MATHEMATICAL RISK MANAGEMENT (MRM) at Georgia State University

The M.S. in Mathematical Risk Management program is designed to prepare students for analytical and technical positions within financial institutions, risk management advisory organizations, and the treasury departments of non-financial corporations. The program draws expertise from mathematical finance, actuarial science, and corporate risk management.

The program is based upon three underlying principles.

Principle 1: Quantification of Corporate Risk. The application of mathematics in risk management has been revolutionized in the past 20 years – especially within financial institutions. We believe this quantification of risk will become increasingly central to risk management in all industries.

Principle 2: Breadth. Significant progress has been made developing models that measure and manage traded market risk and the MRM program provides coverage of these models. However, it is also true firms face a myriad of non-traded risks including risks inherent in the demand and supply for the goods and services, operational risks, and legal and regulatory risks. Many of these risks occur infrequently and, when they do, the complex interactions between the various risk exposures often change potentially accelerating the loss of value for the firm. The MRM program provides rigorous technical training in the mathematical and economic fundamentals so students can develop solutions to difficult risk management problems in a variety of industries – not just application of mathematical methods in finance.

Principle 3: Integration. It is now accepted that risk management systems should produce net cash flow distributions based on models of both the assets and liabilities of a firm and that these models should be developed simultaneously using a coherent framework to determine the market consistent prices of all cash flows (even when those cash flows are not traded). The MRM program stresses modeling net risk distributions which provides information about the entire risk-return tradeoff and the ability to quantify the costs and benefits of any strategy that alters the risk profile of the firm. In addition, successful integration of the risk management function into the broader corporate mission requires students to recognize the long-term in nature of the “real” assets” needed to produce physical goods and services where there is little opportunity for to “unwind” a position should the future states of the world not move in favorable directions.

How are these principles applied such that MRM distinguishes itself from other similar programs?

The primary programs that compete with the MRM program are graduate-level financial engineering programs and programs in actuarial science. The unique aspects of the MRM program are as follows:

• Program focus is on risk management. Many financial engineering programs purport to have a risk management focus, but oft times the focus is on the study of asset prices, on valuation techniques, and on the development of short-term trading strategies. The MRM program has a strong emphasis on the dynamic portfolio management techniques that allow decisions to be made about how best to measure and alter risk profiles as new information is revealed over medium-to-long time periods. In addition, the emphasis is on how to measure and manage in the tails of the net risk distributions.
• Breadth of coverage. In addition to the usual course work found in most financial engineering programs (e.g., stochastic calculus as applied in finance, pricing and hedging redundant securities in continuous and discrete-time settings, basic probability and statistics, etc), the unique aspects of the MRM curriculum that encourage breadth include the following:
  
  
  • Courses from our actuarial science program expose students to the statistical methods used by actuaries and statisticians to measure and manage extreme risk exposures and valuation of non-traded asset classes,
  • Custom developed courses that require students build risk management models that integrate both traded and non-traded risks,
  • Greater exposure to econometrics and the use of such methods to model consumer behavior
  • Greater exposure to corporate finance and corporate risk management functions so students understand the importance of the managerial processes that effectively use this information to formulate corporate strategy and policy.
  
  
• Emphasis on application. Several courses place emphasis on students developing "hands-on" experience which includes the calibration of models, the discussion of the data issues faced in the application of these models, implementation of the models using popular programming languages and statistical packages, and the development and implementation of corporate strategy through the review of case studies covered in several courses.

How is GSU’s MRM program different than the Master’s of Actuarial Science program?

Although there are several courses common to both the MRM and MAS programs, the MAS emphasizes topics of particular importance to the valuation and management of insurance risks. Students graduating from the MAS program almost uniformly secure jobs in the insurance industry after graduation.

The MRM program emphasizes the quantification, valuation and management of both financial and non-financial risk exposures. Thus, the program draws expertise from quantitative finance, actuarial science and corporate risk management. Students that focus their elective courses acquiring additional depth on quantitative financial risk management find jobs in different sectors of the financial services industry including both the banking industry or in the asset management/advisory groups of insurance companies. Students that focus their elective coursework in risk management and corporate finance have been placed in the treasury or finance departments of both financial and non-financial corporations.

How is the MRM program different than other financial engineering or mathematical finance programs?

The MRM program differs in two important ways. First, the focus of this program is on risk management where many financial engineering programs focus on the development of trading strategies or on security design. The MRM program’s focus on risk management means we emphasize the need to understand the dynamics of capital markets and how things can change in different regimes. We also spend more time understanding the use of quantitative techniques in corporate finance and in making managerial/strategic decisions about firm capital structure, risk appetite, and firm wide objectives. Finally, having a risk management emphasis means students spend more time learning how to measure and manage in the tails of the net risk distributions.

Second, in addition to the usual course work found in most financial engineering programs (e.g., stochastic calculus as applied in finance, pricing and hedging redundant securities in continuous and discrete-time settings, basic probability and statistics, etc), the unique aspects of the MRM curriculum that encourage breadth include the following:

• Courses from our internationally renowned actuarial science program expose students to the statistical methods used by actuaries and statisticians to measure and manage extreme risk exposures and valuation of non-traded asset classes,
• Custom developed courses that require students build risk management models that integrate both traded and non-traded risks,
• Greater exposure to econometrics and the use of such methods to model consumer behavior
• Greater exposure to corporate finance and corporate risk management functions so students understand the importance of the managerial processes that effectively use this information to formulate corporate strategy and policy.

What is the advantage of completing the dual degree MAS/MRM program?

The quantitative methods used to measure, price and manage insurance and financial risks are converging. For example, it is now common that a credit risk trader on Wall Street will be using the principles of actuarial science to manage the risk associated with a portfolio of credit derivatives. Similarly, actuaries now routinely use dynamic hedging arguments from financial engineering to measure and manage the risks associated with embedded in insurance products. Students that earn the dual MAS/MRM degree are uniquely qualified to apply the lessons from both disciplines to better manage and price both traded capital markets risk as well as non-traded insurance and operational risks.