NBS8201 : Risk Modelling
- Offered for Year: 2024/25
- Module Leader(s): Professor Robert Sollis
- Owning School: Newcastle University Business School
- Teaching Location: Newcastle City Campus
Semesters
Your programme is made up of credits, the total differs on programme to programme.
| Semester 2 Credit Value: | 10 |
| ECTS Credits: | 5.0 |
| European Credit Transfer System | |
Aims
This module aims to provide students with a detailed understanding of the key mathematical and statistical techniques used by financial institutions (e.g. investment banks, insurance companies, hedge funds) for modelling the risks associated with their assets and liabilities. The module will also explain in detail how financial regulators influence the risk management strategies employed by financial institutions.
Outline Of Syllabus
This module concentrates on the techniques used for modelling three particular types of risk;
(i) interest rate risk
(ii) credit risk
(iii) market risk.
These techniques range from simple mathematical models, through to more complex statistical techniques such as Monte Carlo simulation. Empirical applications at the individual, company and country level will be employed to illustrate the techniques in action. Relevant financial regulations will also be critically analysed. A summary of the lecture schedule is given below.
1. Introduction and interest rate risk
- types of risk, the repricing model, the maturity model.
2. Interest rate risk
- duration, immunization, convexity.
3. Interest rate risk and credit risk
- forecasting interest rates, linear discriminant models, linear probability models.
4. Credit risk
- linear probability models, limited dependent variable models.
5. Credit risk and market risk
- default rate models, modelling and forecasting volatility.
6. Market risk
- VaR by historical simulation, VaR by the delta-normal approach, VaR by Monte Carlo simulation, backtesting VaR models.
7. Market risk
- backtesting VaR models, VaR and financial regulation, VaR and the 2008-2009 global financial crisis.
Teaching Methods
Teaching Activities
| Category | Activity | Number | Length | Student Hours | Comment |
|---|---|---|---|---|---|
| Scheduled Learning And Teaching Activities | Lecture | 7 | 2:00 | 14:00 | PIP lectures |
| Guided Independent Study | Assessment preparation and completion | 30 | 1:00 | 30:00 | N/A |
| Guided Independent Study | Directed research and reading | 33 | 1:00 | 33:00 | N/A |
| Scheduled Learning And Teaching Activities | Small group teaching | 3 | 1:00 | 3:00 | PIP seminars |
| Guided Independent Study | Independent study | 1 | 20:00 | 20:00 | N/A |
| Total | 100:00 |
Teaching Rationale And Relationship
• Lectures provide the basic structure of the methods and theories that are introduced and an overview of the current issues.
• Seminars provide an opportunity to enhance understanding of the empirical methods and the theoretical aspects of the module.
Assessment Methods
The format of resits will be determined by the Board of Examiners
Exams
| Description | Length | Semester | When Set | Percentage | Comment |
|---|---|---|---|---|---|
| Written Examination | 90 | 2 | A | 100 | Alternative mode of assessment if required: take home exam (24 hour) |
Formative Assessments
Formative Assessment is an assessment which develops your skills in being assessed, allows for you to receive feedback, and prepares you for being assessed. However, it does not count to your final mark.
| Description | Semester | When Set | Comment |
|---|---|---|---|
| Prob solv exercises | 2 | M | Quiz in lectures |
Assessment Rationale And Relationship
The examination tests students' understanding of risk modelling in finance.
In the case of an alternative mode of semester 2 assessment being necessary because of a deterioration in the public health situation, a take home exam will be used (24-hour).
Reading Lists
Timetable
- Timetable Website: www.ncl.ac.uk/timetable/
- NBS8201's Timetable