FE655 Systemic Risk and Financial Regulation

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Course Catalog Description

Introduction

This course deals with aspects of systemic risk in financial systems. It covers a review of classical risk measures and introduces non-classical risk measures such as Extreme Value Theory. It also covers the study of financial systems as a system of complex adaptive systems, agent-based modeling, history and analysis of bubble formations as a systemic risk, the role of rating agencies, the financial systems ecosystem, risk and regulatory environment, risk and the socio-political environment. It also studies international financial inter-system risk propagation and containment and its impact on international financial systems, the International Monetary Fund assessments and the effect of extreme risk on poverty, international instability and globalization.

Campus Fall Spring Summer
On Campus X
Web Campus

Instructors

Professor Email Office
Khaldoun Khashanah
khaldoun.khashanah@stevens.edu



More Information

Course Description

The objective of this course is to provide FE students with advanced issues of risk beyond the enterprise level. The goals are to introduce the concepts of financial systems from a holistic perspective. This requires understanding the financial systems as part of a larger environment in which regulation is an important determinant.

Course Outcomes

Students will gain deeper understanding of more advanced risk models responding to the failure of classical risk models. On outcome will be to show how risk models break down under assumptions of normality in the markets and the new methods of modeling risk. Students also develop the elementary skills of conducting research in the field.


Course Resources

Textbook

  • Rupak Chatterjee, “Practical Methods of Financial Engineering and Risk Management”, ISBN978-1-4302-6133-9, Springer Apress, 2014.

Additional References

  • Globalization and Systemic Risk edited by D. Evanoff and D. Hoelscher and George Kaufman, World Scientific Studies in International Economics, 2009.
  • Hull, J.” Risk Management and Financial Institutions” (ISBN: 0-13-239790-0). 2006. Prentice Hall; 1 edition
  • McNeil, A., Rudinger Frey and Embrechts, P. “Quantitative Risk Management” Princeton University Press (2005)



Grading

Grading Policies

There are 4 hw assignments for 60% and a project report and presentation for 40%.

Project Outline Description:

The project in the class follows similar outlines to any project in FE with components that determine the project success:

  • Abstract of 300 words describing the problem, its relevance, proposed methodology and highlight results.
  • Introduction and Literature review.
  • Data and methodology
  • Results
  • Conclusions and future work
  • The deliverables are: a project document and a presentation performed at the end of the semester. The document carries the weight of 30 points and the presentation carries 10 points.


Lecture Outline

Topic Reading
Week 1 Introduction to systems theories and applications to financial systems
Week 2 Evolution of regulatory framework: Glass-Steagall to Dodd-Frank Act Notes
Week 3 Classical risk metrics VaR and Extreme Value Theory. Risk types. Notes
Week 4 Systemic risk definitions, model risk, contagion, shocks, jumps and rare events Posted papers
Week 5 Methods and measures of systemic risk: Financial networks Posted papers
Week 6 Financial networks and systemic risk Posted papers
Week 7 Statistical analysis of financial networks Posted papers
Week 8 Banking systems network

Example: Mortgage data analysis

Notes
Week 9 Agent-based modeling (ABM) Posted papers
Week 10 Applications of ABM
Week 11 Legal Entity Identifier, data standards and ACTUS Notes
Week 12 Case study: rating agencies, banking systems, liquidity risk. Notes
Week 13 Case study: Data standards Notes
Week 14 Project discussion