(UQ) FINM3405: Derivatives and Risk Management - Solutions

Introduces forwards, futures and options as securities for risk management and speculation. Exposures to equity, currency, interest rate and commodity risk are examined. Pricing derivatives using analytical and numerical techniques.

In the last three decades, there have been some remarkable losses seen in the financial markets; for example, the October 1987 market crash, 1998 LTCM crisis, the 2007-2008 subprime mortgage crisis, and the COVID19 market jolt, to name but a few. Accordingly, organisations have embraced sound risk management practices to avoid exposing themselves to unnecessary financial risks on the one hand, and take calculated risks on the other. In particular, organisations have embraced derivatives as a risk management and hedging vehicle to the extent that many corporations now feature risk management divisions. It is likely that risk management issues will continue to arise in the majority of business scenarios. With these in mind, this course is designed to equip students with the essential frameworks and tools needed to understand and effectively manage financial risks. The primary focus will be on pricing and managing risk with derivatives, particularly forwards, futures, options and swaps, using various fundamental techniques.

✔ After successfully completing this course you should be able to:

• Identify different derivative products that are available in the financial market.
• Understand the operation of derivatives markets (options, futures, forwards and swaps).
• Master the fundamental concepts in pricing derivative instruments using various state-of-the-art techniques.
• Demonstrate how a range of derivative products can be used to hedge and speculate market risk.
• Work collaboratively in a team to collect and analyse financial/derivative data, and price/evaluate different financial derivatives.