IB359-12 Derivatives and Risk Management
To build and extend students' understanding of the nature and characteristics of various types of financial risks, how these risks are measured and what their effects are on profitability/value.
To build and develop students' knowledge and understanding of the characteristics of different types of derivative securities, their usage, and the factors that determine their value.
To provide students with the tools and skills to quantitatively and quantitatively analyse risk exposure in a given situation, and devise and critically evaluate strategies to manage such exposure.
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
- Introduction to risk, risk measurement, and risk management.
- Managing bond portfolios: duration, convexity, immunization, yield curve
- Hedging with futures: cash-and-carry pricing, hedge ratio
3A. special cases: index futures, F/Z futures.
4.1. Options - foundations: contract specifications, the "Greeks", basic strategies.
4.2. Options - pricing: binomial model, martingale measure, delta hedging.
4.2.A. towards Black-Scholes: matringale pricing.
4.3. Options - strategies.
4.4. Options - advanced: implied volatility, delta/gamma, exotic options.
- Interest-rate derivatives: forward rates, swaps, caps/floors
5A. Other derivatives.
- Selected topics.
By the end of the module, students should be able to:
- Define and explain the characteristics of different types of derivative securities.
- Explain different types of financial risk and use a variety of tools to quantify such risks in real world situations.
- Use data to estimate or calibrate the parameters of models that describe the dynamics of risk factors.
- Compute the price of derivative securities and construct strategies to hedge the risks involved in writing these.
- Devise, using derivatives, strategies to manage or hedge a given risk exposure and analyse its properties.
- Analyse and interpret financial market or corporate data with a view to quantifying and modelling uncertainty.
- Use a variety of software tools to implement pricing and risk management solutions.
- Apply statistical techniques to time series and/or crosssectional data to analyse and quantify risk.
- Transform the results of a quantitative risk analysis into a report usable by a nonquantitative audience (in other words, produce a risk report for the back office.)
Indicative reading list
Hull, J.C.: Options, Futures and Other Derivatives (Pearson).
Hull, J.C.: Risk Management and Financial Institutions (Pearson).
Chance, D.M. and R. Brooks: An Introduction to Derivatives and Risk Mgt. (Thomson).
Jarrow, R. and S. Turnbull: Derivative Securities (Thomson).
Jorion, P.: Financial Risk Manager Handbook (Wiley).
Subject specific skills
Construct and implement hedging and risk management portfolios.
Compute the values and exposure characteristics (Greeks) of a variety of derivative instruments.
Qualitatively analyse the risk profile of a given corporate situation and identify the key risk factors.
Design, using a wide range of financial instruments, strategies to hedge and/or manage risk exposure for
(a) corporations (buyers of such risk management), and (b) financial institutions (writes of such products).
Build and calibrate mathematical models to describe, analyse and quantify risk in a given situation.
Communicate effectively the results of a risk analysis and proposed risk management solution.
|Lectures||10 sessions of 2 hours (17%)|
|Seminars||9 sessions of 1 hour (8%)|
|Private study||36 hours (30%)|
|Assessment||55 hours (46%)|
Private study description
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group D1
|Group Project||15%||8 hours|
|Online Examination||85%||41 hours|
~Platforms - AEP
Feedback on assessment
my.wbs, verbal feedback in lectures/revision sessions.
To take this module, you must have passed:
- IB235-12 Finance 1: Financial Markets
- IB253-12 Principles of Finance 1
This module is Optional for:
UIBA-MN34 Law and Business Four Year (Qualifying Degree)
- Year 3 of MN34 Law and Business Studies Four Year (Qualifying Degree)
- Year 4 of MN34 Law and Business Studies Four Year (Qualifying Degree)
- Year 3 of UIBA-N211 Undergraduate Information Systems Management and Innovation
- Year 4 of UIBA-N214 Undergraduate Information Systems Management and Innovation (with Intercalated Year)
- Year 4 of UIBA-N140 Undergraduate International Business
- Year 4 of UIBA-N1R1 Undergraduate International Business with French
- Year 4 of UIBA-N1R2 Undergraduate International Business with German
- Year 4 of UIBA-N1R3 Undergraduate International Business with Italian
- Year 4 of UIBA-N1R4 Undergraduate International Business with Spanish
- Year 3 of UIBA-MN31 Undergraduate Law and Business Studies
UIBA-MN32 Undergraduate Law and Business Studies
- Year 3 of MN32 Law and Business Studies (Four-Year)
- Year 4 of MN32 Law and Business Studies (Four-Year)
UIBA-MN37 Undergraduate Law and Business Studies (Qualifying Degree) with Intercalated Year
- Year 4 of MN37 Law and Business Studies (Qualifying Degree) with Intercalated Year
- Year 5 of MN37 Law and Business Studies (Qualifying Degree) with Intercalated Year
UIBA-MN35 Undergraduate Law and Business Studies with Intercalated Year (3+1)
- Year 3 of MN35 Law and Business Studies with Intercalated Year (3+1)
- Year 4 of MN35 Law and Business Studies with Intercalated Year (3+1)
UIBA-MN36 Undergraduate Law and Business Studies with Intercalated Year (4+1)
- Year 4 of MN36 Law and Business Studies with Intercalated Year (4+1)
- Year 5 of MN36 Law and Business Studies with Intercalated Year (4+1)
This module is Option list A for:
UIBA-N203 BSc in International Management
- Year 4 of N203 International Management
- Year 4 of N203 International Management
UIBA-N201 BSc in Management
- Year 3 of N201 Management
- Year 3 of N230 Management with Finance
UIBA-N202 BSc in Management (with Intercalated Year/UPP)
- Year 4 of N202 Management (with Intercalated Year)
- Year 4 of N231 Management with Finance (with Intercalated Year)
- Year 3 of UIBA-NN35 Undergraduate Accounting and Finance
UIBA-NN36 Undergraduate Accounting and Finance (with Intercalated Year/Undergraduate Partnership Programme)
- Year 4 of NN36 Accounting and Finance (Intercalated)
- Year 4 of NN37 Accounting and Finance (Undergraduate Partnership Programme)
This module is Option list B for:
- Year 3 of UIBA-N201 BSc in Management
- Year 4 of UIBA-N202 BSc in Management (with Intercalated Year/UPP)
- Year 4 of USTA-Y603 Undergraduate Mathematics,Operational Research,Statistics,Economics (with Intercalated Year)