Introduction to Risk
Management
Agenda
Review (Derivative
Strategies)
Theory of risk management
Hedging Strategies
Hedge Ratios
Statistics Review
o
o
Distribution Fitting
Simulation
Derivative Strategies - Revisited
GEs Fading Blue Chip Status
By Steven M

Swaps
Introduction to Swaps
A swap is a contract calling for an
exchange of payments, on one or more
dates, determined by the difference in
two prices
A swap provides a means to hedge a
stream of risky payments
A single-payment swap is the same thing
a

RMI 8370: United Grain Growers Limited
Primary Teaching Objective
This case allows students to consider fundamental issues of risk management. Why does it make
sense for a firm to manage its risks? From where do these risks arise? How do risks propagate
t

Option Pricing
Agenda
Binomial Approach
Black-Scholes Formula
Basic Building Block: A OnePeriod Binomial Tree
Notation
Stock has current price S
Stock has two possible future prices: uS (up) and dS (down)
Continuous compounding dividend rate
Continu

Introduction to Derivatives and
Financial Engineering
Outline
Administrative
Groups
Introduction to Derivatives
Definition
Uses and users
Development of derivatives markets
Positions in Underlying Assets
Long (Buying)
Short (Selling)
Transactions Costs
Fo

Market-Making and DeltaHedging
Market-Maker Risk
Market makers attempt to hedge in order to avoid
the risk from their arbitrary positions due to
customer orders
Option positions can be hedged using delta-hedging
Conceptually, delta-hedged positions sho

Financial Forwards and
Futures
Overview
Statistics
Distributions
First moments (mean), second moments, and variance
Probability Function; Cumulative Distribution Functions
Simulation (by Inverse Transformation Method)
Fitting Distributions (by Method of M

Interest Rate Forwards and
Futures
Debt Contracts
Basic idea: Borrower promises to repay interest and principal (i.e., the
amount borrowed) to lender according to a pre-specified schedule.
Complications
Covenants
Jargon
Face value or par value: Amount bon

American Barrick Resources Corporation: Managing Gold Price Risk
Primary Teaching Objective
This case is designed to give students a chance to observe the diversity of risk management
options available for a firm to manage its exposure to financial risk.

Barrick Gold Closing Mines to Curb Output as Price Drops
By Liezel Hill Aug 2, 2013 10:04 AM ET
Barrick Gold Corp. (ABX) plans to either sell, close or curb production at 12 of 27 mines as the
worlds largest gold producer tries to bolster profitability af