Registry
Module Specifications
Current Academic Year 2012 - 2013
Please note that this information is subject to change.
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| Description | |||||||||||||||||||||||||||||||||||||||||||||||||
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This module will provide students with a comprehensive treatment of the derivatives and insurance markets for climate change. The module first describes how weather derivatives are used in managing the physical impact of climatic change. Key weather derivative contracts are discussed, covering the variety of approaches to valuation, including burn analysis, index modelling and daily modelling. Risk management issues in weather markets are addressed, with a final discussion on meteorological data. Focus in then turned to catastrophe risk from natural disasters linked to climate change, with a detailed outline of the associated insurance and derivatives markets. Students are first introduced to catastrophe insurance and reinsurance and then, building on this exposure, catastrophe bonds, contingent capital and catastrophe derivatives are covered. The module will afford the opportunity to study the growing academic and industry literature. Carbon markets fall outside the scope of this module, being comprehensively treated in the Carbon Markets module. | |||||||||||||||||||||||||||||||||||||||||||||||||
| Learning Outcomes | |||||||||||||||||||||||||||||||||||||||||||||||||
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1. Understand the role of the weather derivatives markets in dealing with the risks surrounding climate change and its physical and economic impact. 2. Value weather derivatives using the alternative approaches available, while appreciating the nuances of using meteorological data in valuation exercises 3. Use relevant extensions of standard arbitrage theory for valuing and hedging weather derivatives and related risk management applications. 4. Understand the modelling of catastrophe risk and the role of the insurance and reinsurance markets in managing this risk. 5. Distinguish between catastrophe bonds, contingent capital and catastrophe derivatives as market tools for managing catastrophe risk. | |||||||||||||||||||||||||||||||||||||||||||||||||
All module information is indicative and subject to change. For further information,students are advised to refer to the University's Marks and Standards and Programme Specific Regulations at: http://www.dcu.ie/registry/examinations/index.shtml |
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| Indicative Content and Learning Activities | |||||||||||||||||||||||||||||||||||||||||||||||||
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Learning Activities. Each topic will be first introduced in a formal lecture setting. Students will be introduced to the growing academic and industry literature on the derivatives and insurance markets for climate change. The assignment will provide students the opportunity to research in depth the workings of these markets.. Weather Derivative Valuation. Burn analysis; valuation using burn analysis; index modelling; valuation using index modelling; statistical modelling methods; modelling the index distribution; parametric distributions; estimating pay-offs; sensitivity analysis and the greeks; swap pricing; valuation using daily modelling; modelling daily temperatures.. Hedging and Risk Management in Weather Markets. Standard arbitrage theory; extensions to the standard arbitrage theory for weather derivatives; weather swap price process; pricing dual-trigger contracts; introduction to risk management; marking positions; expiry risk; actuarial value-at-risk; liquidation value-at-risk; credit risk; liquidity risk.. Catastrophe Insurance and Reinsurance. Introduction to insurance; catastrophe insurance; introduction to reinsurance; catastrophe reinsurance; market cycles; internal risk management; challenges in catastrophe insurance markets; pricing difficulties; earnings and capital volatility; concentrations; limits to insurable/uninsurable risks.. Catastrophe Bonds and Derivates. Overview of securitisation; catastrophe bonds; standard structures; innovations; market focus and direction; contingent capital; contingent debt; contingent equity; structural flaws; regulatory differences. Exchange-traded catastrophe derivatives; over-the-counter (OTC) catastrophe derivatives; catastrophe reinsurance swaps; pure catastrophe swaps; synthetic OTC derivatives; index construction and basis risk; contract transparency issues; one-way markets; pricing difficulties; regulatory barriers.. | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Indicative Reading List | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Other Resources | |||||||||||||||||||||||||||||||||||||||||||||||||
| 3962, Journal, 0, Energy Economics, 3963, Journal, 0, The Energy Journal, 3964, Journal, 0, The Journal of Energy Markets, 3965, Journal, 0, Energy Policy, 3966, Journal, 0, Ecological Economics, 3967, Journal, 0, Journal of Risk and Insurance, 3968, Journal, 0, Journal of Risk and Uncertainty, 3969, Journal, 0, Insurance: Mathematics and Economics, | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Programme or List of Programmes | |||||||||||||||||||||||||||||||||||||||||||||||||
| MFCM | MSc in Finance | ||||||||||||||||||||||||||||||||||||||||||||||||
| MSEF | MSc in Sustainable Energy Finance | ||||||||||||||||||||||||||||||||||||||||||||||||
| Timetable this semester: Timetable for EF5114 | |||||||||||||||||||||||||||||||||||||||||||||||||
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