Registry

Module Specifications

Current Academic Year 2012 - 2013
Please note that this information is subject to change.

Module Title	Financial Engineering and Risk Mgt
Module Code	EF588
School	DCUBS
Online Module Resources
Module Co-ordinator	Semester 1: Valerio Poti Semester 2: Valerio Poti Autumn: Valerio Poti
Module Teacher	Valerio Poti
NFQ level	8	Credit Rating	7.5
Pre-requisite	None
Co-requisite	None
Compatibles	None
Incompatibles	None

Description

The purpose of this module is twofold. The first aim is to familiarise students with the practical uses of derivatives in speculation, hedging and arbitrage. This will be achieved by illustrating the various techniques used in financial engineering and the pricing theory (No Arbitrage Pricing/Risk Neutral Valuation) that provides the conceptual underpinning of such techniques. The second aim of the module is to illustrate the various methods used to evaluate changing market and credit risk, with special enphasis on the typical risk exposures of financial institutions.

Learning Outcomes

1. Identify and evaluate the strategies that may be used to manage the various types of financial risk.
2. Value simple financial instruments and explain the process of how more complex financial products may be valued.
3. Critique recently developed metrics and concepts in the areas of financial engineering and risk management.
4. Identify the types of financial risks faced by financial institutions.
5. Identify the potential risks and limitations associated with valuation models being used.

Workload	Full-time hours per semester
*Type*	*Hours*	*Description*
Lecture	24	No Description
Assignment	24	Group assignments (analytical questions and exercises)
Assignment	28	Review and critique of academic paper(s)
Independent learning	20	Study of reference material (texbook, lecture notes and academic papers)
Examination	29	Revision for exam
Total Workload: 125

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

Indicative Content and Learning Activities

No Arbitrage Pricing.
Replication of financial and non-financial payoffs, No-Arbitrage and Risk Neutral Valuation.

Forwards and Futures.
Forward rate agreements (FRAs); synthetic agreements for forward exchange (SAFEs); currency forwards and futures; short-term interest rate futures; T-Bill futures; market timing and duration; stock index futures; stock market timing with futures.

Swaps.
Currency and interest rate swaps; managing interest rate risk and currency risk with swaps.

Options.
Hedging and volatility: delta hedging, Black-Scholes and the greeks; option spreads and stock options: synthetic securities, bull and bear spreads, straddle, strangle, butterfly and condor, stock options; interest rate options (including caps, floors, collars, swaptions); foreign currency options; future options; portfolio insurance.

Managing Risk.
Market and credit risk in banking institutions; measuring risk: value at risk (VaR), mapping cash flows; Riskmetrics, Riskgrades, advanced models of credit risk; capital adequacy: economic vs. regulatory capital, Basel II.

Assessment Breakdown
Continuous Assessment	25%	Examination Weight	75%

Course Work Breakdown
Type	Description	% of total	Assessment Date
Multiple choice questions	Quiz containing MCQs or questions that require short answers	25%	Week 26

Reassessment Requirement
Resit arrangements are explained by the following categories; 1 = A resit is available for all components of the module 2 = No resit is available for 100% continuous assessment module 3 = No resit is available for the continuous assessment component
This module is category 1

Indicative Reading List

Cuthbertson, K. and D. Nitzsche: 0, 'Financial Engineering: Derivatives and Risk Management' Wiley, 2001. Galitz, L.A., 'Financial Engineering' Financial Times Pitman, 1994.Garbade, K., 'Pricing Corporate Securities as Contingent Claims' MIT Press, 2001.Bessis, J., 'Risk Management i,

Other Resources

None

Array

Programme or List of Programmes

PBSSA

PG Exchange(Business School)

PBSSAO

PG Study Abroad(Business School)

Timetable this semester: Timetable for EF588

Date of Last Revision

26-SEP-11

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