Doel vakIn this course you will learn about financial modelling of risk and
In the financial modelling module, the central concept is the
relationship between risk and return on financial assets (Bridging
Theory and Practice - Knowledge).
The goal of this part of the course is to gain insight into the risk
associated with financial portfolios and investments and to be able to
calculate/estimate such risk on the basis of historical data.
Furthermore, other goal is to learn how to benefit from
diversification possibilities. Finally, another goal is to learn how to
explain returns on investments on the basis of the Capital
Asset Pricing Model and multifactor models (Academic and Research
In the derivatives module, the goal is to gain insight into various
financial derivatives such as futures and options, their properties,
valuation and risks associated with them (Bridging Theory and Practice -
Knowledge). Another goal is to
learn how these derivatives can be used to hedge financial risks
(Academic and Research Skills).
Upon accomplishing these goals, you will gain new academic, research and
quantitative skills, as well as develop your professional knowledge in
the area of financial risk and derivatives. Furthermore, by illustrating
the concepts with examples of portfolios, investments and hedging
problems provided by financial institutions, we will bridge the gap
between theory and practice, enabling you to translate theoretical
concepts into practical applications (Bridging Theory to Practice -
Inhoud vakCentral topics in financial modeling that will be discussed are:
- measures of risk in financial markets: variance and volatility of
- trade-off between risk and return;
- estimation of average return and volatility;
- concepts of covariance and correlation; their estimation;
- risk and return of portfolios;
- universal risk measures: Value-at-Risk and Expected Shortfall;
- concept of efficient portfolio. Markowitz model;
- CAPM and other factor models;
- risk premium and beta;
- multifactor models of risk.
Central topics in the part on derivatives that will be discussed are:
- types and characteristics of financial derivatives;
- use of derivatives in risk hedging;
- futures and forwards; principles of no arbitrage
- options: determining option price with the help of the binomial tree;
- sensitivities of options (Greeks);
- Black-Scholes model for option pricing and its assumptions;
- credit derivatives and their role in financial crisis of 2007-2008
ToetsvormWritten test, exam and computer assignment.
LiteratuurJ. Berk and P. DeMarzo (2017), Corporate Finance, Pearson, 4rd Global
Edition, chapters 10-13, 20-22 and 30).
Lecture materials (slides, papers, tutorial papers)
Aanbevolen voorkennisFinance I and Quantitative Research Methods I and II.
|Faculteit||School of Business and Economics|
|Vakcoördinator||dr. S.A. Borovkova|
|Examinator||dr. S.A. Borovkova|
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