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Course 2021-2022 a.y.

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)
Course Director:
GIAMPAOLO GABBI

Classes: 31 (II sem.)
Instructors:
Class 31: 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.


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 basic financial derivatives and their main implementation by corporations and financial institutions for hedging purposes. The course provides also basic knowledge of pricing and valuation techniques for plain vanilla derivatives.

CONTENT SUMMARY

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...
  • Describe basic financial derivatives (namely forwards, futures, swaps, plain vanilla options and other innovative contracts) and the theoretical framework.

  • Illustrate potential arbitrage opportunities on futures and plain vanilla options.

  • Recognize main risk profiles and key drivers of financial derivatives.

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
DETAILS

During the course we will host experts to enhance the practical use and application of derivatives in different financial environments
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
  • Written individual exam (traditional/online)
  •   x x
  • Group assignment (report, exercise, presentation, project work etc.)
  • x    
    ATTENDING STUDENTS

    Participation in group work allows students to supplement the grade earned on partial or general exams by grading the assignment and presentation. Partial and general exams are related to the full syllabus.

    NOT ATTENDING STUDENTS

    Non-attending students will be allowed to participate in partial exams on the full syllabus.


    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).