Modelling Prices and Risk (ECFS899)

Unit will be rested in 2018

Quantitative modelling is an essential part of modern finance yet models are often misinterpreted and misused. The aim of this unit is to build an understanding of modelling techniques for prices in liquid markets (currencies, commodities, equities). We consider techniques for analysing the distribution of possible prices over both short and medium term horizons. Applications will therefore include the risk analysis of short-term trading and investment portfolios as well as future cash flows for a project (in non-financial corporations). Model risk is a focus of this unit, helping students to appreciate the deficiencies of all models, to make appropriate model selections and to consider the ethical dimensions of price and risk modelling. You will improve your modelling abilities and also your capacity to communicate and interpret complex technical information. Techniques include simulation analysis, mean reversion models, GARCH models (for changing volatility), analysis of correlation/co-movement and heavy-tailed distributions (for modelling extreme events). Case studies and computer workshops are used in class.

Learning Outcomes

  1. Understand and apply quantitative and statistical methods crucial for market risk analysis.
  2. Develop spreadsheet modelling skills.
  3. Understand, apply and interpret quantitative risk models (including limitations thereof).
  4. Deepen understanding of the drivers of market risk and market liquidity risk.
  5. Develop skills in communicating complex technical concepts.

Topics:

  1. Introduction
  2. Working with heavy-tailed data
  3. Multi-asset analysis
  4. Issues for commodities
  5. Changing volatility and correlation
  6. Estimating model parameters
  7. modelling a forward curve (only if time permits)
  8. Model risk

Prerequisite units:

Lecturers:

Luke Gower

Unit guide:

Modelling Prices and Risk - The link will provide a list of guides for this unit. If the desired term/location is not listed, please view the latest one available.

Back to the top of this page