Specialist track, course code RM
Financial Risk Management
Financial risk management in practice: measuring, testing and governing market risk with VaR, expected shortfall, stress tests and the controls around the models themselves.
Financial risk management answers two questions: how much can we lose, and how sure are we of that number. The first is a matter of models such as Value at Risk and expected shortfall. The second is a matter of testing those models against history, against stress scenarios, and against the possibility that the model itself is wrong.
What does the risk management track cover?
Value at Risk, Expected Shortfall and Stress Testing covers historical, parametric and Monte Carlo methods, backtesting of VaR exceptions, coherent risk measures, and historical, hypothetical and reverse stress tests. Model Risk Management and Basel III Capital covers model validation, inventories and governance, and the capital rules banks compute every day. FRM Exam Preparation covers the Part I syllabus for candidates sitting the GARP examination. Counterparty credit risk and CVA are taught in the credit course of the fixed income track.
Where does this track lead?
To the Certificate in Quantitative Risk Management, which adds GARCH volatility modeling and the credit course of the fixed income track and ends in a capstone risk report on a trading book.
Practitioner courses in this track
Lab-based courses. You build, test and cost real strategies and systems on market data.
- FRM Exam Preparation: Part I Structured preparation for the FRM Part I exam: the four Part I topic areas taught with worked problems, timed practice sets, and a mock exam. Independent preparation; not affiliated with or endorsed by GARP.
- Model Risk Management and Basel III Capital How financial institutions control the risk of using models: what counts as a model, inventories and tiering, independent validation, conceptual soundness, benchmarking and outcomes analysis, ongoing monitoring, and the governance expected by supervisors. It also teaches Basel III market risk capital.
- Value at Risk, Expected Shortfall and Stress Testing How value at risk is calculated, tested and misused: historical simulation, variance-covariance and Monte Carlo methods, volatility-weighted variants, time scaling, regulatory backtesting, and what VaR does not tell you. It also teaches expected shortfall, also called CVaR and stress testing and scenario design.
Credentials that use this track
- Certificate in Systematic InvestingSeven courses and a capstone on rule-based investing over months and years: asset pricing, trend, factors, carry, allocation and the portfolio construction and risk control that hold them together.
- Certificate in Quantitative Portfolio ManagementSeven courses and a capstone on building portfolios with numbers: mean-variance and its failures, robust optimization, Black-Litterman views, factors, asset allocation, bonds, attribution and risk.
- Certificate in Quantitative Risk ManagementA financial risk management certification in six courses and a capstone on measuring and governing market and credit risk: VaR and expected shortfall, volatility models, stress tests, credit and counterparty risk, bank capital and the validation of the models themselves.
- Professional Diploma in Algorithmic TradingThe top credential on the practitioner path. Twenty-one courses and an 80-hour capstone covering everything between the mathematics and a book you could defend to a risk committee.
- Fellowship in Computational FinanceThe top credential on the researcher path. Twenty-one courses and a dissertation supervised in writing and examined by two faculty members.
Questions applicants ask
Is the FRM preparation course affiliated with GARP?
No. FRM is a designation of the Global Association of Risk Professionals. The Institute’s course prepares candidates for the Part I examination and is not endorsed by GARP.
Which risk measure do regulators use now?
For bank trading books, the Basel Fundamental Review of the Trading Book replaced 99% Value at Risk with 97.5% expected shortfall for internal-model capital. Value at Risk remains in wide use for limits and reporting.