35817 - Financial Risk Management

Learning outcomes

On completion of the module students will be able to (a) evaluate the fundamental characteristics of major derivative instruments, (b) assess the function and impact of such instruments for corporate financing and risk management, and (c) more broadly, critically appreciate the recent research in the area of financial derivatives for investing and risk management purposes.

Course contents

Financial Risk Management (35817) provides students with an overview of financial derivatives, emphasizing the role of such instruments in corporate financing and risk management. The module discusses the economics of corporate hedging and provides a critical appreciation of the underlying features and functions of a range of financial derivatives. The focus is on hedging and valuation, and the presentation is aimed at the practical application of financial derivatives to hedge corporate exposures.

Readings/Bibliography

The main textbook of the course is the following.

- Hull, J., 2017, Options, Futures, and Other Derivatives, 9th Global Ed., Pearson-Prentice Hall.

Further resources around which the course is built follow (in alphabetical order).

- Benninga, S., 2014, Financial Modeling, 4th Ed., MIT Press.
- Duffie, D., 1989, Futures Markets, Prentice Hall.
- Eckbo, B.E., Ed., 2011, Handbook of Empirical Corporate Finance, Elsevier.
- Martellini, L., Priaulet, P., and S. Priaulet, 2003, Fixed-Income Securities, John Wiley & Sons.

Teaching methods

Traditional lectures and classes.

Assessment methods

Final class test. – A 90 minutes final class test will include 10 multiple-choice questions (10 points), 1 essay question (5 points) and 2 practice questions (16 points, i.e. 8 points each). The class test will be in the form of a closed-book exam, and no textbooks or notes will be allowed.

Assignment. – Attending students will be offered the option to complete an assignment and to deliver a report to the instructor (by email) no later than the date of the final class test, 10 AM (delivery date). Students will have to solve the assignment as a group (minimum 1, maximum 3 students per group), and the solution will consist in a report (one PDF file, named as “SURNAME1_SURNAME2_SURNAME3.pdf”, in alphabetical order and using capital letters). Only one file per group will be accepted. The assignment will be graded and assigned a payoff of 0 to 6 points, to be added to the final grade of the module. The option “cost” is 3 points, immediately subtracted to the final grade of the module as soon as the solution to the assignment is delivered. Please note that there will be only one grade per group, no matter how the workload is distributed among the group members. Students will be required to pick their own group members and to let the instructor know their (a) names and surnames, (b) ID, and (c) email addresses in the text of the email accompanying the PDF file.

Teaching tools

Lecture slides and additional readings which may be assigned by the instructor as the course progresses.

Office hours

See the website of Massimiliano Barbi