THE CO-OPERATIVE UNIVERSITY COLLEGE OF KENYA (CUCK)

(A Constituent College of Jomo Kenyatta University of Agriculture and Technology)

COURSE OUTLINE
BCOM/BCOB

Course Title: FINANCIAL RISK MANAGEMENT

Course Purpose: To further earners’ skills in financial risk management with reference to the
use of financial and commodity derivatives.

Expected learning Outcomes:

By the end of the course, students should be able to:-
1. Explain the tenets of financial risk
2. Explain the principles of option pay off analysis.
3. Identify financial risk management techniques and tools
4. Value options using Black –Scholes – Merton Model and Binomial Model
5. Describe the assumption of Black –Scholes – Merton Model
6. Value forward contracts and swaps
7. Apply financial derivatives to manage financial risk
8. Develop risk neutral portfolios using financial derivatives

Course content
WEEK TOPIC SUB-TOPICS
1 FACETS OF • Price risk
FINANCIAL RISK • Interest rate risk
• Currency exchange rate risk
• Credit risk
• Review questions
2 RISK • Options markets
MANAGEMENT • Forward contract
TECHNIQUES • Futures market
• Swaps
• Money market hedge
• Review questions
3-5 OPTIONS • Valuation principles
• Valuation using binomial pricing model and Black-
Scholes- Model
• Trading and hedge strategies
• Review questions
6 CAT I

COMPILED BY DR EMMA ANYIKA AND DR A. WEKESA

CUCK is ISO 9001:2008 Certified
7-9 FORWARD • Valuation
CONTRACT AND • Future trading and hedge
FUTURES • Margins
• Options on futures
10 & 11 SWAPS • Theory of swaps
• Valuation of swaps
• Exotic options
12 CAT II
13 CREDIT • Forms of credit derivatives
DERIVATIVES • Applications on interest rates and futures exchange
14 TRADING • Put-call parity
STRATEGIES • Designing risk neutral and immunized porfolios
15 EXAMINATIONS
References
1. Financial Derivatives by S.S.S Kumar
2. Options and Other Derivatives by John Hull

Course Journals
1. Journal of Finance
2. Journal of Accounting and Finance
3. Journal of Banking and Finance
4. Journal of Investment and Portfolio Management.
5. Journal of Finance & Economics
6. Journal of Financial & Quantitative Analysis

Teaching Methods: Lectures and tutorials; group discussion; demonstration; Individual

assignment; Case studies

Assessment
1. Continuous Assessments : 30% ( Two CATS and Assignments)
2. Final Examination : 70%
3. Final marks : 100%
Grading
Score Grade
00- 39 F
40- 49 D
50- 59 C
60- 69 B
70+ A

COMPILED BY DR EMMA ANYIKA AND DR A. WEKESA

CUCK is ISO 9001:2008 Certified