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Yield Curves Application

Interpreting the Shape of Yield Curves The figure above shows the yield curve for government bonds with maturities up to 30 years for the US and the UK. It also …

VaR: an application

In this step we will calculate and interpret Value at Risk for a single asset, shares in the BT Group (the UK telecommunications company). In Week 3 we considered a …

Options profits: an application

In this article we will consider a call option on the stock of BT Group, the UK telecommunications company. We will use the Black-Scholes model to price the option, and …

Options: an application

Earlier, we discussed the farmer wanting to protect themselves against the risk of the cocoa price falling before harvest. We suggested they could use a forward contract, or sell futures …

Futures markets and contracts: an application

Spot markets, forward contracts and futures markets: let us bring together these ideas with an example on cocoa beans. Consider a Brazilian cocoa farmer with main harvest between October and …

Understanding beta

This article considers various values for beta, and what they mean for investment and risk management strategies. What is a beta? A beta close to one means that the returns …

Returns and risk: an application

In this step you will consider purchasing the stock of two companies: Mondelez International Inc., the American multinational food, drink and confectionary corporation; and Tesla Inc., the American company manufacturing …

Risk management: Introducing portfolios

This article considers what we mean by a portfolio. What is a portfolio? A portfolio is a collection of assets. The portfolio could be constructed with a particular objective in …

How much would you pay to purchase a bond?

Suppose you are thinking about purchasing a bond. It could be part of a new bond issue – a company selling bonds to raise finance for long-term capital projects. Or …

Summing up and what next?

Over the last four weeks we’ve had a look at many components of risk management. We started Week 1 by considering investors and financial and non-financial institutions, and the kinds …

Risk Management Challenges

In studies of financial and non-financial firms across the globe, it has been shown that risk management practices are not without problems. To summarise the work of Stulz (2008) there …

Why do non-financial firms use derivatives?

Financial companies use derivatives in a number of ways. Non-financial firms use derivatives to manage risk, concerning the prices they receive for the goods and services they sell, or the …

What Does the Yield Curve Tell us?

The yield curve reveals how the bond yield changes along with the change in bond maturity. It is also called the term structure of the interest rate. Benchmark Yield Curve …