Unit information: Financial Risk Management in 2018/19

Unit name	Financial Risk Management
Unit code	MATH30014
Credit points	20
Level of study	H/6
Teaching block(s)	Teaching Block 1 (weeks 1 - 12)
Unit director	Dr. Jonty Rougier
Open unit status	Not open
Pre-requisites	Calculus 1 (MATH11007), Linear Algebra & Geometry (MATH11005), Analysis 1A (MATH10003), Analysis 1B (MATH10006), Probability 1 (MATH11300), Statistics 1 (MATH11400)
Co-requisites	None
School/department	School of Mathematics
Faculty	Faculty of Science

Description including Unit Aims

Unit Aims

To explore the theory and practice of financial risk management in a variety of common settings, including the casino, sports betting, business, and financial markets.

Unit Description

The unit covers the theory of uncertainty assessment, choice under uncertainty, and risk management (see the Learning Objectives below), and illustrates with many practical examples, often involving computing in R. Familiarity with R is not required for the unit, but if you are thinking about a job in finance or data science then you should be aiming to be proficient in R or Python by the time you graduate.

If you are thinking about taking this unit, please note the following. Many people find uncertainty and risk unintuitive, and therefore clarity and effective communication are crucial. If you are uncomfortable writing descriptive text in well-structured sentences, then you should choose a different unit. You will be expected to explore more qualitative aspects of human capacity and desires, as a necessary part of understanding the practice of risk management.

Intended Learning Outcomes

At the end of this unit you should be able to:

• Use probability theory to structure and quantify uncertainty.
• Justify the use of expected gain as a method for choosing among small gambles.
• Evaluate simple gambles, such as those found in casinos.
• Explain the role of statistical models, and give examples.
• State, prove, and explain the Von Neumann-Morgenstern theorem for expected utility.
• Provide simple guidelines for assessing individual utility functions.
• Use decision trees to evaluate linked decisions, and to value information.
• State and critique mean-variance portfolio theory.

Teaching Information

Lectures, regular formative problem sheets and office hours

Assessment Information

100% examination (2.5 hours)

Raw scores on the examinations will be determined according to the marking scheme written on the examination paper. The marking scheme, indicating the maximum score per question, is a guide to the relative weighting of the questions. Raw scores are moderated as described in the Undergraduate Handbook.

Reading and References

Recommended:

John S. Hammond, Ralph L. Keeney, and Howard Raiffa, Smart Choices: A Practical Guide to making Better Decisions, Harvard Business School Press, 1999.

Dennis V. Lindley, Understanding Uncertainty, revised edition, John Wiley & Sons, 2014.