Unit 1: Statistical Foundations (Ch 22.1, lecture notes)
o General concepts of risk and uncertainty
o Risk measures (dispersion based vs. quantile based) and their properties
o Methods to compute VaR under normality or using the empirical sample distribution
o Extension to the multivariate case
Unit 2: Economic Foundations (Ch. 21-22, lecture notes)
o Why is hedging relevant? How does hedging compare to the MM-world?
o Main focus on financial distress costs
o Managing systematic vs. unsystematic risk
o Valuation of corporate debt considering total risk: Concept of credit ratings and PDs
o Maintaining locally optimal costs of capital: ROEC and RORAC
Unit 3: Credit Risk (lecture notes)
o Probabilistic credit risk models: Univariate case
o Probabilistic credit risk models: Multivariate case
o Single-factor model and connection to CAPM/Market Model
o Credit VaR: Simulation with given parameters, calibration to observable data
Unit 4: Interest Rate Risk (Ch. 23, lecture notes)
o Measures of interest rate risk (duration, PV01)
o Basics of asset-liability-management
o Debt financing decision: Fixed or floating?
Unit 5: FX Risk (Ch 22.2, lecture notes)
o Foundations of FX markets (institutions, structure, instruments, quotation)
o Economic determinants of FX rates
o Measuring FX risk
o Hedging FX risk with forwards and options
