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351-0561-00L 3 Credits DS , MSC , NDS D-GESS , D-MTEC

Financial Market Risks

Lecturers & Examiners: Prof. em. Dr. Didier Sornette
VVZ CR n/a

Last Updated: 2026-02-05 15:25:06

Abstract

Bridge between corporate finance and financial markets - General introduction to the different dimensions of risks with emphasis on financial markets. Development of the concepts and tools to understand these risks and master them. Working knowledge of the main concepts and tools in finance (Portfolio theory, asset pricing, options, real options, bonds, interest rates, inflation,exchange rates)

Objective

Bridge between corporate finance and financial markets -General introduction to the different dimensions of risks with emphasis on financial markets. -Development of the concepts and tools to understand these risks and master them. -Working knowledge of the main concepts and tools in finance (Portfolio theory, asset pricing, options, real options, bonds, interest rates, inflation, exchange rates)

Content

1- Risks in the firm and in entrepreneurship -what is risk? The four levels. -Conceptual and technical tools -Introduction to three different concepts of probability -Where are the risks for firms? Downside and upside. 2- Introduction to financial risks and its management. -Relationship between risk and return -portfolio theory: the concept of diversification and optimal allocation -How to price assets: the Capital Asset Pricing Model -How to price assets: the Arbitrage Pricing Theory, the factor models 3- Financial markets: role and efficiency -What is an efficient market? -Deviations from efficiency: the idea efficient market versus the real imperfect world -Puzzles and anomalies in the financial markets -Financial bubbles, crashes, systemic instabilities 4- An introduction to Options and derivatives -Calls, Puts and Shares and other derivatives -Financial alchemy with options (your imagination is the limit) -Determination of option value; concept of risk hedging 5-Valuation and using options -a first simple option valuation modle -the Binomial method for valuing options -the Black-scholes model and formula -practical examples and implementation -Realized prices deviate from these theories: volatility smile and real option trading -How to imperfectly hedge with real markets? 6- Real options -The value of follow-on investment opportunities -The timing option -The abandonment option -Flexible production -conceptual aspects and extensions 7- Government bonds and their valuation -Relationship between bonds and interest rates -Real and nominal rates of interest -Term structure and Yields to maturity -Explaining the term structure -Different models of the term structure 8- Managing international risks -The foreign exchange market -Relations between exchanges rates and interest rates, inflation, and other economic variables -Hedging currency risks -Currency speculation -Exchange risk and international investment decisions

Resources

Lecture Notes

no script

Literature

Corporate finance Brealey / Myers / Allen Eight edition McGraw-Hill International Edition (2006) + additional paper reading provided during the lectures

General Information

Language
English
Levels
DS , MSC , NDS
Frequency
Yearly recurring

Examination

Type
end-of-semester examination

Course Components

Type Title Time & Place Hours
lecture with exercise Financial Market Risks
  • Mon 10:15-12:00 (ML E 12)
2 h weekly

Offered In