Economics of Financial Risk Management

Author: Xiaodong Zhu
Webpage: http://homes.chass.utoronto.ca/~xzhu/

Type: Study Notes
Level: Advanced MBA, MSc(Fin, Math. Fin)

The first chapter discusses what is risk and what is risk management. There is a subsection with a brief history of Financial Innovation. Chapter 2 is about the Arrow-Debreu theory of financial markets. You can read about states of nature, contingent claims. An appendix at the end of the chapter, serves a short introduction to linear algebra. The author cover the pricing of options next as an application of Arrow-Debreu theory. Chapter 4 highlights the individual and social gains from the practice of risk management. In the following chapter, the author tries to answer why should firms manage risk. The next chapters deal with bonds and the pricing of forwards and swaps. Ito Calculus and the Black-Scholes formula follow. Chapter 9 is a brief discussion about Value at Risk. The topic of chapter 10 is credit risk and the author provides an introduction to credit default swaps pricing (CDS pricing). Next, the reader can find out how to use swaps to hedge interest rate risk. The final chapter teaches us how to use options to hedge uncertain price exposures.

Xiaodong Zhu is professor at the Department of Economics, University of Toronto

link:

Financial Mathematics I, Stochastic Calculus, Option Pricing, Portfolio Optimization

Author: Holger Kraft
Type: Study Notes, Lecture Notes
Type: Advanced Undregraduate(Math), MSc(Math. Fin), Ph.D.(Fin)

The lecture notes "Financial Mathematics I, Stochastic Calculus, Option Pricing, Portfolio Optimization" cover the topics of discrete-time pricing, stochastic calculus and continuous-time pricing and portfolio optimization. In chapter 2, both single-period and multi-period models are considered. The reader can find information about Arrow-Debreu securities and risk neutral measures. An introduction to stochastic calculus is provided in chapter 3. Stochastic processes, martingales, Itō integrals and Itō's lemma are discussed. In chapter 4, the topic of option pricing in continuous-time is discussed. The topic of chapter 5 is the continuous-time portfolio problem, and both the martingale approach and the stochastic optimal control approach are discussed.

Download Holger Kraft's "Financial Mathematics I, Stochastic Calculus, Option Pricing, Portfolio Optimization" using the link that follows