Actuarial
Science Program
DEPARTMENT
OF MATHEMATICS
Fin 580 / Math 595, Section ERM:
Spring 2008 (2nd-half)
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Instructor: |
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24 Wohlers Hall |
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374 Altgeld Hall |
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Class Dates: |
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Phone: 244-1739 |
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March 11 through |
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Office Hours: |
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10-11 am Tues, |
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E-mail: gorvett@uiuc.edu |
Course
website: http://www.math.uiuc.edu/~gorvett/f580s08/home.html
(See below for class summaries and links to readings)
Course
Summary
Enterprise
Risk Management (ERM) involves the application of risk management principles to
all risks facing an organization. Traditionally and historically,
considerations and management of the risks to which an organization is exposed
(hazard, financial, strategic, and operational risks) have largely been
approached compartmentally, in separate silos. ERM is a process in which risks
are approached in an integrated, holistic framework, which allows the
organization to better analyze and manage its risk interrelationships and
correlations.
Over
the last decade, several forces have inspired interest in an ERM-type of
approach to risk management. One such force was the Sarbanes-Oxley (SOX) Act of
2002, which placed greater ultimate risk management responsibility on boards of
directors. Both SOX and ERM also emerged partially as a response to various
governance and derivatives disasters. Even beyond those forces, however, ERM
has begun to be recognized as a useful and even critical tool for optimizing
firm value, via the identification, quantification, and management of risks
within the context of the overall strategy and operations of a firm.
This course will provide an overview of ERM and the
risk-environment in which firms operate. In addition, the course will describe some
technical tools used in risk analysis, and present risk measurement and
management techniques within the context of the strategic and operational
decision-making of a firm. Philosophically, in this class ERM will be presented
more as a way of thinking than as a set of specific rules or techniques.
Classes will likely involve a mixture of lecture-discussion on current ERM
issues, guest presentations, case studies, and analytical assignments.
Textbook
Additional readings will be
documented below as they are assigned.
Prerequisites
There are no formal
prerequisites, other than graduate standing in finance or mathematics, or approval
of the instructor.
Grading
Course grades will be determined based
on the following weights:
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Project 1 |
15% |
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Project 2 |
15% |
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Other Assignments |
20% |
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Final Exam |
50% |
Class attendance is expected;
serious attendance problems may result in a grade lower than that indicated by
the weighting system above. Some assignments may only be provided or accessible
in class.
Accessibility
Statement
To insure that disability-related concerns are properly addressed
throughout the semester, students with disabilities who require reasonable
accommodations to participate in this class are asked to contact me during the
first week of class.
Class Summaries and Links to
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Date |
Class
Topic |
Specific
Concepts Covered |
Links, |
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Mar 11 |
Introduction and background |
Syllabus and class
structure. Introduction to ERM. The risk management
process. The evolution and current
state of ERM. |
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Mar 13 |
ERM in context and practice |
Why manage risk: the capital
structure irrelevance proposition. Types of risks. Some risk management
failures. Some keys to ERM success. |
Required: Project 1 Required |
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Mar 25 |
Hazard risks |
Some ERM foundations. Hazard risks. Analytics for hazard risks. Hazard risk management. |
Required |
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Mar 27 |
Financial risks |
Finish hazard risk
material. Financial risks, analytics,
and management. |
Required |
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Apr 1 |
Operational risks |
Finish financial risk
material. Operational risks,
analytics, and management. |
Required |
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Apr 3 |
Strategic risks |
Strategic risks. Honeywell and integrated
risk management. |
Required Required: Homework 1 Required: ICA 1 |
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Apr 8 |
Guest
presentation |
of the firm Towers Perrin |
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Apr 10 |
Risk analytics |
Summary of risk analytics. Duration and convexity. Interest rate modeling. VaR. Scenario testing and
stochastic simulation. |
Required
reading: Lam (Chapter 9) Required
reading: Jorion article Required: Homework 2 Required: ICA 2 |
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Apr 15 |
Guest presentation |
Dave Cummings of the State
Farm Companies |
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Apr 17 |
COSO and corporate
governance |
Corporate governance and
reporting relationship issues. COSO. |
Required
reading: Lam (Chs 5 to 7) Required:
United Grain Growers Case: be ready to discuss on April 22 Required: COSO ERM slides Required: COSO
Flawed article Required: COSO
Reexamined article Required: COSO
ERM Exec Sum |
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Apr 22 |
UGG Case Study |
Retention versus weather
derivatives versus insurance |
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Apr 24 |
Guest presentation |
Matt Peters of Allstate
Insurance |
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Apr 29 |
Conclusion |
Finish UGG discussion. Discussion of final exam. |
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May 8 |
Final Exam |
Begins at In 66 Library |
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