Quantitative Aspects of Financial Regulation

In the post crisis period, topics like interest rate risk, liquidity risk or credit risk particularly attracted the attention of financial regulators. The Basel Committee highlighted weaknesses in the organizational aspects of stress testing programs and practices prior to the start of the crisis. Finding rigorous risk measures for the trading book is a key actual issue in the financial institutions. Therefore, it is of major importance, in our days, to get a deep understanding of the risk management and measurement methodologies as well as an overview of the current regulatory framework. The objective of this course is to offer a comprehensive view of the financial regulations regarding the interest risk and liquidity risk management, credit risk and operational risk issues, as well as on the regulators' requirements on stress testing procedures. After understanding the regulatory framework, students have the opportunity to learn about risk measurement techniques proposed by the academic literature, or widely used in the industry. Case studies will help students to come closer to the implementation of notable stress testing techniques like stressed VaR, time-varying volatility in VaR or extreme value theory applications.

Knowledge: 

• The course will give an overview of financial institutions and their operational role in the financial markets. 
• In particular, we will emphasize key challenges that are affecting financial institutions in the context of the new regulatory frame from Basel III. 
• Key aspects of financial regulation regarding interest- and liquidity risk management, credit risk and counterparty risk will be covered. 
• Students will be able to apply simple risk measurement techniques. 
• This is of great relevance for students aiming at a career in the financial sector with emphasis in risk management, since often the issues on financial regulations are key questions during job interviews. 

Skills and competence: 

• The course enriches students' knowledge and vocabulary with useful concepts referring to the operational role of financial regulation and financial regulation. 
• It develops analytical skills: a critical assessment of financial news and announcements on financial regulation during case studies. 
• Technical skills: simple exercises on basic risk measures.

As learning methods: classical teaching will be combined with interactive discussions on academic papers and regulatory frame, where students will learn how to interpret and critically assess regulatory text.