Financial Risk Management

Catalog description

In this course, we will first study the properties, payoff structures, trading mechanisms, and valuation of key financial derivatives, such as forwards, futures, and options. Then we will study why and how firms manage risk using derivatives. We will also study the kinds of risk, regulatory structure, and risk management mechanisms in financial institutions. We will discuss what went wrong in terms of risk management in the 2007 financial crisis and what lessons we can learn. We will cover an introduction to stochastic processes such as Geometric Brownian Motion, Monte Carlo simulations of stochastic processes, and valuing options using the Black-Scholes analytical formula. We will also study analytical tools such as Value-at-Risk that apply concepts of probability theory to measuring risk in financial markets. Note: Undergraduate students who have completed the listed 4000-level pre-requisites must earn grades of B or higher to qualify for the course.