Financial Risk Management
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This paper aims to introduce fundamental concepts, theories, and practices of financial risk management involving portfolio risk management and financial derivatives including options and swaps. Major topics to be covered include optimal portfolio strategies and simulation, fundamentals of options markets, option pricing models and associated risk management strategies, interest rate swaps, and foreign currency swaps.
The main activities of this paper include:
Lectures and Workshops
Trading Lab Sessions
Students who successfully complete the paper should be able to:
Market risk management [LO1]
Articulate the concepts and theories of optimal portfolio construction involving multiple assets. Students are able to apply appropriate strategies to managing risks of portfolios. Students are expected to implement portfolio diversification strategies in a simulation context.Linked to the following assessments:
Advanced market risk management [LO2]
Articulate the fundamental properties of an option and mechanisms of the options market. Students are able to evaluate option value by using the binomial model.Linked to the following assessments:
Advanced market risk management [LO3]
Demonstrate the pricing mechanism of options such as Black-Scholes model. Students are able to implement delta hedging strategy.Linked to the following assessments:
Interest rate risk management and foreign exchange risk management [LO4]
Illustrate pricing mechanism and properties of different types of swaps. Students are able to calculate the fair values of interest rate swaps and foreign currency swaps.Linked to the following assessments:
There are four pieces of internal assessment for this paper. There is no final exam.
The internal assessment/exam ratio (as stated in the University Calendar) is 100:0. There is no final exam. The final exam makes up 0% of the overall mark.
The internal assessment/exam ratio (as stated in the University Calendar) is 100:0 or 0:0, whichever is more favourable for the student. The final exam makes up either 0% or 0% of the overall mark.
Error: Assessment components must add up to 100%
At least one Assessment Component needs to be entered
|Component Description||Due Date||Time||Percentage of overall mark||Submission Method||Compulsory|
|1. Online Quiz 1||
2 Dec 2022
|2. Online Quiz 2||
9 Dec 2022
|3. Individual Project - Portfolio Simulation||
16 Dec 2022
|4. Online Test||
19 Dec 2022
Required and Recommended Readings*
There are no required textbooks for this paper. Below are the highly recommended textbooks:
Hull, J.C. (2012). Options, Futures, And Other Derivatives, 8th ed., Pearson Education Limited.
Bodie, Kane, and Marcus (2022). Essentials of Investments, 12th ed., McGraw-Hill Education.
For additional readings of this paper, refer to Waikato Reading List (https://rl.talis.com/3/waikato/lists/1E77AF4F-FFF6-3D19-C2D4-46034E6EEBDF.html?lang=en).
Other teaching materials will be provided online via Moodle where necessary.
Please contact the Paper Convenor for further details.
All the resources about this paper will be available on Moodle.
The online resources may be updated where necessary.
There are 150 learning hours for this paper. They will be mainly spent on the following activities:
Attend lectures and workshops
Read teaching materials
Conduct simulation and analyses on portfolios in X-Plan and write the project report
Prepare for and sit the quizzes and test
Linkages to Other Papers*
Acceptance into the Master of Applied Finance programme.