75571 - Financial Economics and Risk Management

Learning outcomes

The purpose of this course is to give a practical understanding of financial risks and of contracts and methods for managing these risks under normal as well as stressful market conditions, such as those that we have experienced in recent years. Students will be able to manage market risk, credit risk, sovereign, and liquidity risk with a number of quantitative techniques. Research seminars are also included, dealing with new issues, i.e. how financial innovation, risk mutation, the increasingly systemic nature of risk, and regulatory changes have made risk management more challenging. A special session will be devoted to the analysis of the mechanics of futures and options applied to energy markets, with special emphasis to the role of convenience yield as crucial pricing tool. Green bonds, weather derivatives and other innovations in climate finance will be discussed in detail. Common hedging procedures by using derivative contracts (butterfly, spreads, and many others) will be strongly emphasized as crucial aspects of the learning process for this course. Specific features related with oil, gas, power and green certificates markets will be described both in terms of pricing and in terms of hedging mechanisms. At the end of the course practical trading cases and simulations will be presented, given their increasing importance for operators.

Course contents

The purpose of this course is to give  a  practical understanding of financial risks and of contracts and methods for managing these risks under normal as well as stressful market conditions.

Some products of sustainable finance will be discussed. One of the great achievements of COP21 was the statement that mitigation and adaptation policies involve "making finance flows consistent with a pathway towards low GHGs emissions and climate-resilient development". In particular, topics such as green bonds and energy derivatives will be examined.

Research seminars are also included, dealing with new issues, i.e. how financial innovation, risk mutation, the increasingly systemic nature of risk, and regulatory changes have made risk management more challenging.  

Topics:

1. Prerequisites.

2. Market risk. Definition of financial risk and risk management.

3. Risk measures. Climate risk: physical risk and transition risk.

4. Credit risk. Defaultable bonds.

5. Bonds. Thematic Bonds:Green Bonds. Sustainable Bonds. Sustainability-linked Bonds.

6. Derivatives as financial risk management instruments. Examples.

7. Derivatives and hedging strategies.

8. Simulations of dynamic hedging strategies.

 

9. Green securitization

10. Examples of Energy derivatives

 

 

Readings/Bibliography

Specialized articles or reports by organizations will be provided during the course and are mentioned in the slides.

Some of them are:

CBI- Climate Bond Initiative, various years since 2017 until 2025

Zerbib, O. D., 2019. The Effect of Pro-Environmental Preferences on Bond Prices: Evidence from green Bonds. Journal of Banking and Finance 98, 39-60)

Agliardi, E., Agliardi, R., 2019. Financing environmentally-sustainable projects with green bonds. Environmental and Development Economics (and references in Agliardi, E and R. Agliardi, Environmental and Resource Economics, 2021)

Flammer C, Giroux T, Heal GM. 2026. Blended Finance , Journal of Financial Economics, 183: 1-17.

Flammer C, Giroux T, Heal, GM. 2025. Biodiversity Finance , Journal of Financial Economics, 164: 1-15.

Here are additional suggested background textbooks if you need:

-a general background on financial instruments:

Jeff Madura, Financial Markets and Institutions, 13d ed. South-Western Pub (Cengage), 2020

- a good reference book on derivatives:

 J. Hull, Risk management and Financial Institutions, Wiley, 2012

Teaching methods

Lectures & seminars/classes. Assessment during onsite lectures. Two flipped classrooms.

Assessment methods

The assessment method is based on the evaluation of a written test for the individual preparation. Students are expected to answer ten questions, including multiple-choice, true-false, or short answers. A mock exam as a sample will be provided at least one month before end of lectures. Students are expected to know the basic quantitative methods discussed during lectures and to critically discern the limitations of the methods employed in the analysis.  Assessment during onsite lectures (consisting of mid-Term mock tests, or short case studies reports and flipped classrooms) are also considered.

Artificial Intelligence (AI) may be used as a valuable tool to support independent study by providing additional explanations, summaries, and self-assessment activities. However, during examinations, the use of AI is strictly prohibited. Any use of AI during the examination constitutes a violation of academic integrity.

The maximum possible score is 30 cum laude, in case all anwers are correct, complete and formally rigorous and the other assessment activities above were positive.

The grade is graduated as follows:

<18 failed
18-23 sufficient
24-27 good
28-30 very good
30 e lode excellent

 

Additional information on the assessment method will be discussed during the first lecture.

Teaching tools

Lectures and lab classes (on-site/online)

Office hours

See the website of Elettra Agliardi