Sylabus predmetu

Thematic definition of lectures: 1. Introduction to Financial Engineering and Investment – General Risk Model; the definition of financial risk; a breakdown of financial risks in terms of impactability; the life cycle of financial risk; defining the essence and forms of financial innovation; Basic Tasks and Mission of Financial Engineering. World finance and the financial revolution – defining the disruptive changes that have led to the intensification of the use of derivative instruments; breakdown of first-generation derivatives; characteristics of financial and commodity derivatives. 2. Forward contracts – general characteristics; derivation of the profit-loss profile (buyer and seller motives); breakdown of forwards by underlying instrument (interest, currency, equity, commodity). Determination of the equilibrium price of the forward. 3. Futures contracts – general characteristics; derivation of the profit-loss profile (buyer and seller motives); breakdown of futures according to the underlying instrument (interest, currency, equity, commodity, index). Determination of the equilibrium price of the future. 4. Options contracts – general characteristics; derivation of the profit-loss profile (buyer and seller motives) for the call and put options; Breakdown of options by underlying instrument (interest, currency, equity, commodity, other derivatives). Determination of the strike price of a call and put option. 5. Swap contracts – predecessors (parallel loan and reverse credit); general characteristics of swaps; elaboration of the use of coupon and base swaps; a combination of underlying instruments (currency and currency-interest rate swaps). 6. Determination of the fair value of unconditional and contingent futures contracts – identification of the derivative receivable and derivative liability; the determination of the fair value of the derivative receivable and liability; derivation of the fair value of the derivative; the transformation of the fair value of an exchange-traded and over-the-counter derivative into the expert price of the derivative. 7. Credit (credit) derivatives – definition of forms of credit risk and hedging options; characteristics of the essence of contracts – credit default swap, total return swap, credit option. Determination of the value of a credit derivative. 8. CAPM model. How this model is conceived and its difference from the original portfolio theory. Introduction of a beta coefficient to simplify the view of equity risk. How to approach portfolio risk using the beta coefficient. An alternative option for measuring the beta coefficient via the P/E indicator. 9. Approaches to stock price prediction. Fundamental analysis is focused on historical financial data, stock publicly traded, companies. Fundamental analysis uses several possibilities, such as top-down and history over time. Forms of fundamental analysis, based on dividends, as well as the comparative method are presented. 10. Approaches to stock price prediction. Another approach is based on technical analysis, as opposed to fundamental analysis. What charts are used, and also what is their use, within the framework of technical analysis. Comparison of three different approaches and explanation of their differences. Presentation of economic indicators and their interpretation. 11. Information on the financial market. The information is divided into specific companies and also into macroeconomic information. For joint-stock companies, classic fundamental information is especially important, but this is significantly influenced by the state of the economy. Characteristics of economic indicators and their impact on joint-stock companies. 12. Behavioral finance. This approach is mainly based on psychological analysis. It examines how investors react to the current market situation, with different parts of the cerebral cortex involved in the decision. Based on the research, those parts of the brain that are responsible for investment decisions have been defined. 13. Process and institutional approach to financial risk management – link to internal audit. Elaboration of the methodological procedure for the formulation of an auditable hedging strategy (identification, analysis, guidance and monitoring) – concentration on the financial risks of the company. Thematic definition of exercises: 1. Financial risk – definition of the substance, quantification of its parameters (maximum loss, probability of occurrence and exposure period); a breakdown of financial risks in terms of impacts on the financial flows of the undertaking. Price (interest, currency, equity, commodity) risks, credit risks, liquidity and liquidity risk. 2. Forwards – the position of the buyer and seller, a graphical representation of the behavior of the participants in the contract; definition of specific features and regularities of interest rate forwards (FRA, FRA-BBA), currency and commodity forwards. the transmission cost model and the forward pricing expectation model; determination of the present and future value of the forward; the use of the forward in hedging operations; specifics of forwards on the Slovak market. 3. Futurity – the position of the buyer and seller; a graphical representation of the behaviour of the participants in the contract; marking to market; quantification of the base and its forms (theoretical and value); Comparison of the strike price and the fair value of the future. the transmission cost model and the forward pricing expectation model; determination of the present and future value of the forward; base and its forms; use of futures in arbitrage and hedging operations. 4. Option 1 – buyer and seller position; a graphical representation of the behaviour of the participants in the contract; call and put option (long and short position); intrinsic and time value of the option; financial results of options trades in different strategies. 5. Option 2 – Setting the price of the option (option premium); identification of the determinants of the time value of the option; the mechanism for applying the binomial model in the valuation of a European option; Black-Scholes model for European options, depending on the underlying instrument. 6. Swaps – the mechanism of operation of swaps (partner positions); an initial assessment of the suitability of the swap; determination of the present and future value for coupon and base swaps; an assessment of the efficiency and effectiveness of swap operations in interest rate and currency performances. 7. Determination of the fair value of exchange-traded and over-the-counter derivatives – solving examples with a focus on determining the market price, or a qualified estimate (valuation model). Transformation of fair value into expert price. 8. Yield and return on financial investment. Recognizing the concept of yield and profitability. How is to calculate the different returns (in absolute form) and also the different returns (in relative form) which are given as a percentage. Ex-post and ex-ante profitability calculation: understanding the difference between the two calculations. Warning of a possible collision, in solving the example using the weighted mean, and then the arithmetic mean. 9. The total rate of yield of the bond. The total rate of return is easy to calculate for a zero-coupon bond. For this reason, the result is adjusted to estimate where the fair value of the discount factor is to be replaced. 10. Calculation of the beta coefficient in an alternative form, to the method of least squares and covariance, through the maximum and minimum values of the company's P/E ratio compared to the values of the capital market P/E ratio (index). 11. Calculation of the rate of return to maturity of coupon and discount bonds. Calculation of the duration of coupon bonds and their variability (change in the price of the bond for a change in the required rate of return by 1%). Compiling a straight line for bonds using duration and rate of yield to maturity. 12. Use of dividend models (classic and two-stage model) to determine the possible price of a share. Explanation of the use of the comparative method and its use for the valuation of company shares that are not yet traded on the capital market. 13. Solving the case study.