Module I: NYU Stern - New York
Enterprise Risk Framework and Risk Integration
Students 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 examine macroeconomic diagnostics that link interest rates, growth rates, inflation rates and exchange rates and help identify macro shocks and policies that condition the risk environment of financial and nonfinancial firms worldwide. Topics include sources of variability in national macroeconomic performance across countries and over time, the roles of government policies as sources of macro risk and as mitigators of macro risk. The course provides concepts and context of subsequent analysis of such risk issues as sovereign risk and market risk.
Politics and Economics of Sovereign Risk
The global macroeconomic and industrial organization contexts come together in the cross-border assessment of risk associated with international debt, portfolio equity, foreign direct investments, earnings remittances and supply chains and many kinds of other transactions that move across currencies or are blocked from moving at all because of exchange controls. These are matters of national policy, as are the terms and conditions of doing business, nationalization and expropriation, the conduct of monetary and fiscal policies as well as the liquidity and solvency of the sovereign state and its instrumentalities. Cross-border translations have to assess a myriad of risks, many of which has sovereign roots, and decision makers have to be adequately compensated for taking these risks as well as deciding exposure limits and their distribution across a portfolio of sovereign environments that are not perfectly correlated. This course provides an intensive view of country risk parameters and how they show up in markets ranging from risk spreads to sovereign ratings.
Corporate Performance, Valuation and Risk Calibration
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.
Concepts in Risk Management: Statistical Models
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, among others.
Module II: Global Location
Risk Decision Analysis
This course introduces the basic concepts, principles, and techniques of decision making under risk. Participants will learn how to model complex business problems that involve risk and uncertainty with the help of spreadsheet models. The course covers analytical tools such as monte carlo simulation, decision analysis, machine learning and optimization under uncertainty. The course is entirely hands-on. The emphasis will be on model formulation and interpretation of results, not on mathematical theory. The emphasis is on models that are widely used in diverse industries such as financial services, real estate, pharmaceutical and energy industries. We analyze risks in financial securities, construction projects, R&D projects, supply chain, etc. Applications include: Risk quantification and prediction of investment opportunities (Monte-Carlo simulation and machine learning); Risk diversification and portfolio management (Optimization); and Risk mitigation and value of strategic flexibility (multi-stage decision tree analysis).
Concepts in Risk Management: Finance Applications
Students will 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?).
Market Risk, VaR Modeling and RAROC
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
The MSRM program is introducing two curriculum options for Module 3 only.
- The Enterprise Risk Track allows participants whose interests extend beyond finance-related risks to study selected topics such as risk in the context of general management, leadership and negotiations, marketing, and supply chain.
- The Financial Risk Track is intended for students who want a more intensive level of finance exposure. This will include topics such as risk in the context of artificial intelligence, blockchains and cryptocurrencies, and cybersecurity.
MSRM applicants must apply to the track they wish to enroll in at the application stage.
Please note that the courses associated with a student's chosen track will take place during the first week of the module.
During the first week of Module 3, all students will select one of the following tracks:
Enterprise Risk Track
Risk in Supply Chain Management
A supply chain is comprised of all the parties involved in fulfilling a customer request. The integrated management of this network is a critical determinant of success in today’s competitive environment. With increasing competition around the globe, supply chain risk management is both a challenge and an opportunity for companies. A strong understanding of supply chain risks and the ability to cope with risks should be in the toolbox of all managers. In this course, we will learn several best supply chain practices across industries that achieve competitive advantage by employing innovative supply chain strategies to cope with various supply chain risks. Upon completion of this course, students will have the skills to assess supply chain risks and make recommendations to mitigate supply chain risks and improve supply chain competitiveness.
Managing Risk in Negotiations
Managers need analytical skills to arrive at optimal solutions to decision problems, but a wide array of negotiation skills are needed for these solutions to be accepted and implemented. While there are normative rules for good negotiation, rarely can negotiations be reduced to an analytical framework without losing some of their realistic aspects. Many elements in actual negotiations, such as goals of different parties and the chances for cooperation, may be ambiguous and often do not have "right" answers. The risks of mishandling negotiations may outweigh the advantages that were gained in arriving at optimal decisions. In such cases, understanding the negotiation process may prove useful in selecting negotiating strategies be it competitive or cooperative strategies.
This course highlights the components of effective negotiations and provides students with a framework to analyze their own behavior in negotiations. It allows participants the opportunity to develop negotiation skills and understand negotiations in a useful conceptual framework. Several cognitive and emotional aspects that affect negotiation behavior will be highlighted and discussed. The course uses hands on exercises, behavioral simulations, and short cases designed to reflect the role of negotiations in strategic decision-making.
