Related Course/s:

A Stage 3 advanced elective unit in the Master of Business Administration ( CMBA640).

Aims & Objectives:

• Understand the causes of risk associated with volatile movements in prices. To appreciate the role and features of derivatives in the management of risk associated with financial instruments, trade settlements and commodity prices.
• Describe specifically the financial institutions and markets providing the risk management function.
• Apply portfolio theory as a risk management strategy.

Teaching Methods:

Lectures, Discussions, Individual and Syndicate Presentations

Assessment:

Individual Assignment 20%; Multiple-Choice Tests (3) 30%; Final Examination 50%

Content:

• Overview – the nature of risk. Financial markets and institutions providing the risk management function. Different types of risk.
• Put and call options, option markets, principles of option pricing.
• Option pricing models – the binomial model and the Black-Scholes model. Basic option strategies.
• Applications of options to produce more complex strategies, e.g. spreads and other combinations.
• Forwards and futures markets and contracts. Spot pricing. The concept of duration.
• Pricing of forwards and futures.
• Hedging with forwards and futures – options on futures.
• Currency forwards, futures and options.
• Swaps – currency and commodity swaps.
• Interest rate swaps, caps and collars.
• Portfolio theory.
• Capital Asset-Pricing Model.
• International finance issues.

Reading Materials:

Reiley, F & Brown, KC, Investment Analysis and Portfolio Management, 7th edn, McMillon Education Australia & Harcourt Brace Colleges, Sydney, 2003