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- Term 1
The objective of the course is to provide students with fundamental knowledge about how to use financial tools to manage risk. The risk management tools covered by the course include portfolio analysis; bonds and the yield curve; financial derivatives including forwards and futures, options (and how to use them to hedge); and Value at Risk (VaR), etc. The course provides theories and concepts regarding risk management tools that are mainly derived based on financial firms. The application of these risk management tools to both financial firms and nonfinancial firms is also covered when necessary.
Objectives and learning outcomes of the course
This course enables students to:
- Understand fundamental theories and concepts regarding financial tools that can be used in risk management
- Understand and analyse the movement of real life financial markets reported in financial magazines and newspapers
- Understand how to use some standard risk management tools to solve risk management problems for financial firms
- Understand how some standard risk management tools can be applied to nonfinancial firms
Method of assessmentAssessment for this course is by one tutorial presentation at 10%; an essay of 4,000 words at 30%; an unseen written examination at 60% of the total grade; all elements except the presentation may be resubmitted
- EJ Elton, MJ Gruber, SJ Brown and WN Goetzmann, Modern Portfolio Theory and Investment Analysis, 8th ed., New York, Wiley, 2011.
- JC Hull, Fundamentals of Futures and Options Markets, 7th ed., New Jersey, Prentice Hall, 2011.
(Alternatively, you may use the more complete exposition, which is technically more advanced, in JC Hull, Options, Futures, and Other Derivatives, 8th ed., New Jersey, Prentice Hall, 2012).
- M Crouhy, D Galai, R Mark, Risk Management, New York, McGraw Hill, 2001.
(Alternatively, you may prefer to use the more concise textbook by the same authors: M Crouhy, D Galai, R Mark, The Essentials of Risk Management, New York, McGraw Hill, 2006).