MFIN6012 Risk Management

MFIN6012 Risk Management
Master of Finance
HKU Business School
The University of Hong Kong
Instructor: Kwok-Sang (Maurice) Tse

Office Hours: By appointment
Email: [email protected]
Section A Section B
Dates: May 16, 19, 23, 26, 30 Dates: May 17, 18*, 24, 25*, 31
June 02, 06, 09, 13, 16, 20, 23 June 07, 10, 14, 17, 21, 24, 28
Time: 9:30 am - 12:30 pm Time: 9:30am – 12:30pm; *6:30 – 9:30pm
Venue: ZOOM Venue: ZOOM
Course Description and Objectives

This course offers to students the concepts and techniques necessary for effective corporate financial
risk management. During the previous financial crises, firms with lapses in risk control were either
put out of business or inflicted with huge financial losses by adverse market conditions. During the
credit crisis in 2008, risk management systems failed at many banks resulting in losses much worse
than the banks had anticipated. Sound risk management practices can increase the market value of
the firm. In fact, risk management has increasingly been recognized as a key component of
corporate leadership and corporate governance. The purpose of this course is to offer a step-by-
step approach to the development of a proper risk management for a company. We will focus on
the financial modeling of risk and the effective use of the various financial products for risk
management. In particular, the course will focus on:
• Identification and measurement of a firm’s exposure to financial risk
• Use of various financial instruments in managing the firm’s exposure to risks
• Implementation of risk management program
Course Learning Outcomes

At the end of the course, students should be able to understand the nature and the use of different
risk management tools and instruments, be able to identify and measure a firm’s exposure to risks,
apply the various financial instruments in managing the firm’s risk exposure, and be able to
implement effective risk management program.
1. Understand the concepts of risk
2. Understand the impact of risk management on a firm’s value
3. Identify and evaluate a firm’s exposure to financial risks.
K s tse 1
4. Understand the properties of different financial tools for risk management
5. Apply financial instruments to hedging market and credit risks
6. Understand the limitations of risk models and the risk inherent in financial instruments
7. Evaluate risk management objectives and formulate corresponding risk management program
Programme Learning Outcomes
PLO1 Acquisition of quantitative techniques in interdisciplinary fields between finance and

other appropriate disciplines including but not limited to science, technology,
engineering, and mathematics
PLO2 Acquisition of advanced knowledge in interdisciplinary fields between finance and
other appropriate disciplines including but not limited to science, technology,
engineering, and mathematics
PLO3 Application and integration of interdisciplinary knowledge and skills to identify and
tackle practical problems, and design innovative products and systems with
international standards and global vision
PLO4 Inculcating leadership, professional ethics and competence in finance and relevant
interdisciplinary fields
PLO5 Mastering communication skills
Course Learning Outcomes

Course Learning Outcomes Aligned Programme Learning Outcomes
CLO1 PLO1, PLO2, PLO3,

CLO7 PLO4, PLO5
K s tse 2
Teaching and Learning Activities
The course will consist of lectures covering the theories and concepts of the different kinds of risk
and risk management tools and case discussions requiring students to apply the tools and concepts
to managing risks.
Course Teaching and Learning Activities Expected contact hour Study Load (% of study)
T&L1. Lectures 30 25%
T&L2. Readings 30 25%
T&L3. Problem Sets 20 20%
T&L4 Self-Study 40 30%
Required Readings and Textbook
There is no required textbook for the course. References recommended for the course are:
• Riskmetrics, Technical Documents, JP Morgan/Reuters

• John C. Hull, Risk Management and Financial Institutions, 4th Edition, John Wiley.
• Brealey, Richard A., Stewart C. Myers, and Franklin Allen. Principles of Corporate Finance.
Boston, MA: McGraw-Hill.
• McDonald, Robert. Derivatives Markets. Addison-Wesley
The readings will include the following Harvard Business Review articles:
• Why Manage Risk
• New Arsenal of Risk Management
• Understanding Corporate Value at Risk
• Hedging at Porsche
• Assessing a Company’s Future Financial Health
• Six ways companies mismanage risk
• Honeywell Integrated Risk Management
ALL lecture materials and readings will be uploaded to Moodle.
K s tse 3
Assessment and Grading Policy
Performance assessment will be based on THREE individual assignments and a take-home final. The
assessment weights are as follows:
Assessment Methods Brief Description Weight Aligned CLOs

A1. THREE Individual Assignments The course grade will be 40% CLO1-CLO7
A2. Final Exam augmented by class participation 60% CLO1-CLO7
and attendance
Total 100%
Standards for Assessment

Course Grade Descriptors
• All aspects were addressed and researched in great depth.

