Financial risk management is an area which gained much prominence post the recent financial crisis. The genesis of the financial crisis is the abuse of various innovative financial products. The global financial meltdown has thrown the focus on the need to create a new breed of finance experts, who are adept at creating and managing the risks of innovative financial products such as derivatives. The recent financial crisis is largely the result of managers not being able to completely understand and manage operational risks of the new generation of derivatives. It is believed that future finance managers must be fully equipped with the mathematical and conceptual theories and best practices that go into the creation and management of such innovative products. The need for sophisticated financial markets specialists is felt not only for intermediaries like banking, investment banking, insurance industries but also service providers of these financial intermediaries like software and BPO industries. This Program aims to develop cutting-edge knowledge and skills expected by the intermediaries and service providers of intermediaries.

1st Finance Programme in India to use high frequency live data from Indian and Global Markets using Bloomberg.

This programme

• Prepares the students to acquire basic financial mathematics skills.
• Helps students understand and practice principles of risk management from a regulatory compliance and from the investment perspectives.
• Sensitizes participants to the principles of financial risk management from an enterprise perspective.
• Lays special emphasis on model building and computational methods in finance.

Career Path
Students completing the Executive Program in Financial Risk and Investment Management will be well positioned to take up jobs in the Business Finance Insurance Services (BFIS) sector of the industry for the following reasons:

• The sustained and substantial upheaval in the financial markets is having a profound effect on the skilled manpower requirement in the finance industry and quantitative investment analysis is becoming equally an art and a science.
• Major financial regulators of banks, insurance business and pension (provident) funds are imposing model based risk control compliance requirements on these industries.

Hence the demand for skilled manpower in these sectors is outstripping supply. Skilled quantitative analysts are highly sought after even outstripping the requirements of IT specialists in the middle to late nineties of the last century.

Programme Benefits
The programme would help to

• Identify, measure and analyze investment risks associated with interest rates, currency exchange and equity markets.
• Acquire techniques to manage and control risk through the use of over-the-counter and exchange traded derivatives.
• Consult with specialists in derivatives trading and risk management

Listen to the Programme Director

Watch this video

Module 1: Basic Mathematics

In pricing of several risk management products, mathematics is extensively used. This course covers important mathematical topics related to derivative pricing. Many of the inputs of the course are used in subsequent courses.

• Set Theory Sets, Subsets, Set Operations, Disjoint Sets, Products of Sets
• Linear Algebra
• Vectors and vector spaces,
• Matrices, Linear transforms,
• Systems of linear Equations.
• Eigen values and Eigen vectors.
• Real Symmetric matrices,
• Cholesky factorization.
• Functions and Sequences
• Injections, Surjections, Bijections,
• Sequences,
• Countability,
• functions on the Real Line
• Limits and Convergence of Sequences,
• Series-Ratio Test,
• Root Test,
• Power Series,
• Absolute Convergence
• Differential and Integral calculus basics

 

Module 2: Statistics and Probability

Several concepts of statistics are extensively used in measuring financial risk. This first course on statistics is aimed to provide a strong foundation on statistics and statistical models. The course will primarily focus on statistics relevant for application in finance and financial risk management.

Introduction to Statistics

• Basic Concepts of Statistics
• Definition, Classification, Characteristics of statistics
• Population and sample
• Descriptive Statistics
• Central tendency, Mean, Median,Mode
• Measures of location, Quartiles, Percentiles,Deciles
• Measures of variability or dispersion
• Range , Special range,Quartile deviation
• Mean deviation
• Variance and standard deviation
• Relative measures of dispersion
• Shape characteristics of a distribution, Skewness,Kurtosis
• Data Exploration with Graphical Means
• Bar diagram, Pie chart, Histogram, Scatter diagram
• Line diagram

Probability Concepts

• Random Phenomenon and Related Concepts
• Interpretations and Laws of Probability
• Interpretations of probability
• Laws of probability
• Probability Theorems
• Total probability theorem
• Bayes' theorem
• Probability Distribution Functions
• Univariate and Bivariate distribution function
• Marginal, Conditional and Derived Distributions
• Marginal distribution
• Conditional distribution
• Derived distribution

