MTH305 2022/23 Final Exam Revision Scope
Topics/contents covered in the final exam for 2022/23 that require thorough
understanding. Student can follow the topics below for final revision.
1. Volatility Modelling: Types of risk, volatility, implied volatility, heavy tail
concept, estimating volatility (standard approach), EWMA, GARCH(1,1),
maximum likelihood estimations of EWMA and GARCH using Excel. Other
contents in this chapter are unlikely to be assessed.
2. Correlations and Copulas: Covariance formula, monitoring correlation,
Gaussian Copula model, Vasicek’s model for a portfolio of loans, estimating
PD and using MLE. Other contents in this chapter are unlikely to be assessed.
3. Risk Quantification: Value at Risk for normal distribution, expected shortfall
for normal distribution, Normal VaR and ES calculations using MATLAB,
Euler’s theorem, Aggregating VaRs. Other contents in this chapter are unlikely
to be assessed.
4. Historical Simulation (HS) and EVT: In this topic, HS will not be assessed.
MLE for EVT should be reviewed.
5. Interest Rate Risk: Types of interest rates, duration and convexity for a coupon
bearing bond, shift and rotation of a yield curve. PCA MATLAB code.
6. Interest Rate Models: Short-rate, zero curve, equilibrium models introduced and
their MATLAB code, common no-arbitrage models. Procedure for building tree
for Hull-White model (detailed calculations are not assessed. MATLAB
programming is unlikely to be assessed.)
7. Model-based Risk Analysis: VaR for portfolio, variance of return of a portfolio,
related MATLAB programs, handling term structure of interest rates using PCA.
Using PCA to calculate VaR. Other contents in this chapter are unlikely to be
assessed.
8. Credit Risk – Estimating Default Probability: All topics in this chapter should
be reviewed excluding “comparison between real-world and risk-neutral world
probabilities”. Related excel works should be reviewed.
9. Credit Risk Models and Counterparty Credit Risk: All topics in this chapter
should be reviewed excluding “dealer has single uncollateralized long forward
with counterparty”. DVA is not as important as CVA.
10. Credit Value at Risk: Rating transition matrix and its Matlab code, Vasicek’s
Model for VaR. Other contents such as Credit Risk Plus, CreditMetrics in this
chapter are unlikely to be assessed.
11. Operational Risk: Standard Measurement Approach (SMA). AMA is unlikely
to be assessed.
12. Liquidity Risk and Stress Testing: Liquidity trading risk, bid-offer spread, cost
of liquidation, unwinding a position optimally, reasons for causing liquidity
black holes. Liquidity funding risk and stress testing are unlikely to be assessed.