JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD

Course Objective:

• To orient on the concepts of Risk Management, measurements and risk management strategies using derivatives.
• To provide understanding of various risk measurement tools.
• To impart knowledge of various aspects in derivatives market.
• To elucidate various aspects in Risk Management.
• To provide understanding of various techniques in Risk Management.

Course Outcome

Students will be able to:

• Understand risk management and derivatives.
• Learn the relevance of Basel norms, types of risks.
• Learn various aspects about Derivatives Market in India.
• Understand the uses of options strategies.
• Examine the importance of SWAP Market.

UNIT - I: Introduction to Risk Management

Risk Management, Scope of Risk Management, Benefits

of Risk Management, Classification of Risks: Systematic Risk and Unsystematic Risk, Business Risk, Financial Risk. Financial Markets, Market Risk: Price Risk, Currency Risk, Liquidity Risk, Interest Risk, Credit and Counterparty Risk, Operational Risk, Model Risk, Risk Management Process.

UNIT - II: Risk Measurement Tools

Capital Adequacy Ratio, Basel Norm: Basel Accord I, II & III, Need

and Scope of studying Basel Norms, Types of risk: Interest Rate Risk, Market Risk, Credit Risk, Operational Risk, Exchange Rate Risk, Liquidity Risk. Value at Risk (VaR), Cash Flow at Risk: Applications and Problems on VaR & CaR.

UNIT - III: Introduction to Derivative Markets

Derivative Market, Types of Derivatives, Development

and Growth of Derivative Markets, Factors influencing the Growth of Derivatives Market in India, Regulations of Derivative Market. Forward and Future Contracts: Forward Contract, Pricing Forward Contracts, Foreign Currency Forward Contract, Commodity Forward Contract, Counterparty Risk in the Forward Contract, Difference between Forward and Spot Market, Futures Contract: Future Contact Design, Physical Settlement, Delivery Options and Cash Settlement, Future Market, Global Futures Market size, Commodity Futures, Equity Futures, Stock Index Futures, Currency Futures, Futures on Government Bonds, Notes and Bills, Cost of Carry Model for Futures and Forwards.

UNIT - IV: Risk Management Techniques – Options Contract

Options Contract and The Structure

of Option Market, Types of Options, Option Strategies, Principles of Call Option Pricing, Put Option Pricing, Put - Call Parity Theorem: Option Pricing, Arbitrage Pricing. Binomial Pricing Model: The Black- Scholes Options Pricing Model, Uses of Options Strategies.

UNIT - V: Risk Management Techniques – SWAPS Contract

SWAP Market and its Evolution,

Interest Rate Swap: Structure of a Typical Interest Rate Swap, Pricing and Valuation of Interest Swaps, Interest Rate Swap Strategies, Interest Rate Swaps in India. Currency Swaps: Currency Swaps Stature, Currency Swaps Pricing and Valuing Currency Swap, Currency Swap in India, Equity Swap: Equity Swap Pricing and Valuing of Equity Swap, Equity Swap Strategies, Pricing and Valuing of Commodity Swap, Carbon Credit, Weather Derivatives.

Suggested Readings:

• John C Hull, Risk Management and Financial Institutions, Wiley, 5e,2018.
• Jayanth Rama Varma, Derivatives and Risk management, Tata McGraw Hill,1e, 2011.
• Don M Chance, Robert Brooks, An Introduction to Derivatives and Risk Management, 9e, Cengage, 2013.
• Dhanesh K. Khatri, Derivatives and Risk Management, Macmillan, 1e,2012
• Rene M. Stulz, Risk Management & Derivatives, Cengage Learning, 1e,2003.  41 MBA FINANCE ELECTIVE