INDIAN INSTITUTE OF QUANTITATIVE FINANCE

CERTIFICATE PROGRAM IN
QUANTITATIVE FINANCE AND RISK MANAGEMENT (CP-QFRM)
(6 Months Part-time)

CURRICULUM

Module 201 – Introduction to Investment Finance

Financial Markets and Products

This includes concepts of Primary Market and Secondary Market, OTC and Exchange markets, Financial
Securities Market Operations, various types of Financial Instruments like Equity, Debt, Derivatives –
(discuss the basic introduction only Forwards, Futures, Options, Swaps, Swaptions, MBS, etc. on specific
asset classes like Equity and Equity Index derivatives, Fixed-Income and Interest Rate, Currency,
Commodity, various types of financial returns, Corporate Actions and their effects on return calculations,
various financial market activities like Speculation, Hedging and Arbitrage.

Financial Economics

Capital Asset Pricing Model (CAPM) standard and non-standard form, Market efficiency and equilibrium,
Modern Portfolio Theory, Factor models and Arbitrage Pricing Theory (APT).

Fundamentals of Fixed Income Instruments

This introduces students with the background knowledge of fixed income markets like Time Value of
Money, Interest Rates, Risk-free Rate of Interest, Zero Coupon Bonds and Coupon Bonds, Bond
Characteristics, Bond Types, various types of Fixed Income & Money Market returns like Coupon Rate,
Current Yield, Yield-To-Maturity, Discount Yield, Money Market Yield, Par Yield, Bond-equivalent Yield,
Yield-To-Call/Yield-To-Put, Spot Rates, estimation of Zero Coupon Yields from market data, Term
Structure of Interest Rates, Bond Pricing using YTM and ZCYC curves, Price Yield Relationship.

Fixed Income Mathematics

This introduces students with the knowledge of Forward Rates, estimating Forward Rates, building Spot
and Forward Rates Curves using curve construction methods like bootstrapping, linear interpolation,
polynomial interpolations and splines (cubic spline, tension spline, Nelson-Siegel, Nelson-Siegel-
Svensson), pricing Floaters and Inverse Floaters, estimating Durations, Convexity and PVBP, etc.

Derivatives Products and Strategies

This introduces students to various Exotic Options like Asian Options, Bermudan Options, Barrier
Options, Lookback Options, Cliquet / Reverse Cliquet Options, Rachet Options, Binary / Digital Options,
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Basket Options. This introduces students to various trading strategies involving derivatives for hedging,
arbitrage and speculation including spreads, calendars, diagonals, market neutrals, etc. Delta, Gamma,
Vega hedging.

Financial Institutions
This introduces the nature and operations of various financial market participants and institutions like
Stock and other Exchanges, OTC markets, Intermediaries, Clearing House mechanisms and Clearing
Corporation, Commercial Banks, Investment Banks, Broking Houses, Portfolio Management Services,
Hedge Funds, Mutual Funds, Insurance Firms, other types of financial institutions.

Module 202 – Introduction to Financial Mathematics

Linear Algebra

This introduces concepts of linear algebra including vectors and matrices, matrix algebra, Cholesky
Decomposition (CD).

Calculus Review
This starts with review of the basic ideas of calculus and discusses Functions, Differentials and Integrals,
Taylor’s Formula.

Module 203 – Introduction to Probability & Statistics

Probability Theory
This introduces students to the basic ideas of probability theory and includes Random Experiments,
Sample Spaces, Events, Probability of Event, Probability Theorems, Conditional Probability, Bayes
Theorem, Random Variables, Distribution Function of Random Variables, Expectation and Moments of
Distribution, Chebychev’s Inequality, Law of large numbers, Joint Distributions, Covariance and
Correlation, Transformations of Random Variables.

Probability Distributions

This involves studying some well-known probability distributions like Discrete and Continuous Uniform,
Bernoulli Trials and Binomial, Poisson, Normal, Log-Normal, Student’s t, F, Chi-Square, Beta, Extreme
Value Theory and Extreme Value Distributions. It also includes Multivariate Joint Normal Distribution.
Introduction to Copulas.

Descriptive and Inferential Statistics

This introduces students to the basic ideas and methods of descriptive statistics like frequency
distributions, measures of central tendency, measures of dispersion, moments of distribution, etc. This
then introduces the basic ideas and methods of statistical inference like estimation theory, sampling
distributions, Central Limit Theorem, confidence intervals and hypothesis testing concerning estimators of
mean and variance.
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Module 204 – Machine Learning for Quantitative Finance

A) Introduction to Machine Learning

B) Supervised Learning

I. Regression Models

This discusses machine learning models for relationships between financial market variables.
It includes Simple Linear Regression, Multiple Linear Regression, Polynomial Regression,
Logistic Regression, Decision Tree Regression, Random Forest Regression.