Properties of Random Variables

• Introduction to Estimation Theory
• Properties of Parameter Estimator
• Methods of Parameter Estimation
• Method of moments
• Method of maximum likelihood

Probability Distributions and Their Application

• Discrete Distributions
• Binomial, Poisson, Hypergeometric, Exponential ,Gamma distribution
• Multinomial distribution
• Continuous Distributions
• Normal distribution
• Uniform/Rectangular Exponentia, Erlangian, Weibull, Cauchy distribution
• Beta distribution
• Lognormal distribution
• Pareto distribution
• Synthesized Distributions, Mixed Gaussian

Correlation and Regression

• Correlation and Partial Correlation
• Correlation
• Partial correlation
• Simple Linear Regression
• Partitioning the sum of squares in simple regression
• Coefficient of determination
• Testing a hypothesis and making an inference concerning
• Confidence interval for a mean value of Y given a value
• Prediction interval for a new individual value given a value
• Multiple Linear Regression
• Regression Diagnostics
• Issues of Multicollinearity

 

Module 3: Financial Econometrics

This course provides a comprehensive input to financial econometric models and their application to modeling and prediction of financial time series data. The course covers analysis and application of univariate financial time series, the return series of multiple assets and Bayesian inference in finance methods.

Multivariate regression

• Use of dummy variables

Logit and Probit Models
Concepts of Stochastic Processes and Time Series Analysis (3 hrs)

• MARKOV Process
• Brownian Motion
• Basics Concepts
• Martingales
• Properties of martingales

Introduction to Time Series Modeling & Steps in Time Series Modeling (3 hrs)

Autoregressive Processes and ARMA Model

• Formulation, identification, estimation and diagnostic checking
• Forecasting
• Data generation

GARCH Model

• Introduction
• ARCH(1) processes
• The AR(1) / ARCH(1) Model
• ARCH(q) Models
• GARCH(p,q) Models
• GARCH processes have heavy tails
• Comparison of ARMA and GARCH processes

 

Module 4: Corporate Finance

An understanding of financial accounting and financial statements provides some basic idea about the way in which business organizations' function. Different sources of risk and their impact on business can be best explained in a non-technical manner through analysis of financial statements. The course aims to familiarize the students with the mechanics of preparation and presentation of financial statements and to acquire in-depth knowledge and skill in analyzing financial statements.

Corporate Finance

• Understanding Financial Statements and Cash Flows
• Evaluating a Firm's Financial Performance
• Capital-Budgeting Techniques and Practice
• Cash Flows and Other Topics in Capital Budgeting
• Cost of Capital
• Determining the Financing Mix
• Dividend Policy and Internal Financing
• Short-term financial planning, Working-Capital management
• International Finance
• Mergers and Acquisitions

 

Module 5: Investment Management

A simple but most effective way of managing risk is holding diversified portfolio of assets. This course focuses on how risk and return of portfolio of assets differ from individual assets and different ways in which portfolio of assets are selected, measured and managed.

Introduction to portfolio theory

Portfolio Planning

• Markowitz MV model
• Capital Asset Pricing model (CAPM)
• Index tracking models
• Arbitrage pricing theory and factor model
• Cardinality restrictions
• Rebalancing model
• Multiple Risk Measures in Portfolio Planning

Portfolio Construction

• Portfolios of uncorrelated assets
• Portfolios of correlated assets

Evaluation of Portfolio

• Sharpe Index
• Sortino Index
• Value-at-risk – Linear and Non-Linear portfolios
• Outline of the method: identifying worst cases
• Back testing, out of sample testing and stress testing

Trading Strategies

• Pair trading, basket trading, volatility trading, programme trading

 

Module 6: Financial Institutions and Markets

This course aims to provide an idea on the role and functioning of financial markets, financial products that are traded in such financial markets and institutions associated with financial markets. The focus of the course will be in the context of global financial markets and institutions.

