COMM 477 - Risk Management and Financial Engineering

Most corporations and financial institutions face financial risks arising from changes in market variables such as interest rates, foreign exchange rates, commodity prices and stock prices. Because they offer low transaction costs and new profit patterns, Forward, Futures, Options and other derivative products have become essential tools for managing financial risks. Derivatives can also be added to bonds or otherwise combined to create new securities that can be used for risk management. The process of constructing new instruments from these building blocks is called financial engineering.

Derivatives are becoming increasingly used through the business world. Corporations and financial institutions, as well as pension funds, and some regional and local governments are using derivatives. There is a growing demand for individuals who are skilled at analyzing derivatives. The practice of risk management demands strong analytical and quantitative skills.

Learning objectives

Upon successful completion of this course, students will:

• have a working knowledge of how derivatives can be used in managing financial risks.
• be able to use and price these securities, describe the markets in which they trade, and provide examples of how they can be used to create new securities.
• know how risk management contributes to firm value.

Note: COMM 477 was formerly numbered COMM 378. The two courses are equivalent. You may only receive credit for one, not both.

Prerequisite: COMM 374.