis and stay up to date with the
latest announcements and deadlines.
Contact sessions: Students should attend the online lectures as per the schedule provided on
the Elearn portal.
Evaluation Guidelines:
1. EC-1 consists of either two Assignments or three Quizzes. Students will attempt them
through the course pages on the Elearn portal. Announcements will be made on the
portal, in a timely manner.
2. For Closed Book tests: No books or reference material of any kind will be permitted.
3. For Open Book exams: Use of books and any printed / written reference material
(filed or bound) is permitted. However, loose sheets of paper will not be allowed. Use
of calculators is permitted in all exams. Laptops/Mobiles of any kind are not allowed.
Exchange of any material is not allowed.
4. If a student is unable to appear for the Regular Test/Exam due to genuine exigencies,
the student should follow the procedure to apply for the Make-Up Test/Exam which
will be made available on the Elearn portal. The Make-Up Test/Exam will be
conducted only at selected exam centres on the dates to be announced later.

It shall be the responsibility of the individual student to be regular in maintaining the self
study schedule as given in the course handout, attend the online lectures, and take all the
prescribed evaluation components such as Assignment/Quiz, Mid-Semester Test and
Comprehensive Exam according to the evaluation scheme provided in the handout.