• Various financial institutions and their activities
• Money market
• Bond market
• Equity market
• Market microstructure
• Efficiency hypothesis in capital market
• Stylized facts about the markets

 

Module 7: Financial Modelling

This course aims to develop tools and techniques to implement and analyze the core models of modern finance, as applied in asset pricing, portfolio selection and risk management. Financial models will be implemented in Excel, supplemented where appropriate by Visual Basic for Applications (VBA). The course will enhance understanding of the theory and provide relevant tools for practitioners.

• Introduction to Financial Modeling
• Computing Tools used in Modeling
• Modeling Applications in Equity & Portfolio
• Modeling Applications in Derivatives
• Modeling Applications in Fixed Income
• Modeling Applications in Valuations

 

Module 8: Options, Futures and Other Derivatives

This course extends the knowledge gained from the courses like Financial Markets, Institutions and Instruments and Mathematics of Finance.

Options

• An overview of Options products
• Mechanics of Options markets
• Review of Option Pricing Models
• The Greek letter
• Volatility Similes
• Trading Strategies

Interest Rate Derivatives

• Interest Rate Derivatives
• Standard Market Models
• Modes of the Short Rate
• Advanced Models

Futures and Other Derivatives

• Mechanics of Futures Markets
• Determination of Forward and Futures prices
• Swaps
• Insurance, weather and energy derivatives

Commodity Derivatives

 

Module 9: Risk Management in Banks and Financial Institutions

The phenomenal growth of the credit markets has led several new instruments for managing credit risk. This course covers tools and techniques in measuring and managing credit risk and loan pricing and structuring.

• Credit analysis
• Asset-based lending
• Credit Rating Agencies
• Credit risk models
• Testing and implementing credit risk models
• Default rates, losses, recoveries
• Credit Derivatives
• Asset Liability Management
• VAR and Cash Coherent Measures of Risks

 

Module 10: Accounting and Taxation for Financial Instruments

New financial instruments including derivative and other structured products are often complex in structure and payoff. Accounting treatment and disclosure of the nature of risk associated with such financial instruments are given importance to ensure fairness of determining profitability of the organizations. Due to complexity of the instruments and payoff, tax authorities also prescribe treatment for tax purpose. This course covers important accounting and tax issues under various major regulations (US regulations, IAS and Indian regulations).

• Accounting and Disclosure regulations under FASB, IAS and AS
• Accounting for Equity derivatives
• Accounting for interest rate swaps and interest rate futures and options
• Accounting for currency derivatives
• Accounting for structured products
• Tax Treatment on Derivative Instruments

 

Module 11: Corporate Governance, Regulations and Operational Risk

Overview and need for regulatory regime

• International perspectives
• National perspectives
• Relationship between national and international regulations

Regulations in the finance sector

• Banking
• Insurance
• Pension

Regulations for corporate governance and SOX

Indian corporate regulation by SEBI

Operational Risks and Mitigation

• Definition
• Operational Risks of Financial Institutions
• Operational Risks of non-Financial Institutions
• Risks from IT infrastructure
• Credit Risk and Operational risk

 

Module 12: Fixed Income Markets

• Term structure of interest rate
• Fixed income valuation
• Fixed income market risk analysis
• Repo market
• Fixed income derivatives
• Asset backed/mortgaged backed securitization
• Benchmark rates and indices

Pedagogy
The pedagogy will be highly interactive. It will leverage use of technology. It will consist of a judicious blend of lectures, real life case studies, quizzes and assignments. Examinations will be conducted for each course.

Evaluation Methodology
An examination will be held for every course. To complete the program successfully participants will need to pass in all subjects (including projects) and acquire a minimum of “average” grade (out of four grades, namely, “Excellent”, “Good”, “Average” and “Poor”). Candidates successfully completing the program will get a completion certificate and grade sheet from IIMC.

Certification & Alumnus Status
IIM Calcutta shall carry out the examination and evaluation required for certification. IIM Calcutta will directly award a certificate to participants who complete the program successfully. Giving feedback is an integral part of the completion requirements of the program. Successful Candidates will be offered the IIMC – MDP Alumni status.

The primary objective of the program is to develop the risk management capabilities of finance professionals.