RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
IV. Financial instruments
Term 2, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
References:
1. Hu
RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
III. Risk, utility and decisions
Term 1, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
Refere
RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
V. Market risk management
Term 1, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
References:
1
RMSC2001 Tutorial 10
We introduce two approaches to give the risk measure: Value at Risk,
given a holding period and a condence level that we prespecied
Parametric approach: Normal VaR
St St1
2
Let Rt
RMSC2001 Tutorial 11
Reminders on the optimal hedging:
Suppose you observed the historical prices cfw_S0 , S1 , ., ST and cfw_F0 , F1 , ., FT . To estimate
2
2
F = V ar[F ], S = V ar[S ], S,F = Cov
RMSC2001 Tutorial 9
Let X be the terminal prot/loss after a specic target time horizon. Specically, X < 0 will indicate a
loss; and the amount/magnitude of loss will be usually reported as a positive
RMSC2001 Tutorial 8
Using Multi-period Binomial Tree:
Each node will produce exactly 2 branches, indicating the 2 possibilities of the stock (underlying
asset of the derivative) price movement in the
RMSC2001 Tutorial 7
Some terminologies for the moneyness of the options:
Intrinsic value: The value you get if you immediately exercise the option.
For example, at time t < T , the intrinsic value of
RMSC2001 Tutorial 6
Let F (t) be the value of the forward contract at time t. At the maturity T , we have
F (T ) = S (T ) K
Using the argument from replicating portfolio,
F (t) = S (t) K (1 + r)(T t)
RMSC2001 Tutorial 5
Assumptions:
All assets/derivatives are liquid
There is no bid-ask spread
There is no transaction cost
There is no credit risk/counter-party risk
You are allowed to take the s
RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
IV. Financial instruments
Term 1, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
References:
1
RMSC 2001
Introduction to Risk Management
Tutorial 2
CHAN Chu Kin
September 26, 2016
1
Meaning and Classification of Risk
Broadly speaking, risk is defined as uncertainty of having a bad outcome. It h
RMSC 2001 Introduction to Risk Management
Tutorial 3
1
Financial Risks
Market Risks: the risk of a change in the value of a financial position due to changes in
the value of the underlying components
RMSC 2001 Introduction to Risk Management
Tutorial 1
1
Review of Basic Statistics and Probability Concepts
(1) Probability is a mathematical tool to quantify the uncertainty in the future.
(2) Risks a
RMSC 2001 Introduction to Risk Management
Tutorial 5
1
Utility Theory
Definition 1.1. For a risk-averse individual, the utility function is concave, so u(E(W ) >
E(u(W ). The certainty equivalence is
RMSC2001 Introduction to Risk Management
I. Introduction
Term 2, 2016-17| Department of Statistics, The Chinese University of Hong Kong
References:
1. George E. Rejda, G. E. and McNamara, M. (2012) Pr
RMSC 2001 Introduction to Risk Management
Tutorial 2
1
Meaning and Classification of Risk
Broadly speaking, risk is defined as uncertainty of having a bad outcome. It has two components:
frequency and
RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
III. Risk, utility and decisions
Term 2, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
Reference:
RMSC2001 Introduction to Risk Management
II. Theory of Interest and Bond Fundamentals
Term 2, 2016-17| Department of Statistics, The Chinese University of Hong Kong
References:
1. Ruppert, D. (201
RMSC2001Introduction
IntroductiontotoRisk
RiskManagement
Management
RMSC2001
V. Market risk management
Term 2, 2016-17 | Department of Statistics, The Chinese University of Hong Kong
References:
1. Hu
RMSC 2001
Introduction to Risk Management
Tutorial 8
November 21, 2016
1
Forward and Futures
Definition 1.1. (1) A forward contract is an agreement to buy or sell an asset at a certain
future time for
RMSC2001 Tutorial 3
Payo Diagram and Prot Diagram
Payo: The value of the nancial derivative at maturity
Prot: Subtracted the initial cost from the payo
The payo diagram usually put the payo in the y -
RMSC2001 Tutorial 4
Probability axioms: Let be the sample space, F be the event space and P be the
probability measure. Then we have the following axioms:
1. P (E ) 0 E F
2. P () = 1
+
3. P
+
Ei
i=1
P
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management | Term 1 2014
Final Exam Information Sheet
1. As organised by Registration and Examinations Sect
Correlations and
Copulas
Chapter 6
Risk Management and Financial Institutions, Chapter 6 , Copyright John C. Hull 2006
6.1
Coefficient of Correlation
The
coefficient of correlation between two
variab
Market Risk VaR:
Model-Building
Approach
Chapter 10
Risk Management and Financial Institutions, Chapter 10 , Copyright John C. Hull 2006
10.1
The Model-Building Approach
The main alternative to histor
The VaR Measure
Chapter 8
Risk Management and Financial Institutions, Chapter 8 , Copyright John C. Hull 2006
8.1
The Question Being Asked in VaR
What loss level is such that we are X%
confident it wi
Bank Regulation and
Basel II
Chapter 7
Risk Management and Financial Institutions, Chapter 7 , Copyright John C. Hull 2006
7.1
History of Bank Regulation
Pre-1988
1988:
BIS Accord (Basel I)
1996: A
Volatility
Chapter 5
Risk Management and Financial Institutions, Chapter 5 , Copyright John C. Hull 2006
5.1
Background
The volatility of a variable is the standard
deviation of its return with the re