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Unit outline_

FINC3020: Financial Risk Management

Semester 2, 2021 [Normal day] - Camperdown/Darlington, Sydney

Risk is an integral part of financial decisions. Financial risk management is increasingly important and financial analysts must be prepared to assess the level of risk in the marketplace. This course explores the basic concepts of modelling, measuring and managing financial risks within the regulatory framework. Topics covered include market risk (value-at-risk and expected loss), credit risk (single name, portfolio, ratings and market-based models, and credit derivatives), liquidity risk and operational risk. The course relies heavily on practically based computer laboratory exercises with emphasis on simulations, real-life examples and case studies.

Unit details and rules

Academic unit Finance
Credit points 6
Prerequisites
? 
FINC2012
Corequisites
? 
None
Prohibitions
? 
None
Assumed knowledge
? 

FINC3017

Available to study abroad and exchange students

Yes

Teaching staff

Coordinator Andrew Grant, andrew.grant@sydney.edu.au
Type Description Weight Due Length
Final exam (Record+) Type B final exam Final exam
Written exam
40% Formal exam period 2 hours
Outcomes assessed: LO1 LO2 LO3
In-semester test (Record+) Type B in-semester exam Mid-semester exam
MCQ
30% Week 07
Due date: 20 Sep 2021 at 16:00
1 hour
Outcomes assessed: LO1 LO2 LO3
Assignment group assignment Group project
Report
30% Week 12 10 pages
Outcomes assessed: LO1 LO2 LO3
group assignment = group assignment ?
Type B final exam = Type B final exam ?
Type B in-semester exam = Type B in-semester exam ?

Assessment summary

  • Group project: Working in a group for a large, high-risk, high leverage hedge fund that specialises in Australian multi-asset strategies, you will be required to construct a risk management system for the hedge fund and evaluate its performance. Using the most appropriate measure of risk, your are also tasked with summarising the portfolio risk and recommend an appropriate strategy to mitigate this risk.
  • Mid-semester exam: It is a closed book multiple-choice quiz covering the first five lectures of the semester.
  • Final exam: This exam consists of multiple-choice and short discussions and analytical questions. It is a closed book exam covering all concepts covered during the semester.

Assessment criteria

The University awards common result grades, set out in the Coursework Policy 2014 (Schedule 1).

As a general guide, a high distinction indicates work of an exceptional standard, a distinction a very high standard, a credit a good standard, and a pass an acceptable standard.

Result name

Mark range

Description

High distinction

85 - 100

Awarded when you demonstrate the learning outcomes for the unit at an exceptional standard, as defined by grade descriptors or exemplars outlined by your faculty or school. 

Distinction

75 - 84

Awarded when you demonstrate the learning outcomes for the unit at a very high standard, as defined by grade descriptors or exemplars outlined by your faculty or school.

Credit

65 - 74

Awarded when you demonstrate the learning outcomes for the unit at a good standard, as defined by grade descriptors or exemplars outlined by your faculty or school.

Pass

50 - 64

Awarded when you demonstrate the learning outcomes for the unit at an acceptable standard, as defined by grade descriptors or exemplars outlined by your faculty or school. 

Fail

0 - 49

When you don’t meet the learning outcomes of the unit to a satisfactory standard.

For more information see guide to grades.

Late submission

In accordance with University policy, these penalties apply when written work is submitted after 11:59pm on the due date:

  • Deduction of 5% of the maximum mark for each calendar day after the due date.
  • After ten calendar days late, a mark of zero will be awarded.

Academic integrity

The Current Student website provides information on academic integrity and the resources available to all students. The University expects students and staff to act ethically and honestly and will treat all allegations of academic integrity breaches seriously.

We use similarity detection software to detect potential instances of plagiarism or other forms of academic integrity breach. If such matches indicate evidence of plagiarism or other forms of academic integrity breaches, your teacher is required to report your work for further investigation.

Use of generative artificial intelligence (AI) and automated writing tools

You may only use generative AI and automated writing tools in assessment tasks if you are permitted to by your unit coordinator. If you do use these tools, you must acknowledge this in your work, either in a footnote or an acknowledgement section. The assessment instructions or unit outline will give guidance of the types of tools that are permitted and how the tools should be used.

Your final submitted work must be your own, original work. You must acknowledge any use of generative AI tools that have been used in the assessment, and any material that forms part of your submission must be appropriately referenced. For guidance on how to acknowledge the use of AI, please refer to the AI in Education Canvas site.

The unapproved use of these tools or unacknowledged use will be considered a breach of the Academic Integrity Policy and penalties may apply.

Studiosity is permitted unless otherwise indicated by the unit coordinator. The use of this service must be acknowledged in your submission as detailed on the Learning Hub’s Canvas page.

Outside assessment tasks, generative AI tools may be used to support your learning. The AI in Education Canvas site contains a number of productive ways that students are using AI to improve their learning.

Simple extensions

If you encounter a problem submitting your work on time, you may be able to apply for an extension of five calendar days through a simple extension.  The application process will be different depending on the type of assessment and extensions cannot be granted for some assessment types like exams.

