311500 Finance 1a (V) (WiSe 2025/2026)

Quantitative Risk Management

Banks and Insurance companies play and important role for the society and its welfare. For example, insurance companies help to distribute risk and losses resulting form damage, accidents or other unforeseen events, such that they provide financial security.
Regulators as the state are therefore interested in the stability of the insurance and banking sector. By law, they require that financial institutions implement a risk management system (Solvency/Basel regulations). One pillar is the determination of risk capital, that the institution has to hold to ensure that losses are less likely to cause a default of the institution.
Risks can be modelled through random variables that have a certain distribution. Suitable transformations as Variance, Value-at-Risk or Expected Shortfall then determine the required risk capital. In this lecture we will study prominent examples of such risk measures, its properties and pitfalls. Furthermore, we are interested in the distribution of risks and losses: in a portfolio of assets, are losses likely to be realized only in one asset or are the assets dependent on each other? How likely are large losses and extreme events?

Bibliography

We will follow the textbook "Quantitative Risk Management" by McNeil, Frey and Embrechts.