Risk Management and Derivatives

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Dr. B.V. Satyanarayana Babu & Dr. Saroj Kumar

ISBN - 9789351638766

Bangalore University-BU, MBA, Fourth Semester

Syllabus

4.2.3 RISK MANAGEMENT AND DERIVATIVES

Module 1: Risk Analysis in Capital Budgeting (13 Hours)

Meaning of Risk. Types of Risks of a BusinessEnterprise. Risk Analysis in Capital Budgeting – Measuring and Managing Capital Budgeting Risks – Sensitivity Analysis, Scenario Analysis, Simulation, Standard Deviation and Coefficient of Variation, Risk-Adjusted Discount Rate Method, Certainty Equivalent Coefficient Method, Decision Tree Analysis and Probability Distribution Method.

Module 2: Investment Risks and Derivatives (10 Hours)

Meaning of Derivatives. Types of Derivatives – Forward Agreements, Future Contracts – Terms Associated with Futures – Stock Futures and Index Futures, Differences between Forwards and Futures, Margin and Settlement Mechanism of Futures.

Module 3: Future Contracts – Hedging and Trading (10 Hours)

Hedging with Futures – Stock Hedging – When there is a Future Contract Available on the Stock and when there is no Future Contract Available on the Stock. Portfolio Hedging – Adjusting Portfolio Risk, Pricing of Futures.

Module 4: Options – Basics and Strategies (10 Hours)

Option Contracts – Meaning, Types – Call, Put, American, European. Pay-off and Pay-off Diagrams. Hedging Strategies – Protective Put Strategy and Covered Call Strategy. Trading Strategies with Options – Straddle, Strip, Strap, Strangle, Spreads.

Module 5: Option Pricing (8 Hours)

Put-Call Parity Theory, Portfolio Replication Method, Risk Neutralisation Method, Binomial Method and Black-Scholes Method. Option Greeks.

Module 6: Commodity Risks and Commodity Derivatives (5 Hours)

Commodity Markets, Commodity Exchanges. Commodity Derivatives.

Reference BU2016/MBA/4/04

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