Stevens Institute of Technology
Howe School of Technology Management
Syllabus
BIA 670
Risk Management: Methods and Practice
Fall 2014
Ricardo A. Collado
Babbio 220
Tel: 201-216-8156
Email: rcollado@stevens.edu
Wednesday, 6:15 pm
Office Hours: Thursdays 1-2PM and by
appointment
Course Room/Web Address:
http://www.stevens.edu/moodle
Overview
This course covers an introduction to the theory and practice of risk management with
emphasis on current techniques and applications. We consider real options and pricing,
portfolio optimization, value at risk, and coherent risk measures. This course emphasizes
the use of mathematical models to analyze risk phenomena and the implementation of
risk-aware solutions. The skills developed in this course can be applied to a broad range
of business problems. The examples and student exercises will focus on the following
areas: real options, energy, and portfolio optimization & analysis.
Course Objectives
This course develops students’ ability to analyze risk-related issues in a wide range of
applications central to today’s business theory and practice. Risk management is a
multidisciplinary field involving finance, economics, mathematics, and computer
science. In this course we follow a mathematical modeling approach to analyze and
solve real life applications in the context of risk. Our main tools are probability and
mathematical optimization. The skills developed in this course can be applied to a broad
range of business problems. The examples and student exercises will focus on the
following areas: real options, energy, drug discovery, portfolio optimization & analysis,
among others.
Additional learning objectives: development of @Risk and ModelRisk programs for the
assessment and solution of risk management problems.
Written and oral communications skills: the individual project proposal will be used to
assess written.
Ethical Understanding: students will read and prepare homework on cases where big
banks and companies faced great risks and consequences due to ethical-related issues.
Team skills: The final project for the course will involve student teams; an online survey
instrument will be used to measure individual contributions to team performance.
Learning Goals:
 Explain the goals and purpose of risk management.

Be exposed to a representative collection of examples and applications that covers
the breadth of current risk management.

Modeling and simulation of risk-averse decision making problems on operations
management

Develop models and methods based on the binomial option pricing and BlackScholes theory.

Develop models and methods based on the Value at Risk and coherent risk
measures.

Apply the option pricing methodology to evaluate real options.
Additional learning objectives include the development of:


Written and oral communications skills: the individual project proposal will be used
to assess written skills and the final presentations will be video-taped and used to
assess presentation skills.
Team skills: The final project for the course will involve student teams; an online
survey instrument will be used to measure individual contributions to team
performance.
Pedagogy
The course employs lectures, class discussion, individual homework and an individual
project. In the individual project, each student will analyze a problem, formulate a
model, collect data, solve the problem using one of the techniques discussed in class,
and interpret the solution for risk management. Project topics will be assigned during
the semester.
Required Text
Moorad Choudhry, An Introduction to Value-At-Risk. Wiley, 2013 (5th edition).
Computer Tools
DecisionTools Suite by Palisade (http://www.palisade.com)
@RISK for Project by Palisade (http://www.palisade.com)
Can be purchased at http://www.palisade.com/academic/order/SuiteRPJ/
ModelRisk (http://www.vosesoftware.com)
Obtain trial version at http://www.vosesoftware.com
Articles
F. Black and M. Scholes, The Pricing of Options and Corporate Liabilities. The Journal of
Political Economy, 81(3):637–654, 1973.
P. Artzner, F. Delbaen, J.M. Eber and D. Heath, Coherent Measures of Risk. Mathematical
Finance, 9: 203–228, 1999.
Supplementary Texts
Jorion, P., Value at Risk: The New Benchmark for Managing Financial Risk. McGraw-Hill
Professional, 2006 (3rd edition).
T. Koplan and V. Antikarov, Real Options: A Practitioners Guide. Texere Publishing
Limited, 2003.
Winston, W.L., Albright, S.C., Practical Management Science, South-Western College
Pub.
Assignments
Individual Homework (40%)
To help reinforce the material covered in the lectures, a homework exercise will be
assigned every two weeks, which will involve formulating and solving a small but
practically-relevant homework problem from the text book.
Homework Submission. All homework must be submitted through the BIA 670 Moodle
web site. Each homework file should have a clear name.
Midterm Examination (30%)
This take-home examination will take place shortly after the mid-point of the course. Its
purpose is to consolidate the learning on risk management techniques discussed so far
in the course. It will involve the development of @Risk or ModelRisk programs that
evaluate and solve the models discussed in class.
Project Proposal (10%)
An individual project involving the framing of a data analysis risk management problem,
the development of appropriate research questions and the identification of relevant
data sources will be due in the latter half of the semester. This proposal should be tied
to the team project.
Team Project Report (20%)
The class practical will involve solving a portfolio problem presented in the form of a
case study. Alternatively, the team can take a real industry problem collect data and
develop a recommended solution.
All assignments are due as noted below. In fairness to others, late work will be penalized
by 10 points per day.
Ethical Conduct
The following statement is printed in the Stevens Graduate Catalog and applies to all students
taking Stevens courses, on and off campus.
“Cheating during in-class tests or take-home examinations or homework is, of course, illegal and
immoral. A Graduate Academic Evaluation Board exists to investigate academic improprieties,
conduct hearings, and determine any necessary actions. The term ‘academic impropriety’ is
meant to include, but is not limited to, cheating on homework, during in-class or take home
examinations and plagiarism. “
Consequences of academic impropriety are severe, ranging from receiving an “F” in a course, to
a warning from the Dean of the Graduate School, which becomes a part of the permanent
student record, to expulsion.
Reference:
The Graduate Student Handbook, Academic Year 2003-2004 Stevens
Institute of Technology, page 10.
Consistent with the above statements, all homework exercises, tests and exams that are
designated as individual assignments MUST contain the following signed statement before they
can be accepted for grading.
____________________________________________________________________
I pledge on my honor that I have not given or received any unauthorized assistance on this
assignment/examination. I further pledge that I have not copied any material from a book,
article, the Internet or any other source except where I have expressly cited the source.
Signature _________________________
Date: _____________
Please note that assignments in this class may be submitted to www.turnitin.com, a web-based
anti-plagiarism system, for an evaluation of their originality.
Course/Teacher Evaluation
Continuous improvement can only occur with feedback based on comprehensive and
appropriate surveys. Your feedback is an important contributor to decisions to modify course
content/pedagogy which is why we strive for 100% class participation in the survey.
All course teacher evaluations are conducted on-line. You will receive an e-mail one week prior
to the end of the course informing you that the survey site (https://www.stevens.edu/assess) is
open along with instructions for accessing the site. Login using your Campus (email) username
and password. This is the same username and password you use for access to Moodle. Simply
click on the course that you wish to evaluate and enter the information. All responses are
strictly anonymous. We especially encourage you to clarify your position on any of the
questions and give explicit feedbacks on your overall evaluations in the section at the end of the
formal survey which allows for written comments. We ask that you submit your survey prior to
end of the examination period.
Course Topics per Session
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Introduction & Review of Basic Concepts
Decision Making Under Uncertainty
Simulation I
Simulation II – Hands-on
Time Series, Regression & Forecasting
Volatility & Correlation
Value-At-Risk
Value-At-Risk II
Options: Risk and Value-At-Risk
Monte Carlo Simulation and Stress Testing
Credit Risk
Risk: Measure, Control & Active Management
Review of Value-At Risk
Extensions of Risk Management Systems
15. Project Presentation