Derivatives & Risk Management
Who we are
Who you are: name sheet
This week
First half
syllabus and course outline
why we should be here
basic finance principles reminder
Second half: Part I Forwards
Who I am
Michel Robe
Kogod T-41; (202) 885-188
Derivatives and Risk Management
Project
Topic
Foreign exchange in the Forward Market
Research Questions
How does foreign currencies fair in the forward market?
How accurate is todays forward calculations in the future?
Are there differences in forward rat
Derivatives and Risk Management
Foreign Exchange in
the Forward Market
1st Draft
Emmash Sudusinghe
Emmash Sudusinghe
Page 1
Introduction
In general, when the delivery of and payment for goods takes some time, future fluctuations in
exchange rates give ris
Derivatives & Risk Management
First Week:
Part A: Option Fundamentals
payoffs
market microstructure
Next 2 Weeks:
Part B: Option Pricing
fundamentals: intrinsic vs. time value, put-call parity
introduction to the Black-Scholes pricing model
binom
Derivatives & Risk Management
Lectures 12-13:
Part VII: Option pricing & Continuous-time Finance
Modeling Asset Prices in Continuous Time
Part VIII: Option pricing Advanced Topics
Derivation of the Black-Scholes Formula
Option Pricing w/ varying risk-fre
Derivatives (3 credits)
Professor Michel Robe
Practice Set #3: FRAs, IRFs & Swaps.
What to do with this practice set?
To help students with the material, eight practice sets with solutions shall be handed out.
These sets contain mostly problems of my own
Derivatives (3 credits)
Professor Michel Robe
Practice Set #1: Forward pricing & hedging.
What to do with this practice set?
To help students with the material, eight practice sets with solutions shall be handed out.
These sets contain mostly problems of
Derivatives (3 credits)
Professor Michel Robe
Practice Set #2: Futures.
What to do with this practice set?
To help students with the material, eight practice sets with solutions shall be handed out.
These sets contain mostly problems of my own design as w
Derivatives
Lectures #10-12:
Part V: Option pricing
Determinants of an Options Premium
Black-Scholes formula
Intro to Binomial Trees & Risk Neutral Valuation
Lectures #11-13:
Part VI: Valuing Options in Practice
Binomial Trees & Risk-Neutral Optio
Derivatives & Risk Management
Previous lecture set:
Futures vs. forwards
Stock Index Futures
This lecture set Part III
Interest-Rate Derivatives
FRAs
T-bills futures & Euro$ Futures
Part III:
Interest Rate Derivatives
1
Derivatives of Interest
Int
Derivatives & Risk Management
So far
Forwards & futures
Swaps
This lecture set
Hedging with futures
1
Part IV: Hedging with Futures
2
Outline
Why hedge?
Pros & Cons?
Futures hedging in practice
Cash-flow risk:
margin calls
Basis risk:
cross hedg
Derivatives and Risk Management
Foreign Exchange in
the Forward Market
1st Draft
Emmash Sudusinghe
Emmash Sudusinghe
Page 1
Introduction
In general, when the delivery of and payment for goods takes some time, future fluctuations in
exchange rates give ris