II. Time Series Regression Models

This introduces time series models and discusses various topics like Unit roots, AR, MA,
ARMA, Cointegration, ARIMA

III. Forecasting Volatility Models

This discusses various models for estimation of volatility and includes EWMA, GARCH,
estimating the model parameters using Maximum Likelihood Estimation (MLE). The emphasis
is on practical applications of the various models.

C) Unsupervised Learning

This discusses machine learning models like K-Means clustering for classification. This also
discusses some practical use cases like for building the Term Structure of Interest rates, etc.

Module 205 – Stochastic Processes

Basic Stochastic Processes

This introduces the basic idea of a stochastic process, Markov Property, Martingales, Weiner Process,
Geometric Brownian Motion.

Module 206 – Numerical Methods

Monte Carlo Simulation (10)

It discusses implementing MCS algorithms in Python for simulation of GBM, correlated GBM, and other
processes for simulating stock prices, interest rates, etc.
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Module 207 – Derivatives Valuations

Implementing Equity Options Pricing

It discusses implementing valuation of European options using Binomial Model, Black and Scholes (BS)
Model, Computing Black-Scholes Greeks, Valuation of American Options using numerical methods like
Binomial Tree, valuation of path dependent options like Asian, Digital, etc. using Monte Carlo Simulation.
Option Greeks, Implied Volatility, Volatility Skews, Volatility Smiles/Frowns, Volatility Term Structures,
Volatility Surface.

Implementing Currency Derivatives Pricing

It discusses implementing valuation of Cross Currency Swaps, Cross-currency Options.

Implementing Interest Rate Derivatives Pricing

It discusses Interest Rate Term Structure Models like Vasicek Model, Cox-Ingersoll-Ross (CIR) Model,
Libor Market Model (LMM), Black-Derman-Toy (BDT) Model, implementing valuation of Interest Rate
Options, FRA, Interest Rate Swaps.

Module 208 –Risk Analytics 1

Introduction to Financial Risk Management

It discusses the concept of Financial Risk, Measures of Risk, Coherent measures of risk, Value-at-Risk,
Conditional VaR, VaR Measurement Methods for Linear Instruments Parametric and Non-Parametric
methods, VaR Measurement Methods for Non-Linear Instruments Parametric Delta-Normal, Delta-
Gamma-Normal, Non-Parametric Monte-Carlo Simulation, Mapping financial instruments to risk factors –
VaR Mapping, Backtesting VaR, Portfolio VaR, Marginal VaR, Incremental VaR, Component VaR.

Market Risk Management

Focuses on the techniques used to model market risk, identifying Market Risk Exposures, Metrics of
Market Risk, Measuring and Managing Market Risk Exposure, Application of Market Risk management,
Active Risk and Tracking Error, Risk Decomposition and Risk Attribution, Stress Testing, Scenario
Analysis, Hedge fund risk management, Risk management strategies, measuring and managing
corporate exposures, Fundamental Review of the Trading Book (FRTB).

Credit Risk Management

It discusses the credit decision process, origin of credit risk, role of credit risk analyst, role of ratings in
credit risk management, classifications of credit risk and its correlation with other financial risks, default
risk, Probability of Default (PD), Loss Given Default (LGD), Recovery Rate, exposure at default (ED),
expected loss (EL), unexpected loss, concentration risk, risk-adjusted pricing and determine risk-adjusted
return on risk-adjusted capital (RARORAC), Ratings Assignment Methodologies, rating migration matrix,
calculating probability of default (PD), cumulative probability of default, marginal probability of default,
annualized default rate, structural approaches and the reduced-form approaches to predicting default,
Merton model to calculate default probability and the distance to default, linear discriminant analysis
(LDA), logistic regression model to estimate default probability, cluster analysis and principal component
analysis, Credit Risks and Credit Derivatives, credit risk modeling approaches - Merton model,
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CreditRisk+, CreditMetrics, KMV model, Credit Transfer Markets and Products, credit default swap
(CDS), total return swap (TRS), first-to-default put, asset-backed credit-linked note (CLN), collateralized
debt obligations (CDO), Securitization & Special purpose vehicles, Spread Risk and Default Intensity
Models, hazard rate, Portfolio Credit Risk, default correlation, single factor model to measure portfolio
credit risk, Credit VaR, Structured Credit Risk, types of structured products, waterfall structure, implied
correlation, Counterparty Credit Risk, ISDA master agreement, Netting, Compression, Resets, and
Termination Features, collateral management, Central Counterparties, Credit Exposure and Measures
Credit Exposure, Counterparty Risk, Credit Value Adjustment (CVA), Wrong-Way Risk, Stress Testing
Counterparty Exposures, Securitization of Subprime Mortgage Credit, IFRS 9.

