FINANCE 648 - Derivatives

Course Objectives

Effective risk management is essential in today’s uncertain business environment.  Derivatives are by now standard instruments for managing financial risk.  More than 90% of the World’s largest 500 companies use derivatives to manage their currency, commodity, and interest rate exposures.  While vanilla forwards, swaps and options are by far the most common derivatives, financial engineers keep inventing new securities to help firms transfer risks more effectively and selectively.  It is critical for anyone involved in corporate or financial risk management to have a deep-rooted understanding of derivatives.

This course explores key issues in derivatives and financial risk management.  It develops tools for valuing and modeling the risk exposures of derivatives, with the ultimate goal of deploying these instruments in a corporate or financial risk management setting. The course is divided into three parts, covering (1) linear instruments including forward, futures and swaps, (2) non-linear instruments such as options, and (3) corporate finance and risk management applications of both types of instruments.  To make the material broadly accessible, concepts are, whenever possible, explained through hands-on applications and examples, rather than through advanced mathematics.  The course also develops a basic command of the Bloomberg Professional data terminal.