Università Roma Tre

1 – FINANCIAL VALUATION METHODS AND MODELS
The value and risk categories. Financial valuation methods. Discounted certainty equivalent approach. Discounted certainty equivalent models. On the choice between risky alternatives. Expected utility hypothesis. Option pricing theory. Risk-adjusted discounting method. Risk-adjusted discounting models. Mixed methods.

2 – RISK MANAGEMENT: CRITERIA AND RULES
Formal scheme. Sources and forms of risk. Market risk and credit risk. Stochastic models for market risk: (a brief review of) equity and currency risk, interest rate risk. Interest rate risk management and control. Semi-deterministic financial immunization theory. Stochastic financial immunization theory and hedging logic. Risk measures for the maximum potential loss (VAR, Risk Capital). Banking and insurance regulation and supervision, and risk culture: Basilea 2 and Solvency 2.

Handouts from teacher.

THE BINOMIAL MODEL. EVALUATION OF CONTINGENT CLAIMS IN THE DISCRETE TIME. EVALUATION OF CONTINGENT CLAIMS IN THE CONTINUOUS TIME. STOCHASTIC PROCESSES. WIENER PROCESS. BROWNIAN MOTION. ITO PROCESS. ITO'S LEMMA. STOCHASTIC MODELS IN CONTINUOUS TIME. BLACK AND SCHOLES MODEL. BLACK AND SCHOLES EQUATION. FEYNMANN-KAC REPRESENTATION. RISK-NEUTRAL MEASURE.

MATERIAL PROVIDED BY THE TEACHER