Department of Systems Engineering & Engineering Management

THE CHINESE UNIVERSITY OF HONG KONG

Department of Systems Engineering & Engineering Management

2012/2013

2ndTerm

Course Code & Title:
SEEM3580Risk Analysis for Financial Engineering

Instructors and Teaching Assistants

Instructor
Name / Prof. WUQi (吴琦)
Office / Room 508, William M. W.Mong Engineering Building.
Telephone / 3943-8310
Email /

TAs
Name / Ms. Wang Yiwei (王軼偉)
Office / Room 814, William M. W. Mong Engineering Building.
Telephone / 3943- 4438
Email /
Name / Ms. Zhang Chi (張弛)
Office / Room 615, William M. W. Mong Engineering Building.
Telephone / 3943-8335
Email /

Course Email:

Class hours and venue

Tuesday, 1:30pm-4:15pm(MMW710)

Course Description & Content

This course provides students with an understanding the way in measuring and managing various financial risks such as interest rate, market, credit, foreign exchange and liquidity risks facing a financial institution. The course starts with an introduction to how different kind of financial risks affect the financial institutions. Various methods in measuring and managing those risks are then introduced.

Learning Outcomes

After completing the course you should be able to:
-understand the fundamental techniques in measuring the interest rate risk of a financial institution.
-understand the concept lying behind the VaR and the techniques to evaluate it.
-understand the fundamental techniques in measuring the credit risk of an individual loan and a portfolio of loans.
-understand the fundamental techniques in measuring the liquidity risk of a depository institution.
-understand different ways to hedge the risks of a financial institution.

Prerequisite

Multivariable Calculus, Linear Algebra, Probability and Statistics, SEEM 2520 or equivalence.

Learning Activities

Activities / Number of Hours / Nature of Activities
Lecture / In class / 3Hrs/Week / M
Outside class / NA
Interactive Tutorial / In class / 1Hr/Week / M
Outside class / NA
Laboratory Work / In class / NA
Outside class / NA
Group Discussion / In class / NA
Outside class / NA
Field Trip / In class / NA
Outside class / NA
Project / In class / NA
Outside class / NA
Assignment / In class / NA
Outside class / 5-6 Assignments / M
Reading / In class / NA
Outside class / For your own interest. / O
Other / In class / Class Discussion / O
Outside class / NA

M:Mandatory activity in the courseO:Optional activityNA: Not applicable

Learning Resources

Textbook
“Financial Institutions Management: A Risk Management Approach”, 7th edition, by Anthony Saunders and Marcia Millon Cornett, McGraw Hill
References

1. “Risk Management and Financial Institutions”, by John C. Hull, Pearson Education International, 2007.
2. “Options, Futures and Other Derivatives”, seventh edition, by John C. Hull, Pearson Education International.
3. “Fundamentals of Risk Management”, by Chris Marrison, McGraw Hill, 2002.

Course webpage

Assessment Scheme

Task nature / Weight
Assignments (Count the highest 5 among 6 assignments)
(No late assignment will be accepted.)
Midterm examination
Final Examination / 5×4% = 20%
30%
50%
Total / 100%

Schedule of examination

Midterm Exam:
26-March-20132, 1:30pm – 4:15pm; in class;

• Closed book;
• Include all the materials from the lecture notes, tutorial notes and assignments;
• One double-sided A4-size personal noteswithout any attachment is allowed. The non-standard personal notes will be confiscated (沒收).
• A scientific calculator without programming functionis necessary. The Financial Calculator is NOT ALLOWED.The allowed models can refer to

excluding the financial calculators.
Final Exam:
To be announced later.

Suggested Course Schedule

Class/Week / Date / Topic
1st Week
2nd Week
3rd Week
4th Week
5th Week
6th Week
7th Week
8th Week
9th Week
10th Week
11th Week
12th Week
13th Week
14th Week
15th Week / Jan 15
Jan 22
Jan 29
Feb 5
Feb 12
Feb 19
Feb 26
Mar5
Mar 12
Mar 19
Mar 26
Apr 2
Apr 9
Apr 16
Apr 23 / Risks of Financial Institutions
Interest Rate Risk
Interest Rate Risk
Credit Risk
Lunar New Year Holiday
Credit Risk
Market Risk & Value at Risk (VaR)
Market Risk & Value at Risk (VaR)
Liquidity Risk
Bank Regulation
Midterm Examination
Risk Management
Risk Management
Risk Management
Continue & Revision

Class Policy

1. Regular attendance is strongly encouraged. Students are responsible for all announcements made in class and for all changes in the schedule posted on the course website as well as the material covered in lecture.
2. No make-up exam will be given unless a doctor’s documentation of illness or official travel documentation for a university function is provided.
3. Any questions regarding the grade received on homework and exams should be directed to the instructor within a week of announcing the grade.
4. Late submissions of homework assignments will not receive any credit.
5. Every student is responsible for submitting his/her own written solutions/answers using his/her own words to any homework assignments and exams.

Academic Honesty

Provide link(s) to information regarding the academic honesty and plagiarism policy in the University for students. Relevant information can be allocated via: Your course outlinemay also include subject-specific requirements about avoiding plagiarism.

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