Key Dimensions of Risk in Marketing
Understanding and predicting consumers’ actions are key requirements for any successful business. What will be the demand for a new product? How will consumers react to a price increase, a change in brand positioning, a change in the service provided, or a widespread decrease in consumer confidence? Answering these questions often seems deceptively straightforward: we can rely on our experience and intuition, simply ask consumers, or rely on increasingly ubiquitous consumer data. Unfortunately, as we will illustrate and discuss in this class, our intuitive understanding of consumers is often misleading, consumers’ self-reports are notoriously unreliable, and past data patterns do not necessarily predict new situations. The objective of this course is to acquire awareness of the inherent (and generally underestimated) uncertainty of understanding human behavior, as well as understanding the tools and approaches available for reducing that uncertainty.
Risk and Organizational Change
Change or wither? We are living in a fast-changing and uncertain time--a disruptive age. Business organizations of all types face complex management problems that significantly challenge their existing business models and overall viability. Such problems emerge around designing organizations capable of coping with highly dynamic business environments, adopting newly-emerging digital business models, developing strategies and structures for hyper-competitive conditions, and mastering the great complexity of managing an ecosystem of interdependent collaborators. The characteristics and magnitude of the disruption we face, and its accelerating speed, demand a new approach to managing the risks associated with change.
This course will focus on methodologies and tools that help executives plan and implement change more effectively, rapidly and proactively. Participants will discuss concepts and best practices of change management, learn to diagnose the change needs of their company, and develop a change plan applying relevant implementation techniques. Participants can expect to learn the key theories and practices associated with enhancing the organizational capacity to adapt, and leading successful organizational transformations.
Global Strategic Risk Issues
Globalization has fostered an increasingly interconnected world, with more than $20 trillion in goods and services traded and more than $1 trillion in global corporate investment each year. Managers clearly see the potential for profit in global markets; and for many companies, globalization is increasingly a strategic imperative. Despite its substantial promise, the reality is that globalization is also rife with hazards. It presents risks that managers often fail to appreciate and that they sometimes overlook. As a result, global profitability often disappoints. In order to convert globalization’s potential into profits, executives need a new set of tools that will allow them to effectively identify global opportunities, but more importantly, better manage the risks present in dynamic global markets.
Financial Risk Track
Credit Risk and Counterparty Risk
This class focuses on credit and counterparty risk management in financial institutions and nonfinancial firms. This includes analysis of the specialness of financial intermediaries and an overview of the types, operations and regulatory structures that exist today. A key feature is their exposure to credit and counterparty risk. Consequently, the bulk of the course is devoted to analyzing the nature of these risk exposures and the instruments and strategies to manage those risks. A key part of the course covers the role of regulators in controlling such risks through mechanisms such as deposit insurance and capital requirements.
Derivatives as Risk Management Tools
This course covers derivative securities and markets. The primary focus is on financial futures and options, but there is also reference to the extensive markets in commodity market instruments. Topics include market institutions and trading practices valuation models hedging and risk management techniques and the application of contingent claims analysis to contracts with option type characteristics.
Project and Infrastructure Finance
This course focuses on the energy, project and infrastructure finance market, one of the most dynamic and challenging areas in the global financial architecture. Infrastructure (dominated by the energy and power sector) provides the connective tissue for most economies and societies and is a key dimension of global development; its impact reaches deep into the broader economy, with important implications for overall living standards and social progress. The course is designed to provide students with an introduction to the expanding and rapidly-changing energy-centric infrastructure and project finance market, an understanding of the myriad risks involved in developing large-scale infrastructure projects around the world and an appreciation of the various bottlenecks now facing the market in the wake of the 2008 global financial crisis. Given the idiosyncratic, credit-specific nature of the infrastructure sector, the session will emphasize a case-based analytical approach, using actual cases and market examples to illustrate important teaching points—including an integrative case study of a large U.S. natural gas liquefaction project sponsored by a publicly-listed U.S. midstream company.
Risk and Structured Finance
In this course, students are introduced to the many sources of business risk arising from household financial decision making. Indeed, highly levered households were a central cause of the 2007/2008 Financial Crisis, both in the U.S. and around the world. We begin by studying the many linkages between household financial decisions, in particular in terms of their housing and mortgages choices, and the real macro economy. We focus on risks to both financial and non-financial businesses. We then study the sources of regulatory risk for companies providing financial services to households. These risks arise from regulatory efforts to protect relatively unsophisticated consumers in their interaction with more sophisticated financial institutions.
Corporate Failure Prediction Models
This 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. Finally, Professor Altman will share his 50-year journey with the Altman family of Z-Score models and where we are in the current credit cycle and its outlook for Global Credit markets.
