Level

Master, elective module, held in English

Course outline

The aim of the course is to provide students with a thorough knowledge of how to identify, classify, measure, and manage different types of financial business risks. We will discuss several theoretical and practical aspects of modern financial business risk management, including:

• The concept of risk, types of financial risks, and approaches to risk measurement
• The mechanics of financial markets, including derivatives markets
• The properties of selected financial instruments, including financial derivatives
• Tools and techniques for managing financial risks

The course is intended for all WiRe master’s students with an interest in Finance, basic knowledge in microeconomics and statistics/econometrics, and good working knowledge of a spreadsheet program, such as Microsoft Excel. Prior knowledge of financial derivatives is not required. Please note that the course is conceptually challenging and requires relatively greater use of quantitative methods than many other courses. Concepts presented in class build upon each other quickly, so you should try to keep up by reading the respective chapters of the main textbooks in due time. 

Recommended readings

• John C. Hull, Options, Futures, And Other Derivatives, latest edition, Pearson
  
  This book is the industry standard reference and one of the most comprehensive textbooks on derivatives available. Reading it can be hard at times for non-mathematicians, but it pays off to go the extra mile. We will follow it closely for large parts of the course.

• Aswath Damodaran, Strategic Risk Taking: A Framework For Risk Management, Pearson 2008
  
  This book provides a very good overview of different aspects of business risk and business risk management, and we will use parts of it to get "the big picture". Compared to Hull, Damodaran is less concerned with the use of derivatives, but focuses on the conceptual foundations of risk management, and on strategic management and valuation issues. He also skips most of the underlying mathematics, which makes his textbook quite accessible for the mathematically less inclined reader. A draft version of this textbook can be downloaded free of charge from the author's website (pages.stern.nyu.edu/~adamodar/New_Home_Page/valrisk/book.htm).

Optional readings:

• John C. Hull, Risk Management and Financial Institutions, latest edition, Pearson
  
  This book discusses most of the risk management issues touched in class with respect to banks and insurance companies. It is less voluminous than Hull's main textbook, and can be used as an alternative source for some of the concepts discussed during the course.

• John C. Hull, Fundamentals of Futures and Options Markets, latest edition, Pearson
  
  A shorter and mathematically less rigorous version of Hull's main textbook.

• David Murphy, Understanding Risk – The Theory and Practice of Financial Risk Management, Chapman & Hall/CRC 2008
  
  A textbook on derivatives that is geared rather towards practitioners than towards academics. Mathematically less rigorous than Hull's main textbook, and less comprehensive, but also up-to-date and theoretically challenging.