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Transcript
FINANCIAL RISK MANAGEMENT Course Objective: This course will focus on variety of risks faced by financial managers and the tools available for managing these risks. Particularly, we shall focus on credit risk, interest rate and liquidity risks, market risk, foreign exchange risk and country risk. We shall learn about the tools and techniques available for managing these risks such as future contracts, option contracts, swaps, value-at-risk (VAR) and other standard hedging techniques and measures of volatility. Students attending this course are expected to have studied basic courses of investment and portfolio management and have good understanding of asset pricing models. Course Contents: 1. Introduction: Motivation for risk management, Why risk management, Creating value with risk management, Find risk and return for an asset and portfolio. 2. Financial Engineering: derivative (forwards, futures, swaps, basic and exotic options) and standard hedging techniques. 3. Measuring volatility: EWMA and GARCH models, implied and realized volatility. 4. Market Risk: VaR (Value at Risk) measurement (Risk Metric, historical and Monte Carlo Approaches), backtesting, stress testing, alternative risk measure. 5. Liquidity risk. 6. Credit Risk: Merton Model, modern structural and reduced form models, credit derivatives. Recommended Books: 1) There is no single book that will cover all the topics included in this course. Selected chapters from the following books will be covered in the course. 2) Hull, John C. , 2007. Risk Management and Financial Institutions (RMFI), Prentice-Hall. 3) Hull John C., 2006, Options, Futures and other derivatives (OFOD), Prentice-Hall (sixth edition). 4) Ross, Stephen A., Westerfield, RandolphW., Jaffe, Jeffery F & Roberts Gordon S., Corporate Finance, Any edition, McGraw Hill Ryerson, 1999. (Referred to below as ‘RWJR’) 5) Risk Management and Derivatives by Rene Stulz, second edition.