Market Risk and Credit Risk


Risk is closely related with profitability. This curricular unit presents risk measures, both in financial and in credit markets, along with the discussion of methodologies for their quantification, including scoring, rating and prediction of bankruptcy. Stress tests are also addressed and the analysis of pension funds is carried out resorting, in particular, to actuarial and risk assessment models.

General characterization





Responsible teacher

Joaquim Amaro Graça Pires Faia e Pina Catalão Lopes, Marta Cristina Vieira Faias Mateus


Weekly - 4

Total - 54

Teaching language



There is not any prerequisite.


Duffie, D. and Singleton, K., 2003, Credit Risk:Pricing, Measurement, and Management, Princeton University Press
Gourieroux, C. and Jasiak, J., 2007, The Econometrics of Individual Risk: Credit, Insurance, and Marketing, Princeton University Press
Hull, J., 2015, Options, Futures, and Other Derivatives, Prentice Hall.
Hull, J., 2012, Risk Management and Financial Institutions, Wiley.
Jorion, P., 2007, Value at Risk - The New Benchmark for Managing Financial Risk, McGraw-Hill.
McCullaugh, P. and Nelder, J., 1989, Generalized Linear Models, Chapman and Hall.
Turkman, M. and Silva,G., 2000, Modelos Lineares Generalizados – da Teoria à Prática, Edições SPE
Vose, D., 2008, Risk Analysis - A Quantitative Guide, John Wiley & Sons.
Winklevoss,H., 2002, Pension mathematics with numerical illustrations; Pension Research Council, Wharton School

During the course additional material may be included.

Teaching method

Theory-practice lectures involving theory with applications, allowing for a deeper understanding of the concepts along with specific aspects of the data and methodological issues in Risk and Finance. A particularly important part of these lectures are the presentations, followed by respective discussion, of the students research works.

Evaluation method

Evaluation methods are, alternatively:

- Continuous, with two written research works, presented and discussed, one with an emphasis on pension funds and actuarial valuation models -25% in final grade-, another focusing on risk and return in financial and credit markets, measures and methodological underpinnings -75% in final grade-, and with a midterm assessing methodologies and scope of application in risk measurement -35% of final grade . Approval requires a final grade of 9.5 values (no minimum score on items). Delivery and presentation-discussion of each work and the midterm take place when the respective part of the material is finished;

NOTE - To obtain "Frequência" at least 65% of class participation/presence is expected;

- Final exam without consultation on the whole material, whose grade weighs 100% of final grade, with minimum passing grade of 9.5.

Attention: “Melhoria”/improving the final grade requires the own Exam, on the whole material, which score weights 100% of the grade.

Subject matter

1.Risk measures

2.Extreme values

3.Volatility and Correlation


5.Credit risk: scoring, default, rating

6.Interest rate risk

7.Stress testing

8.Basel II

9.Pension Funds: Pay as you Go and Pay as you Earn Systems, Pension Plans and Funds Concepts, Actuarial Valuation - Projected Unit Credit Method, Management of Funds, ALM Risk Measurement


Programs where the course is taught: