Overview
Effective risk management identifies, assesses, and controls numerous sources of risk, both financial and nonmarket related, in an effort to achieve the highest possible level of reward for the risks incurred. With the increasingly complex nature of investment portfolios, sophisticated risk management techniques have been developed to provide investors with the necessary tools to hedge and/or speculate varying facets of risk.
This module discusses risk management strategies using options, futures, CDS, swaps, interest rate options, and swaptions.
It specifically addresses the following elements:
- Using options to hedge or speculate an equity event
- Using futures contracts to hedge an interest rate or equity exposure
- Using CDS contracts to speculate a credit event
- Using an interest rate swap to reduce cost of corporate debt
- Using an equity swap to manage equity market risk
- Understanding interest rate options
- Using swaptions to lock in investment/financing rates
The module can benefit sophisticated savvy investors who are able and willing to explore opportunities and challenges in derivative markets. Trading derivatives is risky and does not fit many investors. However, understanding derivative securities and their roles in risk management is much needed by all sophisticated savvy investors.
Faculty
Dr. Tie Su, CFA, Department of Finance, Associate Professor, Finance
Research Interests - Option pricing and hedging; asset valuation; and market microstructure
Featured Publications –
“Weak and Semi-Strong Form Stock Return Predictability Revisited,” (with Wayne Ferson and Andrea Heuson), Management Science
"Discretionary Reductions in Warrant Exercise Prices," Journal of Financial Economics (coauthor with Howe)
"How the Equity Market Responds to Unanticipated Events," Journal of Business (coauthor with Patel and Brooks)
"A Simple Cost Reduction Strategy for Liquidity Traders: Trade at the Opening," Journal of Financial and Quantitative Analysis (coauthor with Brooks)
