This course is intended for third-year undergraduates and builds upon FM212/FM213 Principles of Finance. The main topics covered are financial risk analysis and financial risk. The course provides students with a thorough understanding of market risk from both a practical and technical point of view. A representative list of topics covered includes:

  • empirical properties of market prices (fat tails, volatility clusters) and forecasting of conditional volatility
  • concepts of financial risk (volatility, Value-at-Risk
  • univariate and multivariate volatility models (ARCH, GARCH)
  • implementation and evaluation of risk forecasts
  • endogenous risk

Students apply the models to real financial data using Matlab, a programming environment widely used in industry and academia. No prior knowledge of programming is assumed: students will learn-by-doing in class. Students will at times use data and software for classwork assignments.