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, non-linear dependence) 
• Concepts of financial risk (volatility, Value-at-Risk, Expected Shortfall)
• Forecasting of conditional volatility with univariate and multivariate volatility models (ARCH, GARCH)
• Implementation of risk forecasts with parametric and non-parametric methods
• Evaluation of risk forecasts with backtesting
• Endogenous risk
• Market risk financial regulations
• Recent stress events, such as the global crisis in 2008, Covid-19 in 2020, Russia’s invasion of Ukraine and recent inflation are used to illustrate the various methodologies presented in the course.

Students apply the models to real financial data using R, a programming environment widely used in industry and academia. No prior knowledge of programming is assumed: students will learn-by-doing in class. Further information on R as used in the course can be found in the R Notebook at  https://www.financialriskforecasting.com/notebook.