46-775 Advanced Risk Management

0 units, Carnegie Mellon University

Market failures associated with growth, leverage, and liquidity has led to a regulatory shift towards incorporating more formal measurements of liquidity risk and countercyclical capital conservation buffer (e.g., Basel III versus Basel II). May 1, 2009: (UK Banking Crisis Report to Parliament) John McFall, Chairman of the Committee said: In this course arbitrage free pricing theory, econometric developments and growth theory are combined to understand risk management theory and practice. Two important sub-themes are: i. Underlying principles driving risk management ii. Application of these principles by designing, and implementing real time algorithmic trading strategies. For the first sub-theme we start by developing the theory of how growth, leverage, and liquidity drive volatility in the banking sector. In response to these relationships the Basel standards have evolved including for example, the Pillar I (capital adequacy/liquidity constraints) and Pillar 3 (market disciplinary) approaches to managing risk. The course then works through a set of real world structures from the banking, hedge fund and corporate sectors. Each structure is decomposed and analyzed to understand how it works.

Prerequisites: none listed

Offered: Summer 2026

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