Introductory description

This is an elective for WBS and non-WBS students.
To build and extend students' understanding of …
the nature and characteristics of different types of financial risks
the characteristics of different types of “derivative securities”:

• the mechanics of the markets on which they trade,
  - their usage in risk management,
  - the factors that determine their value, and
  - the risks associated with trading them.

Module web page

Module aims

Outline syllabus

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.

A Introduction to Risk, Value-at-Risk
B Derivatives
B.1 Interest Rates and Bonds
B.2 Forwards and Futures
B.3 Options:
a) Foundations
b) Pricing
c) Advanced Topics
B.4 Interest Rate Derivatives
C Selected Advanced Topics (time permitting)
a) Current Issues
b) Credit Derivatives
c) Exotic Options
d) Term Structure Models

Learning outcomes

By the end of the module, students should be able to:

• Define and explain the characteristics of different types of derivative securities and markets..
• Define and explain different types of financial risk and the markets on which they trade.
• Define and explain mechanics, properties and limitations of models for the dynamics of asset prices.
• Define and explain the '(no)-arbitrage principle' for derivatives pricing by replication.
• Analyse and interpret financial market data in the context of the theory developed in the module.
• Discuss and evaluate quantitative results in the context of the theory developed in the module.

Indicative reading list

Core:
Hull, John C. (2018): “Options, Futures, and Other Derivatives”, 10th ed. Pearson
Other:
Hull, John C. (2018): “Risk Management and Financial Institutions”, 5th ed. Wiley
Sundaram, R. and S. Das (2016): “Derivatives”, 2nd ed. McGraw-Hill
Jorion, P. (2003): “Financial Risk Manager’s Handbook” Wiley

Subject specific skills

Use a variety of quantitative and statistical methods to:

• use financial market data to estimate and validate various measures of risk;
• operationalise models to compute and analuse the value and risks of derivatives;
• propose and assess performance of strategies for risk management in practice.

Transferable skills

• Report and present quantitative findings to specialist and lay audiences;
• Use a variety of quantitative and statistical software;
• Work effectively as leader or member of a team;
• Communicate effectively and efficiently.