JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD

Course Objective

To understand the concepts of Risk Management, measurements and risk

management strategies using derivatives.

Learning Outcomes

Students will be able to understand a) Concepts of Risk Management b) Risk

Management Measurement c) Risk Management using Forward and Futures d) Risk Management using Options and Swaps. *****

UNIT - I: Introduction to Risk Management

Risk Management Overview - Types of Risks -Impact of

risk on organizations- scope of risk management- Risk Management Levels, Risk management process - risk models- Risk identification and measurement.

UNIT - II: Risk Management and Measurement

Risk Management Tools, Regulatory Framework

Capital Adequacy requirements - interest rate risk, liquidity risk, Market risk, credit risk, exchange rate risk, Value at Risk (VaR), Cash Flow at Risk (CaR).

UNIT - III: Risk Management Techniques - Forward and Future Contracts

Pricing Forward

Contracts, Foreign Currency Forward Contract, Commodity forward contract, Counterparty risk in the forward contract, Future Contracts, Cash Vs Physical Delivery, Pricing Future contracts, The role of expected future spot price, Impact of Financial market imperfections.

UNIT - IV: Risk Management Techniques - Options

Structure of Option Market, Types of Options,

Option Strategies, exercise price and option values, Principles of Call option Pricing and put option pricing, Put - Call parity theorem, Option values and cash payouts, Option pricing, Arbitrage pricing and the Binomial Model, The Black- Scholes and Mertin Model.

UNIT - V: Risk Management Techniques – SWAPS

SWAP Market and its Evolution, Pricing and

valuing - Interest rate swap, Pricing and valuing - Currency Swap, Pricing and valuing - Equity Swap, Pricing and valuing – Commodity Swap, Swapations.

Suggested Readings:

• Don M Chance, Robert Brooks, An Introduction to Derivatives and Risk Management, 9e, 2013.
• R. Madhumathi & M. Ranganatham, Derivatives and Risk Management, Pearson, 2012.
• Greorge E Rejda, Principles of Risk Management and Insurance, Pearson,2005.
• Rene M. Stulz, Risk Management & Derivatives, Cengage Learning, 2003.
• Jayanth Rama Varma, “Derivatives and Risk Management”, TMH.
• Hull, Risk Management and Financial Institutions, Wiley, 2015.
• Prakash B.Yaragol, Financial Derivatives, Vikas, 1e, 2018.