RMSC2001 Introduction to Risk Management
I. Introduction
Term 1, 2016-17| Department of Statistics, The Chinese University of Hong Kong
References:
1. George E. Rejda, G. E. and McNamara, M. (2012) Principles of Risk Management and
Insurance, 12th Ed:
RMSC2001 Introduction to Risk Management
II. Theory of Interest and Bond Fundamentals
Term 1, 2016-17| Department of Statistics, The Chinese University of Hong Kong
References:
1. Ruppert, D. (2010) Statistics and Data Analysis for Financial Engineeri
RMSC 2001
Introduction to Risk Management
Tutorial 3
October 17, 2016
1
Time Value of Money
Cash flow C(t) is the amount of money received or paid out at time t.
Accumulation function a(t) is the accumulated value at time t for $1 principal.
Discount f
RMSC 2001
Introduction to Risk Management
Tutorial 1
September 11, 2016
1
Review of Basic Statistics and Probability Concepts
(1) Probability is a mathematical tool to quantify the uncertainty in the future.
(2) Risks and uncertainties can be handled (man
RMSC 2001
Introduction to Risk Management
Tutorial 4
October 17, 2016
1
Utility Theory
Example 1.1. For each of the following expected utility functions, determine if the individual is
risk averse, risk neutral, or risk seeking.
(a)
(i) u(w) = 5 ln(w).
(i
RMSC 2001 Introduction to Risk Management Science (Term 1, 2016/17)
Mid-term Examination Preparation
The exam covers all the materials that have been discussed so far in this course, including
i. Introduction to risk management: Meaning of risk, various t
RMSC 2001
Introduction to Risk Management
Tutorial 3
October 3, 2016
1
Time Value of Money
Cash flow C(t) is the amount of money received or paid out at time t.
Accumulation function a(t) is the accumulated value at time t for $1 principal.
Discount fa
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management | Term 1, 2016-17
Assignment 1 due on 3rd October 2016
1. Prove the following inequality, which is known as Markov inequality: If X is any nonnegative
RMSC 2001
Introduction to Risk Management
Tutorial 9 Solution
December 19, 2016
1
1. RETURN
1
Return
Suppose cfw_Si is the stochastic process representing the price a speculative asset (stock, currency,
derivative, commodity (corn, coffee, etc.) at the i
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management Term 2, 2015-16
Assignment 4, due on 21 November 2016 (Mo)
1. (Options, warrants and CBBCs, Payoffs of) Refer to the following chart that shows the Han
RMSC 2001
Assignment 1 suggest solution
Q1.
Let 1E be the indicate function of set E, that is
(
1
1E (x) =
0
And if we set E as E = cfw_X a, then we have
(
1cfw_Xa =
if x E
if x
/E
1
if X a
0
if X < a
By noting that when X < a, we have 1cfw_Xa = 0, henc
RMSC 2001
Introduction to Risk Management
Tutorial 8 Solution
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 a certain price.
(2) If you assume a long pos
RMSC 2001
Assignment 2 suggest solution
Q1.
a. Fair price at time 0 = $1000
1
40
(1+ 6%
2 )
= $306.5568
1
= $261.4125
39
(1+ 7%
2 )
261.4125306.5568
= 14.7262%
306.5568
b. Fair price at time 0.5 = $1000
Return per half year =
Return per year in terms o
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management | Term 1, 2016-17
Assignment 2 due on 17th October 2016
1. Recall that a zero-coupon bond, also called a pure discount bond and sometimes known as a ze
RMSC 2001 Introduction to Risk Management
Tutorial 2
January 23, 2017
1
Meaning and Classification of Risk
Broadly speaking, risk is defined as uncertainty of having a bad outcome. It has two components:
frequency and severity. To understand risk, we can
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 defined to be the amount CE such that u(CE) =
E(u(W ).
RMSC 2001 Introduction to Risk Management
Tutorial 4
1
Bond
1.1
Terminology
A bond is a contract/certificate of debt in which the issuer promises to pay the holder a definite
sequence of interest payments for a specified period of time, and to repay the l
RMSC 2001 Introduction to Risk Management
Tutorial 6
1
Derivatives
A financial derivative (derivative) is a security whose value depends on the value of other more
elementary securities (usually called the underlying assets), like equity, bond and commodi
RMSC 2001 Introduction to Risk Management
Tutorial 1
January 23, 2017
1
Review of Basic Statistics and Probability Concepts
(1) Probability is a mathematical tool to quantify the uncertainty in the future.
(2) Risks and uncertainties can be handled (manag
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 on which that position depends, such as stock and
bond
RMSC 2001 Introduction to Risk Management
Tutorial 7
1
Barrier Options
Barrier options are one kind of exotic options where the payo depends on whether the underlying
asset price reaches a certain level (barrier) during a certain period of time.
Knock-in
RMSC 2001 Introduction to Risk Management
Tutorial 4
1
Bond
1.1
Terminology
A bond is a contract/certificate of debt in which the issuer promises to pay the holder a definite
sequence of interest payments for a specified period of time, and to repay the l
RMSC 2001 Introduction to Risk Management
Tutorial 3
February 10, 2017
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 on which that position depends, such
RMSC 2001 Introduction to Risk Management
Tutorial 2
January 23, 2017
1
Meaning and Classification of Risk
Broadly speaking, risk is defined as uncertainty of having a bad outcome. It has two components:
frequency and severity. To understand risk, we can
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management | Term 2, 2016-17
Course Outline
Description
This course introduces some basic concepts of risk management and its applications to finance
and insuranc
Rmsc 2001 | Tutorial 8 Solution
Rmsc 2001 Introduction to Risk Management
Tutorial 8 Solution: Arbitrage
Kin Wai, Chan
Department of Statistics, The Chinese University of Hong Kong
December 3, 2014
Exercise 1.1. [] Recall that S0 = 98 and risk free rate r
Rmsc 2001 | Tutorial 5 Solution
Rmsc 2001 Introduction to Risk Management
Tutorial 5 Solution: Loss Distribution
Kin Wai, Chan
Department of Statistics, The Chinese University of Hong Kong
December 2, 2014
Exercise 1.1. [] If the number of losses follows
Department of Statistics, The Chinese University of Hong Kong
RMSC 2001 Introduction to Risk Management | Term 1 2014
Course Outline
DESCRIPTION:
This course introduces some basic concepts of risk management and its applications to finance and
insurance.
Rmsc 2001 | Tutorial 7 Solution
Rmsc 2001 Introduction to Risk Management
Tutorial 7 Solution: Financial Instruments
Kin Wai, Chan
Department of Statistics, The Chinese University of Hong Kong
December 2, 2014
Exercise 3.1. [] (Forward price and value) Re