INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Course Outline

Course Code and Course Title Financial Risk Management

Course type Elective

Previous courses in finance particularly Corporate

Pre-requisites (if any) finance, Financial statement analysis, Derivatives
and Fixed Income

Course Credit 3
Total no. of sessions 24 to be extended be 3 more if required
Session Duration 75 Minutes
Term 5
Year and Batch 2020-21, PGP23

Prof. Ramesh Lakshman -B.com. LLB, FCA, (Grad)

Instructor(s)
CWA
Contact Details +919820001571 ramesh.l@rlco.bz

Office Not applicable

Introduction

The changing dynamics of the financial world post 2008 crisis and is consequential regulatory intervention
has catapulted risk management to center stage in most organisations, mainly financial institutions and
large corporates. Irrespective of the role a finance professional will play, it is important to understand the
nuances of the risk management and be able to meet the regulatory and market expectations in judicious
management of risk. This course is designed to introduce various risk management concepts, tools, and
techniques as applied in normal commercial enterprises and financial institutions. Starting from concepts
of individual risk it will develop into taking a holistic view of risk. As much as possible the mathematical
tools used will be explained with use of excel spreadsheet together with inputs on what to expect in real
life situation. The course will end with an assignment calibrated to stitch the concepts together

Learning Outcomes/Course Objectives

At the end of this course, the participants would be able to

 Understand the elements of risk and their different dimensions, approaches developed by the market
to measure and monitor and manage them and the relationship between risk and reward.
 Appreciate and understand the basic challenges in measuring and managing risk

 Evaluate and apply tools and procedures used to measure and manage financial risk and be aware of
limitations within them.
 Textbooks and Learning Materials

Text Book(s)
Managing Financial Risk by Charles Smithson
John C. Hull, “Risk Management and Financial Institutions”, 5th ed, Wiley India.

Reference Book(s)Allen, Boudoukh and Saunders, Understanding Market, Credit and Operational Risk:
The Value at Risk Approach, Blackwell Publishing, 2004
 Elements of Financial Risk Management 2nd Ed. by Peter F Christoffersen
 RiskMetrics Technical Documents published by JP Morgan & Co.
 Financial Risk Manager Handbook by Philippe Jorion

Additional Reading(s)
Electronic copies of relevant reading materials will be distributed as and when required.

Pedagogy Used/Learning Process

This course would use a mix of pedagogical tools such as lectures, case discussions, Excel simulations in
the learning process. The instructor expects the students to participate actively in the class and actively
work on in-class exercise. Students are expected to read the textbooks or other assigned readings outside
of class and participate in the critical evaluation of the material through class discussion.

Evaluation Components/Assessment of Student Learnin

Assessment Tool Percentage Description
Quizzes 20% These components are required to check
and evaluate the students’ understanding
of concepts and application of
End term Exam 50% appropriate tools and techniques. Best 2
out of 3 quizzes would be considered for
the final evaluation.
Assignments (Individual) 30% Students are expected to show their
understanding by their insight into the case
that will be provided for analysis
Session Plan

Session Module Topic Chapter

No/Reading
Material
1-2 Introduction to What is risk and why is it necessary Chapter 1 and 2 and
risk Commercial to manage risk 21 - Managing
risk Financial Risk
3-4 Risk in Financial Risk architecture of financial Chapter 1 , 2 and 3 of
Institutions, Institutions, Insurance companies, John Hulls book
Insurance and Mutual Funds
Mutual Funds
5 Risk vs return Understanding the relationship Chapter 1 of John
between risk and return and revisit Hull.
CAPM
6-7 Risk measures of Understanding popular measures Chapter 10 and 11 of
Volatility, used to measure and evaluate risk John C Hull
correlation, and their shortcomings.
variance, EWMA
and Garch (1,1)
8-9 Trading Risk Measures of Delta, Gamma, Vega, Chapter 8 of John C
Theta and Rho Hull
10-11 Interest Rate Duration and Convexity Chapter 9 of Hulls
Risk book
12-13 Value at Risk Approaches and limitations Chapter 12 and 13 of
Hulls book
14 ALM Bucketing approach and their Chapter 23 of
relevance in modern times Managing Financial
Risk Management
and RBI Regulations
on Risk
management for
banks
15-15-17 Introduction to Default probabilities, credit risk for Chapter 19 and 20 of
Credit Risk, CVA derivatives John C Hull
and DVA
18 Operations Risk Approaches to understanding Chapter 23 of Hulls
operational risk and its management Book
19 Liquidity Risk Understanding liquidity risk Chapter 24 of Hulls
book
20-21 New Risk Combining products to derive Chapter 14 of
Management benefits and meet objectives Managing Financial
product Risk Management
22 Implementing a Approaches to risk management Chapter 22 of
Risk program for a corporate and what it Managing Financial
Management entails Risk
program
23-24 Regulatory Basel I II III RBi Directives, IRDA Chapters 15,16,17
Interventions directives and 18 of John Hulls
book