Special consideration

If exceptional circumstances mean you can’t complete an assessment, you need consideration for a longer period of time, or if you have essential commitments which impact your performance in an assessment, you may be eligible for special consideration or special arrangements.

Special consideration applications will not be affected by a simple extension application.

Using AI responsibly

Co-created with students, AI in Education includes lots of helpful examples of how students use generative AI tools to support their learning. It explains how generative AI works, the different tools available and how to use them responsibly and productively.

WK Topic Learning activity Learning outcomes
Week 01 1. Introduction to unit of study; 2. Objectives of risk management; 3. Introduction to types of risk Lecture and tutorial (3 hr) LO1
Week 02 1. Introduction to value at risk (VaR); 2. Expected shortfall Lecture and tutorial (3 hr) LO1 LO2
Week 03 1. VaR precision and time aggregation; 2. Backtesting of VaR Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 04 1. Portfolio VaR; 2. Analytical approach Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 05 1. Portfolio VaR; 2. Multivariate models; 3. Mapping, correlations and copulas Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 06 1. Forecasting; 2. Volatility; 3. Correlations Lecture and tutorial (3 hr) LO1 LO2
Week 07 1. VaR methods; 2. Delta normal, historical simulation and Monte Carlo Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 08 Set for Mid-term Exam Lecture and tutorial (3 hr)  
Week 09 1. Stress testing; 2. Scenarios; 3. Integrated risk management Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 10 1. Credit risk 1; 2. Ratings; 3. Default probabilities, credit default swap (CDS) Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 11 1. Credit risk 2; 2. Credit risk modelling; 3. Credit VaR Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 12 Lessons from past crises Lecture and tutorial (3 hr) LO1 LO2 LO3
Week 13 1. Unit summary; 2. Exam information; 3. Assignment feedback Lecture and tutorial (3 hr) LO1 LO2 LO3

Attendance and class requirements

Lecture recordings: All lectures and seminars are recorded and will be available on Canvas for student use (Zoom recordings posted on Canvas). Students should ensure they attend and participate in all classes.

Study commitment

Typically, there is a minimum expectation of 1.5-2 hours of student effort per week per credit point for units of study offered over a full semester. For a 6 credit point unit, this equates to roughly 120-150 hours of student effort in total.

Required readings

All readings for this unit can be accessed through the Library eReserve, available on Canvas.

  • Risk Management and Financial Institutions (5th edition), J. C. Hull, Pearson Prentice Hall, New Jersey, 2018.
  • Value at Risk (3rd edition), P. Jorion, McGraw Hill, 2007.

Learning outcomes are what students know, understand and are able to do on completion of a unit of study. They are aligned with the University's graduate qualities and are assessed as part of the curriculum.

At the completion of this unit, you should be able to:

  • LO1. describe and apply the basic elements underpinning financial risk management
  • LO2. describe the various risk exposures as well as explain and comprehend latest the risk management techniques.
  • LO3. describe and comprehend the implementation of market and credit risk mitigation/management measures for a financial institution.

Graduate qualities

The graduate qualities are the qualities and skills that all University of Sydney graduates must demonstrate on successful completion of an award course. As a future Sydney graduate, the set of qualities have been designed to equip you for the contemporary world.

GQ1 Depth of disciplinary expertise

Deep disciplinary expertise is the ability to integrate and rigorously apply knowledge, understanding and skills of a recognised discipline defined by scholarly activity, as well as familiarity with evolving practice of the discipline.

GQ2 Critical thinking and problem solving

Critical thinking and problem solving are the questioning of ideas, evidence and assumptions in order to propose and evaluate hypotheses or alternative arguments before formulating a conclusion or a solution to an identified problem.

GQ3 Oral and written communication

Effective communication, in both oral and written form, is the clear exchange of meaning in a manner that is appropriate to audience and context.

GQ4 Information and digital literacy

Information and digital literacy is the ability to locate, interpret, evaluate, manage, adapt, integrate, create and convey information using appropriate resources, tools and strategies.

GQ5 Inventiveness

Generating novel ideas and solutions.

GQ6 Cultural competence

Cultural Competence is the ability to actively, ethically, respectfully, and successfully engage across and between cultures. In the Australian context, this includes and celebrates Aboriginal and Torres Strait Islander cultures, knowledge systems, and a mature understanding of contemporary issues.

GQ7 Interdisciplinary effectiveness

Interdisciplinary effectiveness is the integration and synthesis of multiple viewpoints and practices, working effectively across disciplinary boundaries.

GQ8 Integrated professional, ethical, and personal identity

An integrated professional, ethical and personal identity is understanding the interaction between one’s personal and professional selves in an ethical context.

GQ9 Influence

Engaging others in a process, idea or vision.

Outcome map

Learning outcomes Graduate qualities
GQ1 GQ2 GQ3 GQ4 GQ5 GQ6 GQ7 GQ8 GQ9

This section outlines changes made to this unit following staff and student reviews.

Signifcant upgrades to canvas sites, formative learning - padlet and weekly quizzes added.

Disclaimer

The University reserves the right to amend units of study or no longer offer certain units, including where there are low enrolment numbers.

To help you understand common terms that we use at the University, we offer an online glossary.