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Financial Risk Management

1. Risk, Risk Management, and Risk Measures2. Risk Models in Market Risk 3. Risk Models in Credit Risk4. Risk Management Strategies 5. Financial Crises and Risk Regulation
Course code
Course type
MSc Course
Weekly Hours
FS 2023
Dr. Thomas Ridder
Please note that exchange students obtain a higher number of credits in the BSc-program at WHU than listed here. For further information please contact directly the International Relations Office.

1 Concepts and Methods in Financial Risk Management Section 1 introduces the general approach of financial risk management in financial institutions, insurance companies and corporates. The Section covers basic economic, organisational, and quantitative topics in financial risk management. Quantitative key risk figures like Value-at-Risk and Expected Shortfall as well as stress-testing approaches are introduced. A short introduction to setting up and using the R / RStudio programming environment will be given to enable students to do basic data analysis and plotting.

2 Applications in Credit Risk
Section 2 applies general risk management approaches introduced in Section 1 to the analysis of credit risk. Credit risk with respect to single risks and portfolios is analysed. Issues discussed in this Section cover questions of rating systems, probabilities of default, exposure calculation, as well as approaches to quantify dependency of credit risks. Issues in risk-adjusted pricing of credit instruments like bonds and loans are also being discussed.

3 Applications in Market Risk
Section 3 introduces risk figures like Value-at-Risk and Expected Shortfall to analyse the market risk of portfolios of financial instruments. The issues are discussed based on simple sample portfolios, where all steps of risk analysis are developed from the scratch.

4 Applications in Operational Risk
Section 4 gives a short introduction to issues of Operational Risk in Financial Risk Management. The focus of this Section is on differentiating operational risk from credit risk and market risk. An overview over current practices of operational risk measurement and management is given.

5 Liquidity Risk
Section 5 introduces the basics of liquidity risk management. The most important types of liquidity risk are discusses as well as typical approaches to manage these risks.

6 Current Developments in Financial Markets Regulation
The design and the structure of international financial markets regulation has been heavily revised by the Basel Committee on Banking Supervision (BCBS) in the years following the 2007/2008 financial crisis. Major parts of this process have been finalised recently. Section 6 delivers an overview over current financial markets regulation - having a focus on those topics most relevant for financial risk management.

Date Time
Thursday, 09.03.2023 13:45 - 18:45
Thursday, 16.03.2023 13:45 - 18:45
Thursday, 23.03.2023 13:45 - 18:45
Thursday, 30.03.2023 13:45 - 18:45
Thursday, 06.04.2023 13:45 - 18:45
•Adequate use and judgement of basic risk management and measurement methods in finance
•Interpretation of Value-at-Risk and other key risk figures
•Distinctions between market risk and credit risk in financial markets
•Understanding of the evolution of the financial crisis starting in 2007
•Financial markets regulation
Financial Instruments and Markets: Bodie, Z. / Kane, A. / Marcus, A.J. (2020): Investments, 12th ed. McGraw-Hill Hull, J.C. (2021): Options, Futures, and Other Derivatives, 11th ed., PearsonRisk Management:Crouhy, M. / Galai, D. / Mark, R. (2014): The Essentials of Risk Management, 2nd ed, McGraw HillHull, J.C. (2018): Risk Management and Financial Institutions, 5th ed, WileyMcNeil, A. / Frey, R. / Embrechts, P. (2015): Quantitative Risk Management. Concepts, Techniques and Tools, rev. ed. Princeton University PressSaunders, A. / Cornett, M. M. (2020): Financial Institutions Management. A Risk Management Approach. 10th ed., McGraw HillMethods:DeGroot, M. / Schervish, M. (2014): Statistics and Probability, 4th ed., PearsonSydsaeter, K. / Hammond, P. / Strøm, A. / Carval, A. (2022): Essential Mathematics for Economic Analysis, 6th ed., Pearson
Teaching, Excel Exercise, R Scripts and Exercises
Written Exam (80%), Class Participation (20%)
Capital Markets and Financial Instruments: Basic knowledge of the cash flow structure and pricing methods of financial instruments like bonds, stocks, and derivatives (options, swaps, forwards). Basics of Probability and Statistics: basic rules of probability calculus, discrete and continuous distribution functions, moments of random variables and functions of random variables, quantiles, sampling, estimation of mean, variances, and quantiles. Microsoft Excel: Some experience in creating, saving, and editing spreadsheets will be helpful. No VBA programming will be used.
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