During the second week of Module 3, all students will complete the following courses:
Artificial Intelligence and Risk Management
In this course, we will focus on methodologies and applications of artificial intelligence and machine learning to finance, with particular emphasis on applications to credit risk, operational risk, and risk management.To enhance students’ knowledge, we will discuss the following concepts: Statistical learning, out-of-sample validation, bias-variance tradeoff, training and test samples, type-I and type-II errors, and undersampling and oversampling. To provide empirical assessment of the tools, we will discuss the following three applications: credit risk using structural and reduced-form approaches, credit scoring using various machine learning approaches, and robo-advising.
Risk and FinTech/Risk and Cryptocurrencies
This course introduces students to broad trends in Fintech and to the emerging technology risks produced by innovation in financial services. In addition to an overview of advances in the financial system, this course will focus on cryptocurrencies and other digital assets that have emerged since 2009, with a focus on the underlying blockchain technology that supports them. Cryptocurrencies rely on a new approach to risk management using distributed ledgers, decentralized consensus and cryptographic proof, without a trusted third party to mediate transactions. These assets have grown impressively, and the blockchain technology is now being co-opted by major financial organizations, stock exchanges, and even central banks. We will consider other applications in diverse areas such as property registration, accounting and auditing, voting, smart contracts, and financial derivatives. Intensive discussion of cybersecurity issues will take place.
Behavioral Dimensions of Risk Management
The “management” in "risk management" centers on the psychology that drives judgments and choices of risk. This is why most risk management failures are psychological in nature, occurring in both financial firms and in operating companies. Some of the most prominent risk management failures in financial firms occurred in connection with the global financial crisis, at firms such as Merrill Lynch, UBS, AIG, RBS, and S&P. Some of the most prominent risk management failures in operating companies have occurred in connection with the nuclear meltdown at Fukushima Daiichi, the explosion of the Deepwater Horizon in the Gulf of Mexico, and a major data breach at credit bureau Equifax which exposed the financial data of 145 million Americans. This course equips students with set of skills for managing the psychological dimension of risk management in both financial and non-financial firms.
Key Aspects of Operations Risk
The objective of this course is to provide a basic theoretical foundation for the analysis of operational risk in an organization and discuss the more applied aspects in the mitigation of operational risk. The application domains include not only the finance world, but also other service industries, such as aviation and health care. The goal is for students to get acquainted with concepts and ideas that are useful in dealing with Operational Risk on a day-to-day basis in their work environment. This would include the basics, e.g., assessing frequency distributions of operational risk events happening as well as severity distributions of losses incurred in case such events happen. Students have to be able to make a distinction between thin-tailed distributions and fat-tailed distributions. The students also should be able to develop appropriate Key Risk Indicators (KRIs) for any given environment and be able to embed such KRIs in a general framework in order for a user to be able to assess the vulnerability of an organization with regard to operational risk.
Module IV: NYU Abu Dhabi - Abu Dhabi
Risk Management and Performance in Global Markets
In this session, the goal is to understand the international dimension of risk and develop a framework to quantify it. Students will consider how firms should hedge risk from a broad strategic perspective and zoom in on currency and country risk. Participants will see how they differ and how corporates can optimally hedge them. The class will focus on the trade-off between managing risk and value creation and consider the best strategic alternatives available to the CEOs/CFOs. It then will go into detail on the link between the international dimension of risk and international financing and project selection, comparing domestic project selection and financing to the international ones.
Risk Dimensions of Alternative Asset Deployment
The asset management industry serves a critical role in the global financial system, which moves capital from those who wish to save to those who wish to invest in productive assets. At the aggregate level, its smooth functioning is vitally important for real economic growth; at the firm level, it plays a pivotal role in the pricing of risk and hence the cost of capital; and at the investor level, it is crucial in determining the allocation of risk and the reward earned for bearing this risk.
This course introduces the various players in the industry, the broader structure of the industry, and its regulation. Students will then develop a model of the economics of asset management, i.e., a framework for thinking about how to value the fees that asset managers collect. This model, in turn, highlights the incentives that asset managers face and the associated portfolio risks for them and their clients. A consideration of this first level of return risk naturally leads to questions of risk at the fund and asset management company level and the influence these firms have on the pricing of risk in financial markets. Finally, the class will consider the potentially systemic risk generated by asset management companies and the industry as a whole.
Regulation, Conduct, and Risk Governance
The 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. Participants will examine the role of corporations, investors, intermediaries, and regulators and will consider key dimensions of risk reporting, audit and governance. This includes today’s ESG (environment, social and governance) benchmarking and ratings. The concepts will be illustrated through recent and classic case studies of corporate mis-steps and scandals, as well as subsequent regulatory responses.
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
Previous Capstone Projects
Does Risk Management Matter to Shareholders?
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.
Read more about the Strategic Risk Capstone here