MSc Quantitative Finance / Course details

Year of entry: 2023

Course unit details:
Credit Risk Measurement and Management

Course unit fact file
Unit code BMAN71572
Credit rating 15
Unit level FHEQ level 7 – master's degree or fourth year of an integrated master's degree
Teaching period(s) Semester 2
Offered by Alliance Manchester Business School
Available as a free choice unit? No

Overview

 
  • Capital Adequacy and the Basel II Regulatory Framework
  • Credit Rating and Scoring Methods
  • Structural Models for Credit Risk  (with the emphasis on the Merton’s model and its industrial application within the KMV framework)
  • Intensity Models for Credit Risk
  • Modelling default dependencies
  • The Distribution of Loan Portfolio Value (Merton / Vasicek)
  • Industry used Credit Risk Management products

Pre/co-requisites

BMAN71572 Programme Req: BMAN71572 is only available as a core unit to students on MSc Quantitative Finance

Students taking this unit must have a solid foundation in Mathematical Statistics, and at least intermediate knowledge in Finance

Aims

This course unit provides students with a solid background in credit risk modeling methods and the empirical framework for their application. Topics are presented in relation to the regulatory framework of Basel II and III, as well as in the light of the financial crises 2007-2011. The most recent research being conducted in the area is presented and discussed while at the same time a pragmatic approach is also provided with reference to industry approaches and financial engineering applications. The course provides students with an opportunity to implement the advanced credit risk models in MatLab. This course provides a good overview of topics that students may want to pursue for their dissertation.

Learning outcomes

On completion of this unit successful students will have achieved the following learning outcomes:

  • Understand the importance of credit risk management in the regulatory environment and its significance in maintaining regulatory and economic capital.
  • Understand the principles underlying the development of internal and external credit rating and scoring systems.
  • Understand the theory and mathematics behind standard industry practises and products in defining and measuring default probability (PD) and loss given default (LGD). 
  • Understand how individual credit risks add up to the portfolio level and over time.
  • Understand how and why credit derivatives are created and how they are used in credit risk management.
The methods of assessment for this unit allow students to demonstrate achievement of all intended learning outcomes

 

Assessment methods

Written Examination (80%) 2 hours

Individual Project (20%) up to 2500 words

Feedback methods

Informal advice and discussion during a lecture, seminar, workshop or lab.

Online exercises and quizzes delivered through the Blackboard course space.

Responses to student emails and questions from a member of staff including feedback provided to a group via an online discussion forum.

Written and/or verbal comments on assessed or non-assessed coursework.

Generic feedback posted on Blackboard regarding overall examination performance.

 

 

Recommended reading

 

Main Texts

1.  Measuring and Managing Credit Risk by Arnaud de Servigny and Oliver Renault (S&R), McGraw-Hill, 2004.  ISBN 0-07-141755-9

2.  Credit Risk Modeling by David Lando, Princeton, 2004, ISBN: 978-0-691-08929-4

3.  Risk Management and Financial Institutions by John C. Hull, third edition, 2012, ISBN 9781118269039

Supplementary Texts

1.  Credit Risk Modeling using Excel and VBA by Loffler and Posch ISBN: 978-0-470-03157-5

2.  An Introduction to Credit Risk Modeling by Christian Bluhm, Ludger Overbeck and Christoph Wagner, Chapman and Hall/CRC, 2003, ISBN 1-58488-326-X

3.  Value at Risk and Bank Capital Management by Francesco Saita, Academic Press, 2007, ISBN 0-12-369466-3

4.  Credit Risk Measurement by Anthony Saunders and Linda Allen, Wiley, 2002, ISBN 0-471-21910-X

5.  Credit Risk: Pricing Measurement and Management by Darrell Daffie and Kenneth J. Singleton, Princeton University Press, 2003, ISBN 0-691-09046-7

6.  The Analytics of Risk Model Validation by George Christodoulakis and Stephen Satchell (eds.), Elsevier, 2008, ISBN 978-0-7506-8158-2

7.  Managing Risks in the European Periphery Debt Crisis by George Christodoulakis (ed.), Palgrave Macmillan, 2015, ISBN 978-1-137-30494-0

Basic Econometrics Texts

  1. Introductory Econometrics by Jeffrey M. Wooldridge, 2009, 4th edition, ISBN-13:978-0-324-58548-3

 

Study hours

Scheduled activity hours
Assessment written exam 2
Lectures 20
Independent study hours
Independent study 128

Teaching staff

Staff member Role
Olga Kolokolova Unit coordinator

Additional notes

Informal Contact Methods

Office Hours

Online Learning Activities (online discussions via Blackboard, self-assessment questions)

E-mail 

 

 

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