The MS in Risk Management modules are spread out over two fiscal years and a period of 12 months. Between modules, students complete approximately 20 hours of work per week on pre- and post-module tasks.
Module I: NYU Stern - New York
Strategic Risk FrameworkStudents will gain a holistic view of integrated risk management that is globally relevant. To acquire this perspective, students will learn about modern risk metrics and their evident limitations; acquire an appreciation for the importance of low-probability high-impact events and correlation spikes; discuss practical alternatives to create effective, efficient, and robust risk-transfer structures; and analyze issues related to the implementation of risk management systems and compliance with key regulatory requirements in risk-sensitive industries. By the end of the course, you will be able to place all these issues in a conceptual framework that forms the backbone of the program as a whole. The course then moves on to cover sovereign risk and issues in country risk assessment. Topics include macroeconomic drivers of exchange rate volatilities, sources of macroeconomic internal and external disequilibrium, sovereign risk calibration, and building sovereign risk dimensions into exposure portfolios.
Students will build the analytical framework to value a business and begin to learn concepts of optimal capital structure, risk and return, leverage, and cost of capital. In addition, students will understand how financial decisions affect value and acquire the analytical tools necessary for sound financial decision making.
Risk, Corporate Finance, and Valuation
In this course, students are introduced to statistical concepts and models that are of use in Quantitative Risk Management. We will start with basic ideas from probability theory such as probability distributions, expected values, higher moments, skewness, and kurtosis and then cover more advanced topics such as nonlinear models, non-normal distributions, tail index estimation, etc.
Concepts in Risk Management: Statistical Models
Module II: Amsterdam
Concepts in Risk Management; Parts I and IIHere, students will learn the theoretical concepts behind risk analytics and their practical use in the fund management industry. After a review of the theoretical and statistical concepts underlying portfolio management, the course focus will shift to risk analytics, tracking error ex-ante and ex-post, as well as tracking error decomposition and its usefulness in active portfolio management.
Students will also examine the main classes of derivatives securities—futures, forwards, options, and swaps—focusing on their uses and valuation. We make liberal use of case studies (Aracruz, Metallgesellschaft, Barings, SocGen, Harvard, and others) to understand and highlight the potential risks in these instruments. We also examine the valuation and hedging of derivative securities at both a formal level, and equally importantly, an intuitive one (How do these models work? What do they capture? What do they omit? How could they go wrong?).
This course will provide the analytical and practical tools necessary to manage market risks. The course starts with the regulatory requirements of Basel II with respect to market risk, then continues with analyzing basic tools to measure market risk, including Value at Risk (VaR), RAROC (Risk-Adjusted Return on Capital), sensitivity tests, scenario analysis, stress testing, and back-testing of the models.
Students will also become familiar with the strategic issues of hedging policy through discussions that include the hedging impact of non-tradable risks and linkages between different types of risk.
Module III: NYU Stern - New York
Crypto Currencies and Cyber RiskThis course will introduce participants to Bitcoin, electronic currencies, and emerging mobile payment systems. Based on new applications of information technology, these virtual currencies attempt to remove money and banking from the control of sovereign governments, and they represent one of the most disruptive innovations ever in consumer finance. The underlying distributed ledger technology has many other potential applications in diverse areas such as property registration, accounting and auditing, gambling, and financial derivatives.
Effective risk management requires a mix of qualitative skills involving psychology and risk culture alongside quantitative skills involving probability and statistics. Issues pertaining to psychology and risk culture were root causes of adverse events such as the global financial crisis, the BP oil spills in the Gulf of Mexico and Alaska, the threat posed by global warming, the JPMorgan London Whale event, and the failure of the commodities brokerage firm MF Global. This course provides participants with a structural framework for how to analyze the manner in which cognitive, emotional, and social factors impact the management of both financial risk and operational risk. The integration of quantitative and qualitative approaches is a central theme of the course. Students will acquire a series of skills for identifying and managing specific psychological phenomena that underlie the practice and culture of risk management.
Behavioral Theory in Risk Management
Operational RiskThe objective of this course is to discuss Operational Risk in a more applied manner. The goal is that students will be able to get acquainted with concepts and ideas that are useful in their dealings with Operational Risk on a day-to-day basis in their groups or in their departments.
Credit RiskStudents will be introduced to and focus more closely on issues in credit risk, concepts behind its modeling, and analysis of credit-related instruments such as default-prone debt of credit derivatives. Students will acquire an understanding of how and why these products played such a critical role in the ongoing crisis. We will also lead students through the new financial sector reforms and discuss their direct or indirect impact on credit derivatives, and credit markets in general, going forward.
The course will include analysis of the Basel II Model, the implications of the standardized and internal-ratings-based (IRB) approaches and issues relating to their implementation. New models and approaches will be analyzed including KMV, Creditmetrics, and so-called reduced-forms credit risk measurement models.
Financial Crises: Causes, Consequences and RemediesThis course helps students understand what caused the recent mortgage and sovereign debt crises in the Western economies; why regulation failed given its static nature and misplaced focus on individual firms rather than the system as a whole; and, what financial sector reforms are being undertaken to address these causes of crises and regulatory flaws. Will these new reforms succeed? Or do they continue to leave "shadow banking" in shadows? And will new forms of shadow banking emerge as regulatory arbitrage, perpetuating a new cycle of financial innovations and crises?
Risk and Structured TransactionsThis class provides students with an improved understanding of developments in securitization and structured credit risk transfer, with special emphasis on the recent credit market disruptions and the changes in regulation under consideration.
