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Faculty
B.V.Phani, Indian Institute of Technology Kanpur

Course Coordinator
ISUP Secretariat

Prerequisite/progression of the course

Should have completed corporate finance course.

Course content, structure and teaching

Financial Intermediation, Banking Regulation, Directed Lending, Reserves Ratios and Implications, Credit Appraisal, Models for Credit Risk and Risk Management.

Topics:

• Theory of Financial Intermediation
• Global Banking Reforms & Regulation
• Implications of Regulation, Directed Lending and Reserve Ratios
• Credit Appraisal & Lending Decisions
• Asset Liability Management (ALM)
• Credit Risk Models
• Credit Risk Management

The course's development of personal competences

Analytical skills and team work.

Learning Objectives

The course will deal with the theory, tools and techniques necessary for efficient modelling and management of risk in financial services with emphasis on commercial banking. At the macro level emphasis is placed on the effect of regulatory and country specific factors on the functioning and the adherent risk in the operation of a commercial bank. At the micro level various facets of risk management which include interest rate, credit and market risk are covered in sufficient depth. The course also covers related topics in derivative pricing and hedging and application of option valuation models in modelling and managing the above risk.

Teaching methods

Both direct and case based; cases are used to provide a basis for familiarizing the students with real world application of theoretical concepts taught as part of the course.

Examination

Voluntary mid-term feedback assignment.

Final exam: 4-hour written (closed book) including multiple choice questions, small problems & case studies.

Exam aids: Finance calculator and cheat cheet (provided by the instructor).

Re-take exam: 24-hour written exam.

Recommended literature

• Bank of International Settlements(2006). Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version
• Bhattacharya Sudipto & Thakor Anjan V., 1993."Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
• Black, F., and M. Scholes (1973). ”The Pricing of Options, and Corporate Liabilities,” Journal of Political Economy, May-June, 637-659.
• Bryan J. Balin, 'Basel I, Basel II, and Emerging Markets: A Nontechnical Analysis' as approved May 10 2008, The Johns Hopkins School of Advanced Studies in Washington DC
• Eugene F. Fama, "Random Walks in Stock Market Prices," Financial Analysts Journal, September/October 1965 (reprinted January-February 1995)
• Franklin Allen & Anthony M. Santomero, 1999. "What Do Financial Intermediaries Do?," Center for Financial Institutions Working Papers 99-30, Wharton School Center for Financial Institutions, University of Pennsylvania.
• Modern Money Mechanics, A Workbook on Bank Reserves and Deposit Expansion, Federal Reserve Bank of Chicago.
• Santomero, Anthony M, 1984."Modeling the Banking Firm: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 576-602, November.
• Scott P. Mason and Susan L. Roth(1991). “Note on Bank Loans” Harvard Business School
• George Chacko, Peter Hecht, Anders Sjoman, and Kate Hao (2005). “Note on Credit Derivatives”, Harvard Business School
• Merton, Robert C, 1974."On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
• Scholtens, Bert & van Wensveen, Dick, 2000."A critique on the theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1243-1251, August.
• Tham, Joseph, "Risk-neutral Valuation: A Gentle Introduction (1)" (November 2001). SSRN: eLibrary

Last updated by ISUP Secretariat 28/01/2010