John Hull Chapter 20 Value at Risk

							                    DERIVATIVE PRODUCTS AND RISK MANAGEMENT

Description

This course builds on the material covered in Options and Futures Markets. It examines a broad
range of derivative products and discusses how risks are managed by the middle office of a
financial institution. At the end of the course students should (a) be familiar with most of the
products that they are likely to encounter in financial markets and (b) understand how market
risk and credit risk is quantified by banks and other financial institutions.

Required Readings

Hull, John C. Options, Futures, and Other Derivatives, 8th Edition,

Hull, John C. Solutions Manual for Options, Futures, and Other Derivatives, 8th Edition,

Assignments

There are three hand-in assignments during the semester:

Assignment 1: 14.28a, 19.25, 20.25, 20.27, 25.25, 25.26, 25.28, 25.32 (due week 5)
Assignment 2: 21.17, 21.19, 21.21, 21.22, 22.17, 22.18, 22.20, 22.21, 23.29 (due week 9)
Assignment 3: 23.30, 24.24, 24.25, 24.31, 26.23, 28.23, 28.24, 32.10, 32.12 (due week 14)

Assessment

Assignment 1        15%
Assignment 2        15%
Assignment 3        15%
Final Exam          55%

The final examination will not be open book. You will be permitted a two-sided “cheat
sheet” with notes and/or formulae.

Schedule
Week 1:          Review of standard products and models; Chapters 14, 16, 17, 19
Week 2:          Binomial trees (review) and Monte Carlo simulation 20.1 to 20.7
Weeks 3-4:       Exotic equity products; Chapter 24
Week 5:          Value at risk; Chapter 21
Week 6:          Estimating volatilities and correlations; Chapter 22
Week 7:          Credit risk; Chapter 23
Week 8-9:        Credit derivatives; Chapter 24
Week 10:         Bond derivatives; Sections 26.4, 28.1
Week 11:         European interest rate options; Sections 28.2 to 28.5
Week 12:         Nonstandard interest rate products; Chapter 32
Week 13          Energy and commodity derivatives; Chapter 33
Week 14:         Real options; risk and return Chapter 34
Week 15:         Review of course; Chapter 35