NYU Stern School of Business

Undergraduate College


Spring 2011

Instructor Details

Philippon, Thomas




KMEC 9-90



Course Meetings

TR, 9:30am to 10:45am

Tisch T-200

Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:


Course Description and Learning Goals

The course focuses on modern, quantitative methods to measure and manage the risks faced by financial institutions. It covers market, credit risk, liquidity risk, and operational risk.

 In light of the recent crisis, the course will focus on systemic risk, interconnected networks of counter-parties, moral hazard, compensation and incentives. 


Course Pre-Requisites

The material covered Foundations of Finance is a prerequisite for this class. In particular, you should be familiar with:

 All these topics are covered in Foundations. If you do not remember, take a look at your notes and textbook to refresh your memory. 


Course Outline

The class is divided into broad sections


Overview of risk management, regulation and capital requirements



Value at risk and Expected Shortfall

Prerequisites: statistics, mean, percentiles

Mapping and VaR system

Prerequisites: Forward, futures, swaps, options, delta hedging, duration, immunization.

Market volatility

Prerequisites: empirical estimates of means and variances

Decomposing VaR

Prerequisites: covariance, correlation, conditional expectations

Back testing

Prerequisites: probabilities, Bernouilli trials

Special topic: Systemic risk regulations

Prerequisites: covariance, correlation, conditional expectations



Introduction to credit risk

Migration model

Prerequisites: probabilities

Credit scoring

Prerequisites: regression analysis

Merton model

Prerequisites: Black-Scholes formula, implied volatility

Portfolio Models of Credit Risk

CDS and credit spreads

Prerequisites: risk neutral probabilities

Special topic: Network of Counterparties



Strategic Capital allocation


Liquidity risk, bank runs, stress tests

Crisis forensic

Macroeconomic risks

Prerequisites: Principles of corporate finance, Modigliani Miller theorem, asymmetric information, debt overhang

Monetary policy & government interventions

New regulations



Required Course Materials

Before buying new books, you should make sure that you have fully exploited the ones you already own. To refresh your memory before each class, read the relevant chapters in the textbook used in Foundations of Finance:

Regarding Risk Management, no single textbook covers all the relevant material. In designing the class, I have used the books listed below. These textbooks are not required, just recommended, and you can also use earlier editions. Each has its strengths and weaknesses, none is perfect. You should buy the one that corresponds to the area where you need or want to learn more. Here are some excellent references:

I can also recommend two academic books on credit risk if you want to expand your knowledge (but the material is more advanced than what we will do in class)

Finally, you can find some interesting specific information in these two books:



Assessment Components

Your grade will be based on a series of home works, one midterm and one final exam. The breakdown is approximately:

 All homework assignments are submitted directly on Blackboard. The exams are open-book, open notes. 


Group Projects

Guidelines for Group Projects

Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.

Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole:   its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.

It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.

You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.



At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.



The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.


Professional Responsibilities For This Course




In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:




Classroom Norms


Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 


Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 


Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.


Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.


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