Derivatives and Risk Management
Overview
This unit enables students to identify and manage financial risk using derivative instruments in a variety of contexts. It also intends to enhance students’ quantitative skills through developing and applying pricing and risk management models. Students will develop an advanced understanding of the implications, intuition and critical thinking underlying the application of risk strategies. Students will acquire perspectives in assessing ethical issues when using derivative instruments to enhance returns and manage risk. They will also gain hands on experience on the application of trading strategies using financial technology, to strengthen their understanding of the management of risk and returns in portfolios.
Requisites
01-June-2025
02-November-2025
Learning outcomes
Students who successfully complete this unit will be able to:
- Critically analyse the sources of financial risk, the importance of implementing effective hedging strategies and evaluating the outcome of these strategies, in multiple contexts.
- Apply a coherent understanding of different types of derivatives and the principles that underlie pricing models.
- Analyse the importance of ethical decision making in risk management.
- Utilise financial technology to apply trading strategies that reflect real-world understanding of the workings of derivatives.
- Apply research principles and techniques to plan and execute a group project
Teaching methods
Hawthorn
| Type | Hours per week | Number of weeks | Total (number of hours) |
|---|---|---|---|
| On-campus Class | 2.00 | 12 weeks | 24 |
| Online Lecture | 1.00 | 12 weeks | 12 |
| Unspecified Activities Independent Learning | 9.50 | 12 weeks | 114 |
| TOTAL | 150 |
Assessment
| Type | Task | Weighting | ULO's |
|---|---|---|---|
| Assessment | Individual | 30 - 50% | 1,2,3 |
| Online Quizzes | Individual | 10 - 20% | 1,2,3 |
| Research Project | Group | 40 - 50% | 1,2,3,4,5 |
Content
- Introduction to financial risk management
- Futures, Forwards and Options– types, payoffs and hedging strategies – on interest rates, currency, commodities, equity and equity indices
- Swaps – Interest rate and Currency – Hedging strategies
- Credit derivatives and Structured Credit Products
- Pricing of Futures, Forwards, Options, Swaps and Credit Derivatives
- Black-Scholes Merton Options Pricing model and Binomial Option Valuation Model
- Value at Risk (VaR)
- Use of derivatives in portfolio management
- Ethics in Risk Management
Study resources
Reading materials
A list of reading materials and/or required textbooks will be available in the Unit Outline on Canvas.