Syllabus
For details see my home page at http://samba.fsv.cuni.cz/~blahaz
Syllabus. In this module we propose to cover the following areas of financial economics:
Finance and financial markets - an overview of the topics in finance (assumed known)
Forward and futures contracts; speculation, hedging and arbitrage in the futures markets
Review of options; mechanics of options markets; properties of stock (share) options and their role in risk management
Trading strategies involving financial derivatives such as futures and options on developed markets
Different types of risk; naked and covered positions in options; stop-loss strategy; examples
Delta hedging - simulation; theta, gamma, vega, rho; hedging in practice; options role in risk management
Option valuation, Black-Scholes model, binomial model, other approaches towards option pricing
Risk management; volatility and correlation; Value-at-Risk; issues and insights
Market and credit risk; methodology and measurement of -and approach towards- risk
Other risk management techniques and approaches
Conclusions and review of the course material.
Annotation
For details see my web site http://samba.fsv.cuni.cz/~blahaz
The course aims to provide a comprehensive overview of modern-day markets and financial instruments. It deals with the ways in which risks are quantified and managed in a portfolio that includes derivatives, such as forwards/futures and options. Role of capital and, in particular, derivatives markets is discussed and analyzed, as are the risk management tools. Knowledge of contingent assets (options, as well as basic financial mathematics) and their use and applications is assumed. Students with insufficient prerequisites as regards financial derivatives, option valuation and related areas generally, may have difficulties and should not register in this course.
There is substantial coverage of market "Value at Risk", a system allowing financial economists to gauge risks and take proactive steps to control them. In addition, credit risk measurement and management, so useful in the modern financial world, will also be - partially - covered.
The knowledge gained in this module is designed to be "cumulative", in the sense that knowledge acquired in topics covered early in the course will be necessary to understand later topics. For example, it is important to understand the analysis underlying different aspects (such as delta, gamma and the other "Greeks") of the risk in a portfolio consisting of financial derivatives and other assets in order to "summarize" the total risk in a portfolio of financial assets. Value at Risk is an attempt to provide a single number for senior management summarizing the total risk as part of portfolio valuation. Therefore, the final examination will require students to have an understanding of all topics covered during the course. Option theory and applications as well as risk management approaches and methods are emphasised throughout the course.