AMATH 546/ECON 589:
Financial Econometrics and Quantitative Risk Management

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Syllabus
Spring 2013
Last updated:
June 5, 2013
Note: "QRM" denotes
Quantitative Risk Management;
"FRF denotes Financial Risk Forecasting;
"FMUND" denotes Financial Modeling Under NonGaussian
Distributions; "SDAFE" denotes Statistics and Data
Analysis for Financial Engineering.

Week 1:
4/1 and 4/3 
Course Introduction, Properties of asset returns
and Risk Measures 
Textbook
Readings 
Lecture Notes and Additional
Readings 


Class slides for overview of quantitative risk management (updated
April 1, 2013).

Class slides for return
definitions and properties of returns
(updated April 1, 2013).

Class slides for risk
measures (updated April 5, 2012).

Powerpoint slides
for distribution properties of returns
(updated April 3, 2013).
 R code used
in powerpoint examples (updated April 3, 2013).

Week 2:
4/8 and 4/10 
Asset and Portfolio Risk Measures: Properties, Computation and
Estimation 
Textbook
Readings 
Lecture Notes, Additional
Readings and Paper Discussions 

 Class slides for risk
budgeting (updated April 8, 2013).
 Class slides for risk budgeting and
risk reporting (updated April 10, 2013)
 Powerpoint slides for risk
report examples (updated April 10, 2013)
 Class slides for
estimating risk measures (updated April 10, 2013)
 Powerpoint slides of R
examples (updated April 23, 2012)
 R code used in powerpoint slides
(updated April 23, 2012)
 Acerbi, C. and Tasche, D. (2001). "Expected
Shortfall: a natural coherent alternative to Value at Risk".
Abaxbank Working Paper.
 Bertsimas, D., Lauprete, G.J., and Samarov, A. (2004). "Shortfall
as a risk measure: properties,optimization and applications,"
Journal of Economic Dynamics and Control.
 Christoffersen, P. (2009). “ValueatRisk Models,” in T.G. Andersen
et al (eds.) Handbook of Financial Time Series, Springer.
 Gourieroux, C., J.P. Laurent, and O. Scaillet (2000). “Sensitivity
Analysis of Values at Risk”, Journal of Empirical Finance.
 Qian, E.E. (2006). “On the Financial Interpretation of Risk
Contribution: Risk Budgets Do Add Up”, Journal of Investment
Management.
 Dan´ıelsson, J., Jorgensen, B.N., Samorodnitsky, G., Sarma, M.
and de Vries, C. (2005). "Subadditivity
Re–Examined: the Case for Value–at–Risk," Working Paper, London
School of Economics.
 Boudt, K., B. Peterson and C. Croux (2008). "Estimation and
Decomposition of Downside Risk for Portfolios with NonNormal Returns,"
Journal of Risk.
 Epperlein, E. and A. Smillie (2006). “Cracking VAR with Kernels,”
Risk.
 Yamai, Y. and T. Yoshiba (2002). “Comparative Analyses of Expected
Shortfall and ValueatRisk: Their Estimation Error, Decomposition, and
Optimization,” Institute for Monetary and Economic Studies,
Bank of Japan.
 Maillard, D. (2012). "A User's Guide to
the Cornish Fisher Expansion," SSRN Working paper 1997178.

Week 3:
4/15 and 4/17 
Volatility
Modeling 
Textbook
Readings 
Lecture Notes, Additional
Readings and Paper Discussions 
 FRF chapter 2; chapter 5, sections 56.
 QRM chapter 2, section 3; chapter 4, sections 14.
 FMUND chapter 4, sections 16.
 SDAFE chapter 18


Class slides for univariate GARCH lectures
(updated 4/17/2013). Powerpoint
slides for univariate GARCH lectures (updated 4/17/2013).
 R code used
for powerpoint examples (updated April 17, 2013)
 Ghalanos, A. (2013). "Introduction
to the rugarch package".
 Francq, C., and Zakoian, J.M. (2008). "A Tour in the
Asymptotic Theory of GARCH Estimation,"
Handbook of Financial Time Series.
 Zivot, E. (2008). "Practical
Issues in the Analysis of Univariate GARCH Models,"
Handbook of Financial Time Series. Splus script for examples in paper.
 Diebold, F.X. and J. Lopez (1995). "Modeling
Volatility Dynamics," NBER Technical Working Paper No. 173.
 Engle, R.F. (2001). "GARCH 101: The Use of ARCH/GARCH Model in
Applied Economics," Journal of Economic Perspectives,
15(4), 157168.
 Hansen, Peter R., and Lunde, A. (2005). "A
FORECAST COMPARISON OF VOLATILITY MODELS: DOES ANYTHING BEAT A
GARCH(1,1)?", Journal of Applied Econometrics.
 Granger, C. and S.H. Poon (2003). "Forecasting
Financial Market Volatility," Journal of Economic
Literature, Vol. 41, No. 2.
 Kuester, K., Mittnick, S., and Paollela, M.S. (2006).
"ValueatRisk Prediction: A Comparison of Alternative Strategies,"
Journal of Financial Econometrics, 4(1), 5389.
PhD Section Presentation Papers:
 Goldberg, L, Hayes, M.Y., Menchero, J. and Mitra, I.
(2009). "Extreme Risk Management",
SSRN Working Paper No. 1341363.
 Goldberg, L, Hayes, M.Y., Menchero, J. and Mitra, I.
(2009). "Extreme Risk Analysis",
MSCI Barra Research Insights, SSRN Working Paper No. 1404820.