• Demonstrates a clear understanding of and the ability to apply and theory,
A+, A, A-
concepts and issues relating to the topic.
• Able to clearly identify the most critical aspects of the task and adopt a
critical perspective.
• All aspects conform to a high academic / professional standard
• Most aspects were addressed and researched in depth.
B+, B, B- • Demonstrates a good understanding and some application of the theory and
issues relating to the topic.
• Able to identify critical aspects of the task and adopt a critical perspective.
• Most aspects conform to a high academic / professional standard.
• Most aspects were addressed and researched adequately.
C+, C, C-
• Demonstrates a good understanding of the theory, concepts and issues
relating to the topic but limited application relating to the topic.
• Most aspects conform to an acceptable academic / professional standard.
• Basic aspects were addressed and researched adequately.
D+, D
• Demonstrates mainly description, showing basic understanding of the topic
but no application.
• Limited aspects conform to academic / professional standards.
• Basic aspects were superficial, inadequate or absent.
• Demonstrates limited understanding of the topic and draws conclusions
F
unrelated to the topic.
• The written work is not of an academic / professional standard."
K s tse 4
Assessment Rubrics for Each Assessment:
Assignments: The criteria of assessment can be broadly divided into three aspects: (1)
Quantitative and Theoretical Analysis (40%); (2) Applications of risk analysis in risk management
(30%); and (2) Clarity/Readability of the report (30%)
Course Coverage
The topics to be discussed are outlined as follows:
Topic 1 Introduction
Why Risk Management
Impact of Risk Management on Firm Value
Readings:
• Why Manage Risks
• New Arsenal of Risk Management
Topic 2 Concepts of Risk and Risk Measure
Topic 3 Value at Risk (VaR)
Readings:
• Understanding Corporate Value at Risk
Topic 4 VaR Statistics and Forecasting
Topic 5 Risk Modeling for Financial Instruments
• Investment Portfolios
• Forward and Futures
• Options
Readings:
• Hedging at Porsche
Topic 6 Extreme Value: Modeling Tail Behavior
Topic 7 Back Testing and Stress Testing
Topic 8 Credit Risk
Readings:
• Assessing a Company’s Future Financial Health
Topic 9 Operational Risk Modeling
Topic 10 Framework for Financial Risk Management
Readings:
• Six Ways Companies Mismanage Risk
• Honeywell Integrated Risk Management
Note: EXCEL will be extensively used for simulation and analysis throughout the course.
K s tse 5
Academic Honesty and Integrity
The University Regulations on academic dishonesty will be strictly enforced. Please check the
University Statement on plagiarism on http://www.hku.hk/plagiarism/. Cheating or plagiarism of
any kind would result in an automatic F grade for the course plus strict enforcement of all Faculty
and/or University regulations regarding such behavior. Incident(s) of academic dishonesty will
NOT be tolerated.
K s tse 6

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MFIN6012 Risk Management

Instructor: Kwok-Sang (Maurice) Tse

Course Description and Objectives

Course Learning Outcomes

Programme Learning Outcomes

PLO1 Acquisition of quantitative techniques in interdisciplinary fields between finance and

Course Learning Outcomes

CLO1 PLO1, PLO2, PLO3,

Required Readings and Textbook

• Riskmetrics, Technical Documents, JP Morgan/Reuters

ALL lecture materials and readings will be uploaded to Moodle.

Assessment Methods Brief Description Weight Aligned CLOs

Standards for Assessment

• All aspects were addressed and researched in great depth.

The topics to be discussed are outlined as follows:

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