M2MO: Modélisation Aléatoire, Finance et Data Science

Master en statistique, probabilités et finance - Université Paris 7 - Paris Diderot

Courses Group Risk in Finance Risk: regulation, measure and management

Risk: regulation, measure and management

Lecturers:  A. El Alami and H. Pham
Period:  Term 1
ECTS:  3
Schedule: 3 hours per week


Material and informations about the course at:




  • Alert on the issues around quantitatice measure and risk management faced by financial industries 
  • Present the main concepts for quantitative analysis of financial risks
  • Introduce the statistical aspects of risk measures
  • Develop the practical approach for the guidance and the optimisation of risks. 


Course 1 (A. El Alami): Introduction : Identification, measure and risk management 


1. Global Intro to Risk Management  

    a. Risk taking

    b. Key classes of risk, their origins and potential impacts

    c. Tools and procedures used to measure and manage risk (Quantitative measures, Qualitative assessment, Integrated risk management …)


2. Financial Disasters (case studies)


3.   Model Risk

       a. Sources of Model Risk

       b.  Mitigation methods and procedures

       c.   Case studies of Model Risk


Courses 2, 3 et 4 (H. Pham): Basic concepts for quantitative analysis of financial risks 

- Valuation of financial risk. Factor risks. 

- Risk measures:  VaR, Expected Shortfall

- Agreggation of risk and coherent risk measures 

- Capital allocation, Euler principle 

- Multivariate distribution and dependence 

Course 5 (H. Pham): Statistical aspects of risk measures    

- Empirical Quantile 

- Nonparametric estimation by historical simulation 

- Semiparametric estimation by Monte-Carlo

- Parametric estimation by analytical method 

- Extreme quantile estimators:  Hill, POT

Courses 6, 7, 8  (A. El Alami) : Market and Counterparty Risks Measurement and Management


1. . Market Risk

a..  Hedging linear risk

b.   Trading and hedging Strategies using options

c.   Hedging Vanilla vs Exotic Options

d.   Complements of VaR measurement and Backtestin


2. Credit Risk

a.  Credit Risks and Credit Derivatives

  • Credit Derivatives
  • CDS spreads and hazard rates
  • Credit VaR 

b.  Counterparty risk 

  • OTC derivatives, Counterparty risk intermediation
  • Colalteral management
  • Credit and debt avlue adjustment
  • Funding Value Adjustment



1. P. Artzner, F. Delbaen, J.-M. Eber, and D. Heath, Coherent measures of risk, Mathematical Finance, (1999).

2. R. Cont, Model uncertainty and its impact on the pricing of derivative instruments, Mathematical Finance, 16 (2006), pp. 519–542.

3. M. Crouhy, D. Galai, and R. Mark, The Essentials of Risk Management, McGraw-Hill, 2005.

4. P. Embrechts, A. McNeil and R. Frey, Quantititative Risk Management, Princeton University Press, 2006.

5. T. Roncalli, La Gestion des Risques Financières, Editions Economica, 2009

6. T. Roncalli, Lecture notes on risk management and financial regulation, 


7. W. Schoutens, E. Simons, and J. Tistaert, A perfect calibration ! now what ?, Wilmott Magazine, March (2004).