COURSE TITLE:



|COURSE TITLE: RISK MANAGEMENT |

|SEMESTER: 6th (SUMMER) |

|TEACHER’S NAME: Angel Marchev Jr., Ph.D., Assistant professor |

|OFFICE: 1048 |

|E-MAIL: angel.marchev@unwe.eu |

|Annotation |

| “COMPUTER SIMULATION IN MANAGEMENT” is an optional course designed for students studying for the Bachelor program „Administration and |

|Management”. It is taught during the sixth semester. |

|A requirement for the course is that students should have passed the courses “Statistics”, “Mathematics”, “Principles of Management”. |

|“Risk Management” is a fundamental course, which acquaints the students with the fundamental concepts, related to the risk theory, |

|methods for decision-making and their application in management and administration. |

|The course "Risk Management" consists of three sections. The first one aims at acquainting the students with the general concept of risk|

|and related topics. It represents both quantitative and subjective (psychological) aspects of risk. The main focus here lies on |

|approaches for managing risk in various situations. |

|The second section is about decision making as a closely and inseparably connected to the topic of risk management. In this part the |

|main focus is the explanation of the necessary terms features of decision making and most importantly formulation of a problem. |

|The third section is on approaches for decision making and it combines the already acquired knowledge from the first two sections. |

|On the bases of series of research tasks with increasing complexity, students get acquainted with specific methods for risk assessment, |

|ways of formulation of decision problems and making informed decisions in conditions similar to the real economic systems. |

|LANGUAGE OF TEACHING |

|ENGLISH |

|COURSE CONTENT (TOPICS) |

|A. LECTURES |

|Section 1. General concepts of risk |

|1. INTRODUCTION TO RISK. |

|1.1. Definitions and main concepts. |

|1.2. Types of risk. Historical development. |

|1.3. Methods for detecting and measuring risk |

|1.4. Quantitative and psychological aspects of risk. |

|2. QUANTITATIVE ASPECT OF RISK. |

|2.1. Random variable. Random number. Random number generator. |

|2.2. Prior and posterior distribution. |

|2.3. Probability. |

|2.4. Normal probability distribution. |

|2.5. Special cases of probability distributions: flat distribution, triangular distribution, fat tails distribution, extreme event |

|distribution. |

|2.6. Combined probabilities. Convolutions. |

|3. RISK ESTIMATION. |

|3.1. Expected value. |

|3.2. Downside risk. |

|3.3. Value at risk. |

|3.4. Extreme events. |

|4. PSYCHOLOGICAL ASPECT OF RISK. |

|4.1. Subjective risk perception. |

|4.2. Balancing behavior. Perceived danger. Propensity to take risks. |

|4.3. Utility function. |

|4.4. Predisposition. |

|5. PROSPECT THEORY. |

|5.1. Rationality. |

|5.2. Risk averse vs. Loss taking. |

|5.3. Individual risk preference. |

|5.4. Group and individual risk profile. |

|6. APPROACHES FOR RISK MANAGEMENT. |

|6.1. Risk avoidance. |

|6.2. Risk reduction. Hedging. |

|6.3. Risk sharing. Insurance. |

|6.4. Retention. Budgeting. 3 |

|Section 2. Principles of decision making. |

|7. BASIC CONCEPTS AND DEFINITIONS. |

|7.1. Problem situation. |

|7.2. Decision subject. |

|7.3. Decision. |

|7.4. Alternative. |

|7.5. States of nature. |

|8. PROBLEM SITUATION CHARACTERISTICS. |

|8.1. Availability of choices. |

|8.2. Information about the environment. |

|8.3. Estimation of outcomes. |

|8.4. Decision subject’s level of information. |

|8.5. Decision making criteria. |

|9. DECISION MATRIX. |

|9.1. Alternative choices. |

|9.2. Known states of nature. |

|9.3. Known probabilities. |

|9.4. Normal and invert matrix. |

|9.5. Decision matrix variations – pay-off matrix. |

|9.6. Decision matrix variations – Decision tree. |

|10. DECISION TYPOLOGY. |

|10.1. Under certainty. |

|10.2. Under risk. |

|10.3. Under risk and uncertainty. |

|10.4. Total uncertainty. |

|11. PROBLEM FORMULATION AND STRUCTURING. |

|11.1. Analysis of initial information. |

|11.2. Gathering additional information. |

|11.3. Defining possible alternative choices. |

|11.4. Defining decision criteria. |

|11.5. Estimation of outcomes. |

|11.6. Comparative analysis. |

|11.7. Rating the alternative choices. |

|11.8. Defining possible future states of nature. |

|11.9. Setting decision matrix. |

|11.10. Applying decision rule. |

|Section 3. Approaches for decision making. |

|12. NORMATIVE REASONING APPROACH. |

|12.1. NRA Under certainty. |

|12.2. NRA Under risk. |

|12.3. NRA Under risk and uncertainty. |

|12.4. Wald criterion. |

|12.5. Absolute optimist criterion. |

|12.6. Hurwicz criterion. |

|12.7. Laplace criterion. |

|12.8. Savage criterion. |

|13. BAYESIAN APPROACH TO DECISION MAKING. |

|13.1. Conditional probability. |

|13.2. Principles behind Bayesian formula. |

|13.3. Applications of Bayesian formula. |

|14. PORTFOLIO APPROACH TO DECISION MAKING. |

|14.1. General concept and applicability. |

|14.2. Measure for risk. |

|14.3. Diversification. |

|14.4. Optimal set. |

|14.5. Criteria for portfolio selection. |

|15. GAME THEORY APPROACH TO DECISION MAKING. |

|15.1. General concept and applicability. Cooperative and non-cooperative games. |

