Financial Risk Management in Investment Portfolio

Module 1: Overview of Financial Risk in Investments

• Types of financial risks: market, credit, liquidity, operational
• Risk-return trade-off in investment decision-making
• Historical events & case studies (e.g., 2008 crash, Archegos collapse)
• Importance of diversification in risk reduction
• Regulatory frameworks (Basel III, MiFID II, SEC guidelines)

Module 2: Basics of Portfolio Construction

• Modern Portfolio Theory (Markowitz)
• Risk-adjusted return metrics (Sharpe, Treynor, Sortino ratios)
• Correlation, covariance, and asset allocation
• Efficient Frontier & Capital Market Line
• Strategic vs Tactical Asset Allocation

Module 3: Market Risk – Identification and Analysis

• Types of market risks: interest rate, FX, equity, commodity
• Beta and volatility measures
• Value at Risk (VaR): concept, calculation methods
• Stress testing and scenario analysis
• Sensitivity analysis (duration, convexity for bonds)

Module 4: Quantitative Risk Modeling

• Introduction to risk modeling techniques
• Monte Carlo simulations
• Factor models (CAPM, APT, multi-factor models)
• Backtesting risk models
• Black-Scholes model for options risk

Module 5: Credit Risk in Portfolio Management

• Counterparty risk and credit default risk
• Credit ratings and credit scoring models
• Credit Value at Risk (CVaR)
• Credit spreads and bond pricing implications
• Managing credit exposure: CDS, limits, netting

Module 6: Liquidity and Operational Risks

• Liquidity risk in normal and stressed conditions
• Bid-ask spreads, turnover ratios, liquidity-adjusted VaR
• Operational risks: people, processes, systems
• Risk control frameworks (RCSA, KRI tracking)
• Case study: LTCM collapse due to liquidity + operational issues

Module 7: Risk Hedging Techniques

• Derivatives: options, futures, forwards, and swaps
• Portfolio insurance strategies
• Dynamic hedging and delta hedging
• Duration matching and immunization strategies
• Overlay strategies using ETFs and currency hedges

Module 8: Risk Budgeting and Limits

• Risk appetite vs risk tolerance
• Risk budgeting at portfolio and firm level
• Setting VaR and drawdown limits
• Stop-loss mechanisms
• Role of the risk committee and investment policy statements

Module 9: Regulatory Risk and ESG Integration

• Basel III, Dodd-Frank, Solvency II
• Stress testing frameworks by regulators
• ESG risk in portfolio management
• Climate risk disclosures (TCFD)
• Green bonds and impact investing risks

Module 10: Case Studies and Risk Mitigation Framework

• Global case studies of risk failure and success
• Integrating risk systems (Bloomberg, MSCI RiskMetrics, Aladdin)
• Enterprise Risk Management (ERM) in investment firms
• Emerging risks: AI trading, geopolitical tensions, inflation shocks
• Group exercise: Build a resilient risk-managed portfolio