THE CHINESE UNIVERSITY OF HONG KONG

Department of Statistics
RMSC6002: Credit Risk Management
Course Information
Lecturers Dr. John Wright
Office: Rm 129, Lady Shaw Building (LSB)
Consultation hours: by appointment.
Email: jawright@sta.cuhk.edu.hk
Teaching Assistant Zheng Xunze
Office: LSB G24
Consultation hours: by appointment.
Email: s1155002000@sta.cuhk.edu.hk
Dates, Times and Venue
Saturdays, 9.30am to 12.15pm in Wu Ho Man Yuen Building, Rm 502.
Course Description The Credit Crisis of 2007 devastated the global financial industry and demonstrated that, despite unprecedented financial
sophistication, proper credit risk management is vital for the good health
of any financial institution. In this course, we will cover the cat-and-mouse
history of regulation of credit risk, taking us to the present day. Along the
way, we cover various attempts at modeling and quantifying credit risk,
which will lead us through topics like VaR, copulas, credit derivatives, different credit risk methodologies (e.g. Credit Risk Plus, CreditMetrics) and
much else besides. We will also discuss various case histories of financial
institutions failing due to poor credit risk management.
Assessment Problem Sheets (24%), mid-term (26%) and final exam (50%).
Teaching Methods Three hours per week, on Saturdays. Example
Classes, given by the Teaching Assistant, will go through solutions to
problem sheets and mid-term.
Problem Sheets Three problem sheets will be set, with the deadlines for
each made clear in advance. No late submissions will accepted; they will
receive a score of zero. Students may discuss set problems with others,
but their final submissions must be their own work.
Course Evaluation In week 6 the lecturer will hand out mid-term course
evaluation forms to explore students experiences of the course and confirm
course arrangements. Feedback will be given the following week. Towards
the end of term, the department will administer the university Course and
Teaching Evaluation Questionnaire.
Reference Books and Notes
Main references
1

 The lecture notes and material covered in the course will be based
on Chapters 6, 11-12 and 15-21 of Risk Management and Financial
Institutions, 4th Ed. by John Hull. Students are strongly encouraged
to obtain a copy of this book, or the 3rd Edition, which is very similar.
Lecture notes, consisting of PowerPoint slides covered in the lectures,
will be uploaded to the courses eLearning page before each lecture.
It is worthwhile reading the description of the CreditMetrics methodology, which can be downloaded from http://www.msci.com/resources/
technical_documentation/CMTD1.pdf
Also worth reading this introduction to the CreditRisk+ framework:
http://www.csfb.com/institutional/research/assets/creditrisk.
pdf

16th Jan.
23rd Jan.
30th Jan.
6th Feb.
N/A
20th Feb.

27th Feb.
5th Mar.
12th Mar.
19th Mar.
N/A
2nd Apr.

9th Apr.
16th Apr.
23rd Apr.

30th Apr.

7
8
9
10
11
12

13
14
15

16

Dates

1
2
3
4
5
6

Week

Solutions to Problem Sheet 3 collected, Example

Class
Final Exam

Easter Holiday
Solutions to Problem Sheet 2 collected, Problem
Sheet 3 handed out, Example Class

Midterm(?)
Problem Sheet 2 handed out

Chinese New Year Holiday

Mid-term Course Evaluation given, Solutions to
Problem Sheet 1 collected, Example Class

Problem Sheet 1 handed out

Comments

Table 1: A Rough, Proposed schedule for RMSC6002: Credit Risk Management

Credit VaR
Credit Risk Methodologies
Economic Capital

Fundamental Review of the Trading Book

Margin, OTC Markets, CCP
Estimating Default Probabilities
CVA and DVA
N/A
Credit VaR

Introduction, VaR and Expected Shortfall

Correlations and Copulas
Basel I, Basel II
The Credit Crisis of 2007
N/A
Post Basel II Regulation

Lecture Contents