23693 - Risk Management

Academic Year 2021/2022

  • Moduli: Giuseppe Lusignani (Modulo 1) Riccardo Tedeschi (Modulo 2)
  • Teaching Mode: Traditional lectures (Modulo 1) Traditional lectures (Modulo 2)
  • Campus: Bologna
  • Corso: Second cycle degree programme (LM) in Financial Markets and Institutions (cod. 0901)

Learning outcomes

The course aims to introduce the main derivative contracts used for financial risk management: futures, interest rate swaps and credit derivatives. The first part of the course deals with the features and possible uses of these instruments to hedge against risks, as well as their pricing formulas. The second part of the course is dedicated to the introduction of the main issues of credit risk, with particular reference to the valuation of a set of financial instruments whose value depends on the possible default of the counterparty (bonds, credit default swaps, securitizations).

Course contents

Module 1

  • Introduction to the market of derivatives
  • Operating mechanisms of future markets and hedging strategy
  • Interest Rates, Forward Rates, Future Prices, Interest Rates Futures
  • Interest Rate Swap Contracts
  • How the options market works, basic properties of options;
  • Options Pricing: binomial trees and risk-neutral evaluating;
  • The Black-Scholes and Merton Models;
  • OptionsOptions on stock indices and currencies

Module 2

  • Introduction to Credit Risk: Single Name and Portfolio
  • Assessment of Defaultable Bonds
  • Assessment of Credit Default Swaps.

The second module is taught by Dr. Riccardo Tedeschi.

Readings/Bibliography

Hull, J.C. -Options futures and other derivatives (10th edition), 2018

Further bibliographical references will be provided during the course and made available on the http://virtuale.unibo.it/

Teaching methods

Lectures followed by in-class tutorials.

Assessment methods

The exam consists of a written test, where the student will be asked to show the ability to apply, both analytically and numerically, what it has been covered during the lectures.

In detail, the written exam covers the topics of the two modules and is divided into two parts of 55 minutes each: the first consists of 18 multiple-choice questions (mix of theoretical questions and simple exercises) and a second of two more complex exercises (problems) also articulated in multiple-choice mode.

To each correct answer of the 18 questions will be assigned 1 point (+1); to each wrong answer a reduction of 0.25 points (-0.25) and in case of no answer, 0 points.

The correct answers of the two exercises, also in the form of multiple choice, will be assigned a score differentiated according to the difficulty, for a total of 9 points for each exercise (18 points on the two exercises). The indication of this score will be made explicit in the text of each exercise. Also in this case, a reduction of 0.25 points (-0.25) will be applied to each wrong answer, and in the case of no answer, 0 points.

The final grade, in thirtieths, is obtained dividing the total score achieved (first and second part) by the value of 32 (rounded).

The final grade of the GRF exam will contribute 50% to the final grade of the integrated course in Financial Risk and Investment Analysis (CLAMFIM students).

Teaching tools

Frontal lessons with projector support; applications developed in excel and visual basic for the evaluation of derivative contracts discussed during the lessons.

Office hours

See the website of Giuseppe Lusignani

See the website of Riccardo Tedeschi