# GRA 6545 Risk Management

## GRA 6545 Risk Management

This course provides an introduction to derivatives and financial risk management for non-financial firms. The remarkable growth in the use and complexity of financial derivative instruments and the increasing need of risk management makes the basic understanding of derivative markets and the value of risk management essential not only to students and specialists in finance, but also to general business practitioners. The course will provide the theory of how risk management can generate value for a corporation. It will cover the use and pricing of the fundamental tools, namely derivatives, and the main hedging strategies. It will also give an overview of the derivatives markets. The course will contain several cases on risk management.

By the end of the course the students are expected to know:

- the risk management irrelevance theorem in the absence of financial frictions
- the general conditions under which risk management adds value to a corporation
- the main motives behind hedging for non-financial corporations, e.g. taxes, financial distress costs, etc.
- the use of the plain-vanilla derivatives, e.g. forwards, futures, options and swaps for optimal hedging and general techniques for hedging linear and non-linear exposures
- the theory on how risk is priced in the market and how to evaluate risks for a corporation
- the basic no arbitrage approach to pricing derivative instruments
- the pricing theory of futures, forwards and swaps
- the Black & Scholes model for pricing options

By the end of the course the students are expected to be able to:

- Identify and measure the exposure to financial risks for a corporation
- measure the quantity of risk in terms of popular risk measures, e.g. Value-at-Risk
- optimally hedge linear and non-linear exposures with forwards, futures, options and swaps
- measure the effectiveness of a hedging strategy
- design a risk management strategy for a corporation
- price forwards, futures and swaps
- price options and other derivatives using the binomial model
- quantitativaly evaluate risks for a corporation

The students by the end of the course are expected to be able to reflect on how the theory applies to real life cases and for actual small, mid-size and large corporations.

(Details may vary from year to year)

- Overview of derivatives markets and corporate financial risks
- Measuring exposures and risk: identifying and measuring exposures to individual risks. Measuring risk in terms of value-at-risk and expected shortfall using the variance covariance approach and simulation methods.
- Hedging linear exposures with forwards, futures, options and swaps
- Hedging non-linear exposures
- Pricing of forwards, futures and swaps: cost of carry model and risk pricing
- Pricing options and other derivatives: binominal models and the Black-Scholes model
- The value of risk-management: with and without financial frictions.
- Case study(ies)

Lectures. (Class participation and problem solving is essential).

Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class that is not included on the course homepage/It's learning or text book.

This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information in the course description in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. You will find detailed information about the point system and the cut off points with reference to the letter grades when the course start.

At resit, all exam components must, as a main rule, be retaken during next scheduled course.

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Assessments |
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Exam category: Submission Form of assessment: Written submission Weight: 15 Grouping: Group/Individual Duration: 2 Week(s) Comment: Assignment Exam code: GRA65451 Grading scale: Point scale leading to ECTS letter grade Resit: All components must, as a main rule, be retaken during next scheduled course |

Exam category: Submission Form of assessment: Written submission Weight: 15 Grouping: Group/Individual Duration: 2 Week(s) Comment: Assignment Exam code: GRA65451 Grading scale: Point scale leading to ECTS letter grade Resit: All components must, as a main rule, be retaken during next scheduled course |

Exam category: Submission Form of assessment: Written submission Invigilation Weight: 70 Grouping: Individual Support materials: - BI-approved exam calculator
- Simple calculator
- Bilingual dictionary
Duration: 3 Hour(s) Comment: Final written examination with supervision Exam code: GRA65451 Grading scale: Point scale leading to ECTS letter grade Resit: All components must, as a main rule, be retaken during next scheduled course |

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.