30184 - RISK MANAGEMENT WITH DERIVATIVES
Department of Finance
Course taught in English
Go to class group/s: 31
CLEAM (6 credits - II sem. - OP | SECS-P/11) - CLEF (6 credits - II sem. - OP | SECS-P/11) - CLEACC (6 credits - II sem. - OP | SECS-P/11) - BESS-CLES (6 credits - II sem. - OP | SECS-P/11) - WBB (6 credits - II sem. - OP | SECS-P/11) - BIEF (6 credits - II sem. - OP | SECS-P/11) - BIEM (6 credits - II sem. - OP | SECS-P/11) - BIG (6 credits - II sem. - OP | SECS-P/11) - BEMACS (6 credits - II sem. - OP | SECS-P/11) - BAI (6 credits - II sem. - OP | SECS-P/11)
Course Director:
GIAMPAOLO GABBI
GIAMPAOLO GABBI
Suggested background knowledge
To feel at ease with this course, students should be familiar with basic concepts such as integral calculus, probability and financial calculus required to understand plain economic and financial models. Furthermore, it is important that students are familiar with the basic concepts of financial instruments such as stocks and bonds.
Mission & Content Summary
MISSION
Risk is an implicit component of economic and financial activities. It may be defined as a compound measure of the probability and magnitude of adverse effect. In order to hedge risks adequately, it is essential to go deeper into the phases of the risk management process and in particular how to use the derivative contracts.
The course aims at providing an understanding of the markets for derivatives instruments (forwards, futures¸ swap and options) and of their uses for hedging and trading by corporations and financial institutions. The course will also explain how to price and calculate the market value of plain vanilla derivatives.
CONTENT SUMMARY
After an overview of the derivatives markets, the course focuses on the following main derivatives instruments:
- What are the main risks to be hedged with derivatives?
- Forwards: contract specifications; forward prices and valuation; hedging with forwards.
- Futures: contract specifications; hedging and trading with futures.
- Swaps: pricing and usage of swap contracts.
- Options: markets and contract specifications; overview of pricing techniques; hedging and trading with options.
- Structured Products: introduction to hybrid products and basic concepts of structuring techniques.
Intended Learning Outcomes (ILO)
KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
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Manage basic financial derivatives (namely forwards, futures, swaps, plain vanilla options and other innovative contracts) and find out the opportunities and risks to use these contracts in financial and non-financial firms.
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Illustrate potential arbitrage opportunities on futures and plain vanilla options.
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Recognize main risk profiles and key drivers of financial derivatives.
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Engineer sophisticated financial contracts through derivatives strategies.
APPLYING KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
- Recognise risks and identify the best hedging instruments.
- Formulate fair price indications for financial derivatives.
- Analyze basic heding and trading strategies with plain vanilla options.
Teaching methods
- Face-to-face lectures
- Guest speaker's talks (in class or in distance)
- Exercises (exercises, database, software etc.)
- Case studies /Incidents (traditional, online)
- Group assignments
- Interactive class activities on campus/online (role playing, business game, simulation, online forum, instant polls)
DETAILS
During the course we will host experts to enhance the practical use and application of derivatives in different financial environments
Some basic topics will be provided using distance learning videos.
To accelerate knowledge of the valuation of different derivative contracts during our classes we will solve several exercises and participants will be asked to help prepare assignments and solve case studies in small groups.
Assessment methods
| Continuous assessment | Partial exams | General exam | |
|---|---|---|---|
|
x | x | |
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x |
ATTENDING AND NOT ATTENDING STUDENTS
Grading is based on written exam for all the students. All the students are also allowed to take mid term exams:
a) The first mid term exam weights 50% (of the overall grade) with a pass grade of 18 out of 31;
b) The second mid term exam weights 50% (of the overall grade) with a pass grade of 18 out of 31.
Closed-book policy applies and standard calculators only are allowed (programmable calculators with text-editing features are prohibited).
Attending students who contributed to group assignments and projects works will receive a grade bonus (ranging between 1 to 3) to be added to the grade received on the written exam.
Exam review sessions are scheduled usually 3 weeks after each exam (mid term or general).
Exam review may only be granted to students who completed the exam; delegates are not allowed.
Under no circumstance exam review may be discussed via email or phone.
Teaching materials
ATTENDING AND NOT ATTENDING STUDENTS
- J. HULL, Options, future and others derivates, Prentice Hall, 8th or 9th edition (a detailed list of relevant chapters/paragraphs is shown in the syllabus presented at the beginning of the course).
- Readings and slides prepared by the instructors and available on the course website (Students' Agenda).
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