- Lecturer: Nazem Khan
Course term: Hilary
Course lecture information: 8 lectures
Course overview:
This course introduces the core concepts and tools used to model and manage financial risk. We begin by exploring how risk is measured, covering risk factor changes, loss distributions, Value at Risk (VaR), Expected Shortfall (ES), and the axiomatic foundations of risk measures. The course then examines the empirical properties of financial returns, highlighting features such as heavy tails, volatility clustering, and departures from the IID assumption. To address the behaviour of extreme events, we introduce Extreme Value Theory (EVT), focusing on key limit theorems and their application to modelling tail risk. Finally, we study copulas as a framework for modelling complex dependence structures between financial risk factors, moving beyond simple correlation. The emphasis throughout is on combining theoretical insight with practical tools for real-world risk management.
Course synopsis:
Measuring Risk – Risk factor changes, loss distributions, Value at Risk (VaR), Expected Shortfall (ES), and the axiomatic approach to risk measures.
Stylized Facts – Empirical properties of financial returns, including heavy tails, volatility clustering, and non-IID behaviour.
Extreme Value Theory (EVT) – Tools for modelling tail risk, including key limit theorems such as Fisher–Tippett–Gnedenko and Pickands–Balkema–de Haan.
Copulas – Modelling dependence between financial risk factors beyond linear correlation.
Stylized Facts – Empirical properties of financial returns, including heavy tails, volatility clustering, and non-IID behaviour.
Extreme Value Theory (EVT) – Tools for modelling tail risk, including key limit theorems such as Fisher–Tippett–Gnedenko and Pickands–Balkema–de Haan.
Copulas – Modelling dependence between financial risk factors beyond linear correlation.