These notes are intended for third-year undergraduates studying FM320 and builds upon the content in FM212 Principles of Finance. The main topics covered in these MT notes are financial risk analysis and financial risk management. As such, these notes are complementary to FM300 Corporate Finance, Investments and Financial Markets.
These notes provide students with a thorough understanding of market risk from both a practical and technical point of view. It discusses the empirical properties of market prices (fat tails, volatility clusters, etc.), forecasting of prices, concepts of financial risk (volatility, Value-at-Risk, etc.), volatility models (ARCH, GARCH, etc.), and analyses how interactions and feedback between market players can generate endogenous risk and liquidity crises. Finally, it discusses credit markets and liquidity, with applications to the current situation in financial markets. These notes present methods and models used by banks and other financial institutions in the management of risk and allocation of risk capital, as well as models of financial crises.
There are 23 pages to this document and the author of these notes achieved a first class.