Week 4: 4/22 and 4/24 
Advanced Volatility Modeling and Backtesting Risk Models 
Textbook
Readings 
Lecture Notes and Additional
Readings 
 FRF chapter 8
 QRM chapter 2, section 3.5; chapter 4, section 4.3.
 FMUND chapter 8, section 6
 SDAFE chapter 19

 Class slides on advanced volatility modeling
(updated April 29, 2013).
Powerpoint slides for advanced GARCH lectures.
 Class
slides on backtesting risk models (updated May 3, 2012).
Powerpoint slides for backtesting risk models (updated May 3, 2012).
 R code for advanced volatility modeling.
 R code for backtesting risk models
(updated May 3, 2012).
 Kuester, K., Mittnick, S., and Paollela, M.S. (2006).
"ValueatRisk Prediction: A Comparison of Alternative Strategies,"
Journal of Financial Econometrics, 4(1), 5389.
 Andersen, T., and Bollerslev, T. (1998). "Answering
the Skeptics: Yes, Standard Volatility Models Do Provide Accurate
Forecasts". International Economic Review, 39(4), 885905.
 Angelidis, T. and Degiannakis S. (2007) "Backtesting
VaR Models: An Expected Shortfall Approach" Working Paper, Dept. of
Economics, University of Crete.
PhD Section Presentation Papers:
 Creal, D., Koopman, S.J., and Lucas, A. (2011).
"Generalized Autoregressive Score
Models with Applications," Working Paper, University of Chicago,
Booth School of Business.
 Creal, D., Koopman, S.J., and Lucas, A. (2012). "Univariate
Generalized Autoregressive Score Volatility Models," Working Paper,
University of Chicago, Booth School of Business.
 Creal, D., Koopman, S.J., and Lucas, A. (2012). "Generalized
Autoregressive Score Models," AENORM, Vol. 20(75).

Weeks 5, 6 and 7:
5/6, 5/8, 5/13 and 5/15 
Liquidity Risk, Multivariate Models: Dynamic
Covariance and Correlation Modeling 
Textbook
Readings 
Lecture Notes and Additional
Readings 
 FRF chapter 3.
 QRM chapter 3, sections 13; chapter 4, sections 5
and 6
 FMUND chapter 6.
 SDAFE chapter 7

 Midterm Exam  Wednesday May 1st.

Class slides for
multivariate GARCH lectures (updated 5/15/2013).
Powerpoint slides for
multivariate GARCH lectures based on SPLUS (updated 5/15/2013).
Powerpoint slides for multivariate GARCH based on R (updated
May 15, 2013)
 R code for
multivariate GARCH estimation (updated May 15, 2013)
 Engle, R.F. (2001). "Dynamic
Conditional Correlation: A Simple Class of Multivariate Generalized
Autoregressive Conditinoal Heteroskedasticity Models," Journal
of Business and Economic Statistics, 20, 339350.
 Ding, Z., and Engle, R.F. (2001). "Large
Scale Conditional Covariance Matrix Modeling, Estimation and Testing,"
unpublished manuscript, Department of Economics, UC San Diego.
 Silvennoinen, A., and Terasvirta, T. (2008).
"Multivariate GARCH Models,"
Handbook of Financial Time Series.
PhD Section Presentation Papers:

Week 8:
5/20 and 5/22 

Textbook Readings 
Lecture Notes and Additional
Readings 
 FRF chapter 1, section 8
 QRM chapter 5
 FMUND chapter 6.
 SDAFE chapter 8.


Class slides
on copulas (updated May 15, 2013).
Powerpoint examples for copula examples in R (updated May 20, 2013)

R code for
copula examples.

Class slides
on factor model risk analysis (updated May 29, 2013).
Powerpoint slides
for factor model risk analysis (updated May 29, 2013).

R code for factor model risk analysis.

Yan, J. (2007). "Enjoy
the Joy of Copulas: With a Package copula". Journal of
Statistical Software

Kojadinovic, I., and Yan, J. (2010). "Modeling
Multivariate Distributions with Cointinuous Margins Using the copula R
Package." Journal of Statistical Software.

Meucci, A. (2007). “Risk Contributions from Generic
UserDefined Factors”, Risk.

Goodworth, T. and C. Jones (2007). “Factorbased,
Nonparametric Risk Measurement Framework for Hedge Funds and
FundofFunds,” The European Journal of Finance.

Jiang, Y. (2009). Overcoming Data Challenges in
FundofFunds Portfolio Management, PhD Thesis, Department of
Statistics, University of Washington.

Weeks 9 and 10:
5/29, 6/3 and 6/5 
Factor Models and
Factor Models Risk
Decompositions 
Textbook Readings 
Lecture Notes and Additional
Readings 
 QRM chapter 3, section 4.
 SDAFE chapter 17



