Winter 2021
• This constitutes a contract you are deemed to have accepted upon review.
As we proceed through the course, I may add or drop topics, or alter the order in which we cover some of the topics based on class learning.
• The class requires a personal computer. We will be working in the R lan- guage and become proficient implementing concepts with real world data.
No prior experience is required other than your commitment to learn.
• Strictly no Powerpoint / Excel in this class.
Overview
Risk management is the art of understanding and measuring risk-reward in an uncertain world. Good risk management aims at being exposed to what you desire and hedge what you don’t want to be exposed to. It is embedded in almost all commercial aspects of corporations, financial institutions, pension funds and governments. The ability to identify, explore and measure risk is a sought after skill in today’s marketplace.
At the end of this class, you will possess strong analytical, numerical and quantitative skills with the ability to implement in one of the most widespread data science toolsR.
Working knowledge of theory and implementation are required outcomes to succeed.
Learning Objectives
This course incorporates the Learning Goals of the Alberta MBA Program, in particular Critical Thinking and Problem Solving, Written Communication, Quan- titative, Business Analytics and Information Processing Skills. The modern Finance workplace requires an ability to identify complex financial opportuni- ties, a minimum level of numerical implementation and mastery in establishing effective decision-making frameworks based on enrolment, facts, models and visualization.
Competency Measure Understanding of Derivatives
Instruments and Markets
Identify pay-off profiles of instruments and be able to combine them to achieve the desired pay-off. This includes at and prior maturity.
Intuitive and Numerical
Understanding of Option Pricing and Sensitivity
Recognize the various types of option models, their suitable application, being able to numerically implement them and perform sensitivities to various pricing variables.
Understanding of Risk Management Framework
Understanding of key risks and approaches face by corporations and how an effective risk management framework can support Governance at the highest level from both an assurance and business standpoints.
Understanding the issues and challenges in hiring, leading and retaining Risk Management and Trading specialists
As current or future business leaders, you may at some point interact with or lead specialists in this field. It is important to understand what you know and what you don’t know to achieve excellence as a leader.
Being able to perform numerical implementations of concept covered
Numerical implementation is a critical skill to support one’s intuitive and analytical abilities.
Use of data visualization to support decision-making in complex financial opportunities.
Intermediate level of mastery of R Markdown to create effective, powerful and thought-provoking documents using relevant aspects of visualization, models and interactivity for a given opportunity.
Everything we do and learn in class has a purpose. Whilst it may not be obvious at all times, if unclear I encourage you to ask. We strive to incorporate new material and are open to various approaches to engage in the learning process. As we all learn differently, I encourage you to share in class if you either have an insight that may help others and/or you are facing challenges.
Learning Approach
• Excellence in your career depends on one’s ability to:
– Build a foundation of knowledge on concepts / theory.
– Create linkages between concepts to solve real-life problems.
– Implement them at Enterprise level.
• Class notes include theory, current market applications and clear and repro- ducible examples.
• Class presence is important in your learning process:
– Your participation is expected.
– Class time uses an active learning approach.
– Questions and answers are essential to effective learning.
• There will be live implementation in every class. I am committed to making errors in front of you - voluntary or not. That is one learns.
Prerequisites
• FIN 501.
Supporting Material
Required Course Materialfree online book
Chester Ismay and Patrick C. Kennedy.
Getting used to R, RStudio, and R Markdown Optional Reference Material
Hull, John C.,Fundamentals of Futures and Option Markets, Prentice Hall, ninth edition, 2017.
Haug, Espen Gaarder,The Complete Guide to Option Pricing Formulas, Prentice Hall, 2007.
Cox, Ross, RubinsteinOption Pricing: A Simplified Approach
• There areno required textbooksto purchase.
• Class notes are available on theRstudio Connect UoA Server.
1. Log on with CCID credentials.
2. Send me an email and will authorize you to see the material.
Course Modules
As we proceed through the course, I may add or drop topics, or alter the order in which we cover some of the topics based on class learning. This is espe- cially important with online delivery.
Classes Modules
2021-01-12 Introduction / Markets and Instruments / Getting Started with R 2021-01-19 Data Wrangling I
2021-01-26 Data Wrangling II 2021-02-02 Spot-Forward Pricing I 2021-02-09 Spot-Forward Pricing II
2021-02-23 Interest Rate Derivatives: Pricing and Risk I 2021-03-02 Exam
2021-03-09 Interest Rate Derivatives: Pricing and Risk II 2021-03-16 Swaps
2021-03-23 Options: Modeling Uncertainty 2021-03-30 Options: Greeks I
2021-04-06 Options: Greeks II
2021-04-13 Final Project Presentations
Availability
I will be available if you have questions outside course times. To book time:
• Go to my websiter4tropic.com, selectContactandBook an appointment.
• Please respect the 30-min booking time by being prepared.
• Send me aself contained Rmd documentso I can reproduce your issues.
• I will update the meeting with Google Meet links.
Grading
• Grades are assessed on your absolute and relative performance.
• Due dates of assignments, projects and/or exams worth 10% or less are contained in the class notesGradingchapter.
• Strict policy of zero scores for late submissions unless pre-clearance is sought and accepted, irrespective of any previous draft document you have sent me. It is your accountability to deliver on time.
• Open-book exam(s) reflecting a real life environment.
– Communication with others is prohibited and subject to the Academic Integrity and Honesty UoA policies.
– Where an exam is missed under circumstances approved under Uni- versity rules and policies, I reserve the right to ask for a statutory dec- laration and assign 100% of the remaining course marks including the missed exam on assignments on an individual basis since a large propor- tion of the grades are on group assignments.
– I will not be providing an exam bank of questions.
• Gradeswill be weighted as shown below. For each you will be provided with the assessment methodology and most importantly with the support you need to succeed. You will be given a clear indication of how you will be measured and graded prior to any assignment or project.
Category Measure Description
Assignment 5% Getting Familiar with R and R Markdown Mid Term Exam 35% See under Course Modules for exam date.
Project 25% Risk Management case study due with presentation during the last class of the term.
Final Exam 35% The exam will be held during the Final Examination period on 2020-04-20 at 18h00 over a Zoom session.
Online Delivery
Digital Recording And Copyrights
• The recording of classes is strictly not authorized for any purposes.
• Audio or video recording, digital or otherwise, of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommoda- tion plan. Student or instructor content, digital or otherwise, created and/or used within the context of the course is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).
Zoom Registration
• You are required to pre-register using your ualberta.ca account.
• I will not admit registration using a personal email account.
Active Participation
• You webcam must be on at all times.
• It is your sole responsibility to be on time:
– I usually cover review and logistics items on assignments.
– I do not auto-admit participants. Whilst I make every effort to admit late participants in the waiting room, my attention is focused on students attending, not those who are late.
• I routinely do breakout group exercises and you being logged in and not present in class is not acceptable and your sole accountability.
Academic Integrity
The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these stan- dards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of theCode of Student Behaviourand avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University. Cases of academic dishonesty and disruptive behaviour will not be tolerated in class.
Policy about course outlines can be found inCourse Requirements, Evalua- tion Procedures and Gradingof the University Calendar.
