20163 - GESTIONE DEI RISCHI E VALORE NELLE BANCHE E NELLE ASSICURAZIONI / RISK MANAGEMENT AND VALUE IN BANKING AND INSURANCE

Per una frequenza efficace del corso, è consigliata la conoscenza delle nozioni fondamentali di statistica, descrittiva ed inferenziale, di economia del mercato mobiliare e degli intermediari finanziari (tra gli altri i concetti di duration e convessità dei titoli obbligazionari ed il CAPM, le natura e le caratteristiche degli strumenti derivati) e di matematica finanziaria (in particolare, i regimi di capitalizzazione).

In order to successfully attend the course, students are expected to know the basics of: - descriptive and inferential statistics (mean, standard deviation, correlation, variance-covariance matrices, main statistical distributions, linear multivariate regressions, etc.); - investments (bond duration and convexity, capital asset pricing model, etc.); - financial mathematics (different compounding regimes, etc.); - financial markets and institutions (roles and activities of banks and main features of their balance-sheet, basic concepts of financial institutions supervisory policy, etc.); - derivatives (basic concepts related to forward transactions, options, futures, etc.).

The course aims at analyzing the problems connected with both the financial and the non-financial management of banks and insurance companies. • The role and peculiarities of risk management in financial institutions. • The objectives, applications and technical features of risk measurement and management models: interest rate risk, market risk, liquidity risk, credit risk and operational risk. • Capital regulation: recent evolution and problems posed by the recent financial crisis. • Risk management peculiarities of insurance companies. • Supervisory policies on financial and insurance institutions, with a focus on internal controls and organizational and capital adequacy.

Introduction to the course: risks in financial intitutions and the risk appetite framework process

1. Introduction. Interest rate risk: the repricing gap model

2. Interest rate risk: the duration gap model and clumping

3. Interest rate risk: internal transfer rates (ITR)

4. Value at Risk models: parametric approach. Estimating volatilities and correlations.

5. Mapping risk positions in the parametric approaches: bond, equity and FX positions.

6. Value at Risk: simulation approaches

7. Liquidity risk: funding risk and the liquidity regulatory requirements.

8. Risk Adjusted Performance measures in financial institutions

9. Backtesting VaR models and the regulatory approach: capital requirements for market risks

10. The applications of VaR models and Expected shortfall

11. Credit risk: discriminant analysis and other scoring models

12. Credit risk: capital market approaches for estimating PDs (Merton model and KMV)

13. Loss given default and recovery risk

14. Credit portfolio models: Credit Metrics and Credit Risk+

15. Capital regulation: from Basel I to Basel III (and IV, as well)

16. The financial crisis and the rationales of Basel III reforms

17. The peculiarities of managing risk in insurance companies

18. Interest rate risk, underwriting risk and capital regulation in insurance companies

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• Understand the different types of risks faced by banks and insurance companies.
• Understand the underlying logic and mechanisms of internal transfer funding within banks.
• Critically discuss the underlying assumptions, logic and technical aspects of alternative risk measurement models for financial institutions.
• Compare the pros and cons of alternative models for the measurement of interest rate, liquidity, market and credit risk of a bank.
• Understand the underlying logic of bank capital regulation, its technical features and its recent evolution following the financial crisis.
• Critically discuss the problems associated to risk governance and reporting within an insurance company.
• Understand the underlying logic and technical aspects of prudential regulation in insurance companies.

• Compute the repricing and duration gap of a portfolio of banking assets and liabilities.
• Estimate VaR for a portfolio of securities using alternative measurement models.
• Backtest the results of a VaR model using alternatives types of tests.
• Estimate the PD of a counterparty using alternative models and techniques.
• Measure expected loss and unexpected loss for a portfolio of credit exposures.
• Estimate risk adjusted performance and risk adjusted pricing of a credit exposure based on credit VaR.
• Assess the capital adequacy of a bank based on a regulatory perspective.
• Map and quantify risks within an insurance company.
• Properly asses the capital adequacy of an insurance company from a regulatory (Solvency II) perspective.

• Face-to-face lectures
• Guest speaker's talks (in class or in distance)
• Exercises (exercises, database, software etc.)
• Group assignments
• Interactive class activities (role playing, business game, simulation, online forum, instant polls)

• Guest speaker's talks: a practitioner is invited to give a presentation on a specific topic.
• Each session has a final part during which a number of recap questions and exercises are discusses in class.
• During the course two simulations based on excel will be discusses in class. They concern Monte Carlo simulations and Risk Adjusted Performance.
• Group assignments will be used during the course.

The course final grade is a combination of two elements: (i) a written exam, (ii) a group assignment. The written exam will have a weight of 75%, while the group assignment will have a weight of 25%.

As far as the written exam is concerned, each student can choose between two alternative options:

• Take two written exams, one partial through the course, covering the firs half of the course, the other at the end of the course, covering the second part of the course. The final grade is an average of the two grades. A minimum of 16 for each of the two exams is needed to get the final grade. The average is rounded to the next integer (for example 21.5 becomes 22). The grade of the first partial only is valid only for the first two sessions of the academic year (May and June sessions). If you hand in the second partial exam, then you are not allowed to use the grade of the first partial exam for future exam sessions.
• Take only a final written exam, based on the material covered during the entire course.

• A. RESTI, A. SIRONI, Risk Management and Shareholders' Value in Banking, John Wiley, 2007 (to do: chapters 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 15, 18, 19, 20).
• Sironi A. (2018), "The evolution of banking regulation since the financial crisis: a critical assessment", Baffi Carefin Research Paper n. 2018-103.
• A. Beltratti and Corvino, “Why are insurance companies different? The limits of convergence among financial institutions”, Geneva Papers on Risk and Insurance, Vol. 33, Issue 3, July 2008 (no Appendix).
• Slides and exercises prepared by the teachers.