Financial Markets and Risk Management

Course guarantor:

Lecturer:

Tutor:

Supervisor:

Institute of Economic Studies

Synopsis:

The analysis of the management of financial risk recently tends towards strategies for hedging the portfolio,

and for designing an investment strategy based on diversification. The course spans broad sections implementing the principles of variable income and fixed income.

The Financial Models evolved rapidly from the inception of the Modern Theory of Portfolio. The original Mean - Variance analysis, the CAPM, The Black-Litterman model, the disruptive framework implicit in the Black Scholes model for pricing options and the Bob Merton's contribution, all of them represent theoretical breakthroughs in the field of finance.

When tackling this study, solid statistical basis and advanced skills in Excel are required. The analysis of risk relies on Many of the models based on important benchmarks rooted in Mertons options theoretic approach and explains default in structural terms related to the market value of the firms assets as compared to its debt obligations.

Other model statistically decomposes observed risky debt prices into default risk premiums.

The set of models pretends to measure the credit risk of a loan or a portfolio of loans.

In this vein, the curse pursuits to simplify the technical details and analytics surrounding these models, while concentrating on their underlying economics and economic intuition.

They learn to use market instruments and market analyses to design efficient investment and hedging strategies and methods for the company capital management hurled to financial markets.

Requirements:

BSc-level courses in Financial Management and Mathematics

Syllabus of lectures:

The mean variance analysis for risk management

The Envelope Portfolio and the Efficient Frontier. Construction.

Financial Instruments and Financial Markets

Behavior of Markets and Measuring Market Risk

The Merton - Black Propositions and the plot of Evelope Portfolio

The CAPM model, the betas and the analysis of individual risk.

The Black Litterman Model and the opinions about the portfolio proportions.

Hedging and Hedging Strategies

The probability of default and the Merton's Valuation Model

Event studies and the abnormal returns.

Options Put and Call

Black Scholes Model and the Pricing of Options.

Diversity of Application of Black Scholes Formula

Fixed Income. The analysis of bonds.

The Term Structure of interest rate

Measuring VaR using correlations and Variance and Covariance

Credit Risk and VaR Probability of Default

Determinants of Market Value, Financial Arbitrage

Credimetrics and VaR, the risk of downgrading

Syllabus of tutorials:

Financial Instruments and Financial Markets

Trading and Settlement Conventions

Asset Mangement: Asset returns and Asset Pricing

Behavior of Markets and Measuring Market Risk

Determinants of Market Value, Financial Arbitrage

Financial Risk Analysis

Hedging and Hedging Strategies

Managing Nonlinear Risks

Economic Capital and its Applications. The mean variance analysis for risk management

The Envelope Portfolio and the Efficient Frontier. Construction.

Financial Instruments and Financial Markets

Behavior of Markets and Measuring Market Risk

The CAPM model, the betas and the analysis of individual risk.

The Black Litterman Model and the opinions about the portfolio proportions.

Hedging and Hedging Strategies

The probability of default and the Merton's Valuation Model

Event studies and the abnormal returns.

Options Put and Call

Black Scholes Model and the Pricing of Options.

Diversity of Application of Black Scholes Formula

Measuring VaR using correlations and Variance and Covariance

Credit Risk and VaR Probability of Default

Determinants of Market Value, Financial Arbitrage

Credimetrics and VaR, the risk of downgrading

Study Objective:

By the end of the course, students will be able to understand the structure, operation and behaviour of financial markets and the utilization of various financial instruments, including financial derivatives. Likewise, the student must develop skills in the use of Excel tools and the financial formulas and function incorporated into the Excel package. The student must be able to interpret the ouputs and make wise financial decisions in the context of Markets.

Study materials:

Poncet, Patrice, Portait, Roland (2022). Capital Market Finance: An Introduction to Primitive Assets, Derivatives, Portfolio Management and Risk. Springer Textbook.

Shuangzhe Liu & Milind Sathye (2021). Financial Statistics and Data Analytics. MDPI. Basel.

Benninga Simon and Mofkadi Tal (2022). Financial Modeling, fifth edition Edition. MIT Press.

Benninga Simon and Mofkadi Tal (2018). Principles of Finance with Excel. Oxforfd University Press.

Shuangzhe Liu & Milind Sathye (2021). Financial Statistics and Data Analytics. MDPI. Basel.

Harvey Campbell, Rattray Sandy, & Van Hemert Otto (2021). Wiley; 1st edition

Lukomnik Jon & Hawley James (2021) Moving Beyond Modern Portfolio Theory. Routledge; 1st edition

Bastick Liam (2020) Introduction To Financial Modelling. Holy Macro Books. 1st edition

Isichenko Michael (2021) Quantitative Portfolio Management: The Art and Science of Statistical Arbitrage Wiley; 1er edition

Todd E. Petzel (2021) Modern Portfolio Management: Moving Beyond Modern Portfolio Theory. Wiley; 1st edition

Stein Fairhurst Danielle (2019). Using Excel for Business and Financial Modelling: A Practical Guide 3rd Edición

Braimarte, Paolo. (2018). Introduction to Financial Markets - A Quantitative Approach. Wiley. John Wiley & Sons Inc.

Brown Stephen & Gruber Martin (2017). Modern Portfolio Theory and Investment Analysis. John Wiley & Sons; 9th edition.

Bernhard Pfaff (2016) Financial Risk Modelling and Portfolio

Optimization with R. John Wiley & Sons, Ltd

Arias Gómez Helmuth & Antošova Gabriela (2023). Impact of Lockdown Measures on Central-East European Stock Markets: A Cointegration and Granger Causality Analysis of Indices. Review of Applied Socio- Economic Research. Vol.26, Issue 2.

Note:

The attendance is mandatory, and will be controlled. In case of schedule collision with other subject, the student must enrolle only one of the two alternatives.

The exam will focus on the material discussed and practiced at the classroom. In the exam, no alternative material will be taken into account, but the evaluation assumes that the class material is the basis for preparing the exam.

AFTER THE PLANNED SCHEDULE FOR EXAMS, AND AFTER THE SUBSEQUENT OPPORTUNITIES FOR PRESENTING THE EXAM, NO FURTHER EXAMS WILL BE MADE.

The course provides the theoretical bedrock for interpreting breaking phenomena at the global economy. Trade transactions, capital flows, exchange rate movements, trend toward protectionism, free trade agreements, trade integration, etc.

During the class, a lecture will introduce the subject, and several practical cases will be analyzed. Graphic and mathematic problems will be included in the discussion as well.

The course will be held in English.

Further information:

No time-table has been prepared for this course

The course is a part of the following study plans:

• Prospectus (elective specialized course)
• N-PRI-prez.forma od 16/17 (compulsory elective course)
• N-PRI-prez.forma od 17/18 (compulsory course of the branch)
• N-PRI-CP prezenční navazující studium od 18/19 (compulsory course of the branch)
• N-PRI-CP prezenční navazující studium od 19/20 Financial Management (PS)
• Innovation Project Management od 2019/20 (compulsory elective course)
• N-PRI-CP prezenční navazující studium od 20/21 Financial Management (PS)
• N-PRI-CP prezenční navazující studium od 21/22 Financial Management (compulsory course of the branch)
• N-PRI-CP prezenční navazující studium od 21/22 Regional Studies (compulsory elective course)
• N-PRI-CP prezenční navazující studium od 21/22 Project Management (compulsory elective course)
• Financial management, AR 22/23, prezenční forma (compulsory course of the branch)
• Regional Studies, prezenční forma, AR 22/23 (compulsory elective course)
• Project management, prezenční forma, AR 2022/2023 (compulsory elective course)