Module 209 –Risk Analytics 2

Operational Risk Management

It discusses about Basel Committee guidelines on principles for sound operational risk management and
Enterprise Risk Management (ERM), Risk appetite framework (RAF) and IT infrastructure, Information
risk and data quality management, Risk Control Self Assessment (RCSA) and key risk indicators (KRI’s),
Internal and external operational loss data, Modeling operational loss distributions, Extreme value theory
(EVT), Validating models, Benchmarking models, Model risk, Risk-adjusted return on capital (RAROC),
Economic capital frameworks and capital allocation, Standardised Measurement Approach for
Operational Risk, Advanced Measurement Approach (AMA), scenario analysis and the hybrid approach
in modeling operational risk capital, Stress testing banks, Outsourcing Risk, Regulation and the Basel
Accords.

Liquidity Risk Management

It discusses about factors that influence liquidity, exogenous and endogenous liquidity, estimating
liquidity-adjusted VaR (LVaR) using the constant spread approach and the exogenous spread approach,
endogenous price approaches to LVaR, elasticity-based liquidity adjustment to VaR, liquidity at risk
(LaR), comparison with LVaR and VaR, factors that affect future cash flows, challenges in estimating and
modeling LaR, role of liquidity in crisis situations, approaches to estimating crisis liquidity risk, sources of
liquidity risk, including balance sheet/funding liquidity risk, systematic funding liquidity risk, and
transactions liquidity risk, asset-liability management process at a fractional reserve bank, process of
liquidity transformation, specific liquidity challenges faced by money market mutual funds and hedge
funds in stress situations, transactions used in the collateral market and risks arising through collateral
market transactions, relationship between leverage and firm’s return profile, leverage ratio, leverage
effect, impact on a firm’s leverage and its balance sheet due to purchasing long equity positions on
margin, entering into short sales, and trading in derivatives, methods to measure and manage funding
liquidity risk and transactions liquidity risk, expected transactions cost the spread risk factor for
transaction, liquidity adjustment to VaR for position to be liquidated over a number of trading days,
interactions between different types of liquidity risk, impact of liquidity risk events on systemic risk.

Investment Portfolio Management

Factor Theory and Factors, Multi-factor models, Fama-French Models, low-risk anomaly of asset returns,
calculate alpha, tracking error, the information ratio, and the Sharpe ratio, Grinold’s fundamental law of
active management, factor regression to construct a benchmark with multiple factors, portfolio
construction techniques: screens, stratification, linear programming, and quadratic programming, using
marginal VaR, Portfolio-based performance analysis, Risk budgeting, Risk monitoring, Hedge funds
strategies and Risk management.
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Reference Readings:
Investments
William Sharpe, Gordon Alexander, Jeffrey Bailey

Investments
Zvi Bodie, Alex Kane, and Alan J. Marcus

Modern Portfolio Theory and Investment Analysis

Elton, Gruber, Brown, William

The Handbook of Fixed Income Securities

Frank J. Fabozzi

Options, Futures and Other Derivatives

John C. Hull

Fixed Income Securities

Bruce Tuckman

Elementary Probability Theory

Kai Lai Chung

Mathematics and Statistics for Financial Risk Management

Michael Miller

Introduction to Econometrics
James Stock and Mark Watson

Elements of Forecasting
Francis X. Diebold

An Introduction to the Mathematics of Financial Derivatives

Salih N. Neftci

Monte Carlo Methods In Financial Engineering

Paul Glasserman

Risk Management and Financial Institutions

John C. Hull

Measuring Market Risk

Kevin Dowd

The Essentials of Risk Management

Michel Crouhy, Dan Galai and Robert Mark

Value-at-Risk:The New Benchmark for Managing Financial Risk

Philippe Jorion

Understanding Market, Credit and Operational Risk: The Value at Risk Approach
Linda Allen, Jacob Boudoukh and Anthony Saunders
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Risk Management & Derivatives

René Stulz

Counterparty Credit Risk and Credit Value Adjustment

Jon Gregory

Structured Credit Products: Credit Derivatives & Synthetic Securitization

Moorad Choudhry

Fundamental Aspects of Operational Risk and Insurance Analytics: A Handbook of Operational

Risk
Marcelo G. Cruz, Gareth W. Peters, and Pavel V. Shevchenko

Basel Committee on Banking Supervision Consultative Document

Active Portfolio Management

Richard Grinold, Ronald Kahn

Modern Investment Management: An Equilibrium Approach

Robert Litterman and the Quantitative Resources Group