|15.2. Fundamental principles. |

|15.3. Classification of games. |

|15.4. Reduction by dominance. |

|15.5. Minimax rule. |

|15.6. Nash equilibrium. |

|15.7. Saddle point. |

|15.8. Expected value. |

| |

|B. SEMINARS |

|1. Simulation “Risky choice” |

|2. Simulation “Antinary Bank” |

|3. Simulation “American Roulette” |

|4. Simulation “Deal or not” |

|5. Brain storming exercise |

|6. 6 thinking hats exercise |

|7. Simulation “Scenario minus one” |

|8. Exercise “Bayesian bookmaker” |

|9. Case “Google pseudo crisis” |

|10. Case “Google staffing” |

|11. Complex case “Google combine” |

|12. Simulation “Duopoly” |

|13. Exercise “Game theory” |

|14. Exercise “Portfolio decisions” |

|15. Exercise “Risk management” |

|METHODS OF TEACHING |

|The fundamental forms of teaching are: |

|- lectures, using visual aids with overhead-slides, computer presentations, multimedia projections, educational video materials; |

|- seminars, using active training methods - simulation of real situations, role games preceded by group discussion; usage of computers;|

|- team term paper (written report for the consultancy work done by the teams competing together and presented on a final discussion); |

|- individual assignment – intermediate test |

|LEARNING OUTCOMES |

|After completing the course “Risk in Management” the students will acquire knowledge for: |

|- principles and concepts of risk; |

|- principles of various methods for risk evaluation; |

|- principles of various methods for risk management; |

|- principles and concepts of decision making; |

|- methods for problem formulation; |

|- essence, advantages, disadvantages and fields of application of various decision making approaches. |

|During the course, students obtain skills for: |

|- conducting research for decision-making situations; |

|- using different methods for evaluating and measuring risk; |

|- effective team work and communication by taking part in discussion, writing papers and doing computer presentations; |

|- analyzing and selecting information; |

|- systematic approach for solving problems; |

|- usage of quantitative methods; |

|- usage of internet and computer systems in management. |

|ASSESTMENT METHODS |

|The assessment method during the semester is based on complex (many criteria) point marks which includes the results from: |

|- role-playing management situations performed in competitive conditions (up to 60 points ); |

|- course work (report for a research, up to 30 points evaluated on 6 criteria); |

|- Individual assignment (topical website, up to 20 points evaluated on 4 criteria) |

|- intermediate test (up to maximum 30 points); |

|The mark is formed on the basis of the gained points. Obligatory minimal requirement for passing the course is established. Symmetrical |

|frequency distribution for the "pass" marks 3.00, 4.00, 5.00 and 6.00 (as in ECTS) is used. |

|The final mark is formed on the basis of the points acquired during the semester and final written exam (up to maximum 100 points) by |

|symmetrical frequency distribution. |

|In relation with the European system for the transfer of credits, the juxtaposition of the marks is the following: |

|Excellent /6/ |

|Very good /5/ |

|Good /4/ |

|Fair /3/ |

|Poor /2/ |

| |

|A |

|B |

|C |

|D |

|E |

|FX |

|F |

| |

|Credits are awarded like is appointed in the curriculum |

|Credits are not awarded |

| |

|Conditions for the acknowledgement of the credits from another university for the course are: |

|1. The name of the equivalent course must coincide or to be near the meaning “Risk Management”. |

|2. The contact hours of the equivalent course must not be less than the contact hours of the acknowledging course (“Risk Management” in |

|UNWE). |

|3. Not less than 70% of the teaching material from the syllabus of the equivalent discipline must correspond to the thematic of |

|acknowledge discipline. |

|4. The lecturer of the equivalent course must be a PhD. |

|5. The mark from the equivalent course must be at least “Fair (3.00)” on the scale of 6 or its equivalent if another scale is used. |

|Conditional marks, incomplete marks, marks with the right for a new exam and other are not admitted. |

|REFERENCES (MANDATORY AND RECOMMENDED) |

|1. Theory of games and economic behavior, Neumann, J., O. Morgenstern, 2007 |

|2. Game Theory - Analysis of Conflict, Myerson, Roger B. , 1997 |

|3. The black swan, Taleb, N., 2009 |

|4. Judgment under uncertainty: heuristics and biases, Tversky, Kahnemann, 1998 |

|5. Choices: An Introduction to Decision Theory, Michael Resnika, 1987 |

|6. Against the Gods: The Remarkable Story of Risk, 1998 |

|7. Managing downside risk in financial markets, Sortino, F., S. Satchell, 2008 |

|8. Value at risk, Jorion, P., 2001 |

|9. Decision science and social risk management, Merkhofer, M., 1993 |

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