In addition to covering risk transfer through asset-backed securities and collateralized debt obligations, the course explains risk transfer using credit derivatives and synthetic asset securitization. Given its prominence among structured products today, special emphasis is placed on mortgage-backed securities. The new techniques open up fresh possibilities for the transfer, pricing, and management of credit risk.
Liquidity is the ability of a firm to meet its cash obligations from a combination of existing cash reserves, asset sales, and new borrowing. Liquidity risk management, then, is the art of balancing the existential danger of being caught without enough liquidity against the costs of maintaining liquidity.
While liquidity risk management has always been essential for financial firms, the spectacular and fatal losses of liquidity during the financial crisis of ’07 – ’09 have greatly increased the focus of managers, regulators, and even the general public on this important branch of risk management.
This unit begins by explaining the challenges of liquidity risk management, i.e. how various financial firms face uncertainties with respect to the stability of funding sources and the liquidity of assets, which can be mitigated to varying degres at varying costs. Several cases will then illustrate the practice, and sometimes failure, of liquidity risk management in specific settings. The unit will conclude with a survey of techniques used to measure, model, and manage liquidity risk, including those recently mandated by national and international regulators.
Module IV: Abu Dhabi
Risk Management in a Global Corporate SettingIn this session, the goal is to understand the international dimension of risk and develop a framework to quantify it. We will consider how firms should hedge risk from a broad strategic perspective and zoom in on currency risk and, in particular, transaction, translation, and economic exposure. We will study when it makes sense to hedge financially and what types of contracts to consider. We then will go into detail on the link between currency risk and international financing, comparing domestic issues versus international issues, and hedged structures versus non-hedged alternatives. The different ways of hedging the currency exposure embedded in the bonds will be discussed.
Regulatory and Reputational Risk, Enterprise Risk, and Corporate GovernanceThe mission here is to investigate the risks associated with strategic and tactical developments in financial and non-financial firms and their linkages to the reputational capital of the firm as it is embedded in share prices. Students will also examine the role of corporations, investors, intermediaries, and regulators in the events that preceded and followed the build-up and bursting of the financial bubble, and they will consider key dimensions of corporate governance. The concepts will be illustrated through recent and classic case studies of situations of corporate scandals.
Corporate Distress, Bankruptcy and RestructuringThis course explores current conditions and outlook for Global Corporate and Sovereign Debt Markets and strategies for investing in distressed firms and their securities. The well-known Z-Score family of models will be analyzed for investment and restructuring strategies as well as updated statistics on rating equivalents and default/recovery rates.
Closing: NYU Stern - New York
Strategic Risk Capstone
The Strategic Risk Capstone requires students to build on their own professional experience and exposure to the academic content of the program to create a meaningful project that demonstrates their ability to take an integrated view of risk management. This could take a number of forms:
- The global financial implications of a specific risk management technique, instrument, or market
- The impact of risk management on the competitive positioning and strategic execution of firms (or a particular firm) in global financial markets and particular market segments
- An in-house project to examine a key risk management issue of interest to that firm
- An assessment of probable future directions in the development of specific instruments, techniques, or markets associated with risk management
Does Risk Management Matter to Shareholders?
Previous Capstone Projects:
The authors of this paper pose a question that is central to any student devoting a year to studying risk management: Does it matter to shareholders? The authors develop a creative research design that allows them to test whether firms with more sophisticated risk management techniques have different characteristics (e.g. Tobin's Q, financial leverage, and stock return volatility) compared to firms with an unsophisticated approach to risk management. Their empirical analysis confirms that there are statistically significant differences between firms with sophisticated versus unsophisticated risk management practices as it pertains to Tobin's Q, financial leverage, and stock market volatility. Measured by these indicators, the authors conclude that risk management matters for certain operational parameters of the firm (leverage) and the resultant financial market outcomes (Tobin's Q and leverage).
A Framework for Operational Risk Mitigation
This paper attempts to develop a new framework, dubbed CRAM (Corporate Risk Adaptation Model) to identify firms likely to avoid or survive a catastrophic operational risk event. CRAM relies on 4 categories of data (People, Process, Governance, and External) and 12 key factors that populate the categories. The authors draw on 5 case studies (WorldCom, MT Global, Toyota, Enron, and Marsh & McLennan) to make an initial calibration of the model, but then include several other firms (Apple, Google, Starbucks, Mastercard) as a way to check whether the model classifies these successful companies as “good.”
Systemic Risk Safeguards for Central Clearing Counterparties
The authors of this project have tackled a large and complex issue that stands at the forefront of the Dodd-Frank policy agenda. Dodd-Frank mandates a much larger role for central counterparties (CCPs) to handle the clearing and settlement of derivative transactions that historically were largely traded and cleared on a bilateral basis. Putting many eggs in a single basket clearly elevates the need to watch the basket. The authors of this project dissect various sources of capital that underlay a generic CCP, and then run a series of simulations subjecting the CCP to stress conditions in order to assess how many layers of the risk waterfall are impacted under different stress scenarios.
Corporate Risk Management Experiences During the 2008 Crisis
The project addressed how various firms—most of which were in the food sector and therefore heavily exposed to commodity price changes—responded to the financial turbulence of the 2008 crisis. The authors developed a common template of data, narrative, tables and charts to include for each of the seven companies in the sample. The sample included companies headquartered in the USA and Latin American, some primarily privately owned and others publicly held, and so offered a reasonable cross section of firms, some of which managed their way through the multitude of risks in the crisis and others of which succumbed by having to take on substantial new debt or bankruptcy.
See some other examples here.