Risk Management


This course is designed to train the students in evaluating and managing financial risk. The course deals mainly with market risk while mapping and describing other types of risks to financial institutions.

General characterization





Responsible teacher

Gonçalo Sommer Ribeiro


Weekly - Available soon

Total - Available soon

Teaching language




Jorion, P., 2006, Value at Risk, Mc Graw Hill, 3rd edition.

Other Readings:
Berkowitz, J., and J. O’Brien, 2002, How Accurate Are Value at Risk Models at Commercial Banks? Journal of Finance 57, 1093-1111.
Bloomberg Portfolio Value-at-Risk, 2011.
Jorion, P., 1997, Lessons from the Orange County Bankruptcy, Journal of Derivatives 4, 61- 66.
Jorion, P., 2000, Risk Management Lessons from Long-Term Capital Management, European Financial Management 6, 277-300.
RiskMetrics – Technical Document, J. P. Morgan, 1996. Return to RiskMetrics: The Evolution of a Standard, 2001. The 2006 RiskMetrics Methdology, 2006.

Teaching method

Class discussion: Good class participation consists of asking informed questions or making informed comments, as well as to deliver quality answers to questions asked in class.
Readings: Weekly readings on the topic being taught during that period. These readings aim to connect theory to real word current reality. The readings can be tested in the final exam or even in case questions.
Case assignments: There will be two case assignments for this course. A written analysis of each case is due for each group. The maximum number of pages (excluding tables) of the written report is four. The handout should be synthetic but specify clearly all the computations performed, present the results in well-formatted tables and graphs, and interpret and discuss the findings. Please do not hand in data listings or just raw software output. Presentation will factor in the grading. You must work in groups of 4-5 members in your write-up. Your work should be uploaded to Moodle before the due date (here you can include XL files you deem as relevant appendices).

Exam: the final exam will cover lectures, readings assigned in the textbook, additional readings, and materials distributed during class time. You can bring a cheat-sheet to the exam containing exclusively formulas but not text. You can use a calculator in the exam. Re-grade requests for exams must be submitted in writing within one week of the return of your exam. You must submit your entire exam along with an explanation of the grading issue.

Evaluation method

The course grade will be based on:

•    Case 1 (25%)
•    Case 2 (25%)
•    Final exam (50%): Closed book exam with exception of a double-side A4 sheet. Passing grades in the course require a minimum grade of 9.5 in the final exam.
•    Class participation can make a difference when between two grades

Subject matter

Class 1 – What is Risk?
Class 2 – Measuring Market Risk
Class 3 – VaR of a Portfolio of Stocks
Class 4 – Hedging a Portfolio of Stocks from Market and FX Risks
Class 5 – Backtesting, Monte Carlo and Stylized Facts
Class 6 – VaR with Bonds Class 7 – VaR with Bonds II
Class 8 – VaR with Linear Derivatives
Class 9 – VaR with Non-Linear Derivatives
Class 10 – Portfolio VaR and Forecasting
Class 11 – Stress Testing and CVaR
Class 12 – VaR and Bank Capital Requirements