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COURSE OUTLINE

Risk Management for Financial Institutions

1. General

School

School of Finance and Statistics

Academic Unit

Department of Banking and Financial Management

Level of Studies

Undergraduate

Course code

ΧΡΤΡΑ07

Semester

7th

Course Title

Risk Management for Financial Institutions

Idependent Teaching Activities

Weekly Teaching Hours

Credits

Διαλέξεις
4
7,5

Course Type

Core Course

Prerequite Courses

No specific prerequisite, yet it is addressed to 4th year students, who should have taken an adequate number of courses in economics, finance and applied statistics/econometrics to be able to synthesize their knowledge

Language of Instruction and Examinations

Greek

Is the course offered to Erasmus Students?

Yes. Instruction in Greek, yet main text is available in English as well and most extra readings are in English.

Url (Eclass)

https://eclass.unipi.gr/courses/XTDUG135/

2. Learning Outcomes

Learning Outcomes

Students will be able to:

  • Understand the financial intermediation role of financial institutions and explain the links between banking crises, financial markets, loans and deposits.
  • Identify and measure interest rate risk using tools such as duration and the duration gap, and assess fundamental hedging strategies.
  • Understand liquidity risk and the key indicators used to monitor it within the applicable supervisory framework.
  • Understand the CreditMetrics, Risk-Adjusted Return on Capital (RAROC), and Merton approaches to credit risk, and calculate expected credit loss (ECL) and its key parameters: probability of default (PD), loss given default (LGD), and exposure at default (EAD).
  • Analyse foreign exchange risk and country risk and evaluate strategies for managing them.
  • Calculate market risk measures, including Value at Risk (VaR) and Expected Shortfall (ES), and understand backtesting procedures for estimated risk models.
  • Understand the rationale and implementation of stress testing, the evolution of the Basel Accords, and the roles of ICAAP, ILAAP, and MREL.
  • Understand and calculate the main capital adequacy ratios of a financial institution.
General Competences
  • Analyse and synthesise data and information using appropriate technologies.
  • Decision-making based on bank balance sheet data.
  • Measure financial risks using a variety of methodologies.

3. Syllabus

  1. Financial System
  • The financial intermediation role of financial institutions in the international environment
  • The Greek financial system
  1. Interest Rate Risk

(a)    Introduction to Interest Rate Risk

  • Duration
  • Duration Gap
  • Convexity

(b)    Hedging Interest Rate Risk

  • Overview of derivative securities
  • Hedging with Futures Contracts
  • Hedging with Swap Contracts
  • Securitisation
  1. Liquidity Risk
  • Liquidity risk management approaches
  • Regulatory liquidity risk metrics
  1. Credit Risk
  • Loan quality, loan characteristics, and returns
  • Credit risk measurement models
  • Credit risk hedging
  1. Foreign Exchange Risk and Country Risk
  • Hedging foreign exchange risk through balance sheet adjustments and forward contracts
  • Types of country (sovereign) risk and a review of recent historical developments
  • Country risk assessment and mitigation through debt-for-equity swaps or multi-year debt restructuring agreements
  1. Market Risk
  • The importance of market risk management; investment portfolios
  • Market risk measurement (Value at Risk, simulation methods, CreditMetrics, and Expected Shortfall)
  • Market risk and banking supervision
  1. Capital Adequacy
  • Stress tests in the United States and the euro area – new supervisory methodologies
  • The Basel Accords, ICAAP, and ILAAP

4. Teaching and Learning Methods - Evaluation

Delivery

Face to face

Use of Information and Communications Technology

  • PowerPoint presentation slides.
  • Solving numerical exercises and case studies on the board and using statistical software.
  • Use of email communication to respond to student questions and provide clarification, as well as for submitting assignments.
  • Use of the e-class online learning platform to upload lecture materials and additional supporting resources (e.g., academic articles and case studies).

Teaching Methods

Activity

Semester Workload

Lectures
52
Independent Study
135,5
Course Total
187,5

Student Performance Evaluation

  • At the midpoint of the semester, students sit a midterm examination covering Sections (1), (2), and (3) of the required reading. The examination consists of (a) questions testing general knowledge of the compulsory course material, (b) questions on current economic developments and financial press articles discussed in lectures, and (c) numerical problems similar to those in the main textbook.
  • The midterm examination grade contributes to the final course grade only if it is higher than the final examination grade.
  • The final examination follows a similar format to the midterm examination but covers all course sections.

5. Attached Bibliography

Suggested Bibliography
  • Instructor’s lecture notes (PowerPoint slides) and exercises (eclass.unipi.gr).
  • Saunders, A., and Cornett, M. M. Financial Institutions Management and Risk Management, Broken Hill Publishers Ltd. (Greek-language edition).
  • Hull, J. C. (2023). Risk Management and Financial Institutions, 6th ed., Wiley.
  • Jorion, P. (2007). Value at Risk: The New Benchmark for Managing Financial Risk, 3rd ed., McGraw-Hill.
  • Christoffersen, P. (2011). Elements of Financial Risk Management, Academic Press.
  • Articles from the financial press throughout the semester.
  • Published material from the European Central Bank (ECB), European Banking Authority (EBA), and Bank for International Settlements (BIS) on financial risk measurement.
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