The objective of this course is to provide students with an understanding of corporate and financial risk management: how to measure their financial risks, why corporations should manage them and what tools they may use to do so, which are mainly the derivative securities. The recent financial crisis, however, has also brought into light the dangers that arise from the improper use of derivative instruments. Derivatives allow a firm to fundamentally alter its risk profile but at the same time they facilitate speculation while a third type of participants are the parties who neither speculate nor manage their risk but try to make small profits from mispricing between derivatives and their underlying assets. As a result a basic understanding and intuition of derivatives markets, its instruments and participants is essential not only to students and specialists in finance, but also to general business practitioners.

During this course you will learn the principles behind risk management and how derivative instruments can be used to change the risk profile of a corporation or simply a financial position. You will also learn the basics about the derivatives markets, namely the regulated exchanges and the over-the-counter markets, and their main characteristics that are important from the point of view of the use and pricing of derivative instruments. The course then delves deeper into the basic derivative instruments, options, forwards, futures (both financial and commodity) and swaps, and deals with their structure, use, pricing and hedging. The central ideas around which the whole course is constructed are those of hedging, replication and arbitrage. These ideas will be developed both through economic reasoning and practical examples as well as technical applications. A certain level of mathematically based theory is required to fully understand, appreciate and be able to apply such a technical subject.