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RMSC 2001 Course outline

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RMSC 2001 Course outline

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Department of Statistics, The Chinese University of Hong Kong

RMSC 2001 Introduction to Risk Management (Term 1, 2024–25)

Course Outline

Description

This course introduces some basic concepts of risk management and its applications to finance and in-
surance. Topics include (i) principles of risk and insurance, (ii) products and derivatives in financial and
insurance markets, (iii) hedging, no-arbitrage principle, and, if time allows, (iv) risk measures, value-at-risk
(VaR).

Learning Objectives

At the end of this course, students† are expected to

i. elucidate the meaning and basic characteristics of risk (management) and insurance;
ii. recognise major/general risk management techniques, including risk control and risk financing tech-
niques;
iii. deduce decision-making processes of rational players via utility;
iv. conduct basic pricing of insurance/fixed-income products;
v. be familiar with financial products for risk management purposes and
vi. apprehend basic components of financial risk management.

Course Content & Tentative Teaching Schedule

Date Topic

Weeks 1 − 2 I. Introduction
Definition of risk, classification of risk, method of handling risk
Weeks 3 − 4 II. Risk, Utility & Decisions
Decision making under uncertainty, utility consideration, decision trees
Weeks 5 − 6, 8 III. Theory of Interest and Bond Fundamentals
Time value of money, simple and compound interest, annuities, Price-Yield Re-
lation, valuation, (Macaulay) duration and convexity
Weeks 9 − 12 IV. Financial Derivatives
Financial derivatives, forward contracts, futures, options, no-arbitrage princi-
ple, hedging

†
Students are expected to spend 150 hours (50 in-class hours and 100 out-class hours) for this course.

1
Time and Venue

Lectures: Every teaching Monday 9:30 - 11:15 [M2–3] at LT2 Lady Shaw Building (LSB) and Wednesday
16:30 - 17:15 [W9] at LT5 LSB

Assessment Scheme*
Homework 15%
Midterm 35% An in-class written exam scheduled on 21/Oct (Monday)
Final 50% A centralised written exam

Instructor and Teaching Assistant Contacts


Instructor: Tony Sit
106 Lady Shaw Building
tel: +852.3943.7054; email: tonysit@sta.cuhk.edu.hk
(office hours: 16:30-17:15 every teaching Wednesday or by appointment)

Teaching assistants: Ryan Si Cheng Fong and Yulin Zhu


130 (Ryan) and G24 (Yulin) Lady Shaw Building
tel: +852.3943.7939 (Ryan) and +852.3943.8527 (Yulin);
email: ryan.fong@link.cuhk.edu.hk (Ryan) and yulin.zhu@link.cuhk.edu.hk (Yulin)

References

Lecture slides with supplementary materials can be accessed via Blackboard, the E-learning system man-
aged by the University. Students are also encouraged to read (some of) the following references:

i. ‡ Blyth, S. (2013). An Introduction to Quantitative Finance: Oxford University Press, USA.


ii. Borge, D. (2001). The Book of Risk: Wiley, New York.
iii. ‡ Hull, J. C. (2018). Options, Futures, and Other Derivatives, 10th Ed.: Prentice Hall, Upper Saddle
River, New Jersey.
iv. ‡ Jorion, P. (2011). Financial Risk Manager (FRM) Handbook, 6th Ed.: Wiley, New York.
v. Rejda, G. E. (2016). Principles of Risk Management and Insurance, 13th Ed.: Pearson, Boston.

Feedback for Evaluation

Students’ comments and feedback are valuable for improving the course, and students are welcome to pro-
vide comments and feedback via various channels. Course evaluation will be conducted for the course. For
comments that require any immediate action, you may contact the instructor directly via email or to the
teaching assistant(s).

Academic Honesty and Plagiarism

Honesty for Academic Works: A Guide for Students and Teachers


Attention is drawn to University policy and regulations on honesty in academic work, and to the disci-
plinary guidelines and procedures applicable to breaches of such policy and regulations. Details can be
found at http://www.cuhk.edu.hk/policy/academichonesty/.
*
Each student can buy an option after the mid-term test but before the final exam, allowing him/her to redistribute up to 5% of the total
weight either from the Midterm to Final or vice versa based using the earned scores.

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