Lecture 1: Risk, Risk Aversion, and Utility

This lecture session embarks on an exploration into the fundamental aspects of risk, delving into how risk aversion and utility concepts play a crucial role in shaping financial investment decisions. Through an examination of utility functions, the session offers insights into the behavioural aspects of investors and provides a solid foundation for understanding how risk is assessed and managed in investment contexts. Participants will learn to appreciate the intricate relationship between human behaviour and financial decision-making, setting the stage for more complex risk management strategies.

Lecture 2: Risk Neutral Pricing

Introducing the concept of Risk Neutral Pricing within the realms of arbitrage-free markets, this session shines a light on the operational mechanics of this pricing method, particularly through the lens of binomial tree models. Participants are guided through the principles underpinning this approach and its critical importance in the financial markets. This session lays essential groundwork for participants, equipping them with a foundational understanding of the pricing mechanisms that are pivotal in risk management and financial valuation.

Lecture 3: Group Work on Risk and Utility

In a collaborative setting, this session engages students in hands-on group work focused on consolidating their grasp of risk and utility. Through practical application of Risk Neutral Pricing in complex binomial tree models, including tackling the Black-Scholes problem, participants work together to apply theoretical concepts to real-world financial challenges. This interactive session is designed to enhance participants' analytical skills and foster a deeper understanding of risk management and valuation in a collaborative environment.

Lecture 4: Capital Asset Pricing Model (CAPM)

Dedicated to the Capital Asset Pricing Model (CAPM), this session navigates through the derivation of CAPM within the framework of Mean-Variance analysis and the application of concave utility functions. Participants will uncover how CAPM is instrumental in asset pricing and risk management, offering a powerful tool for evaluating investment opportunities and constructing efficient portfolios. This session aims to deepen understanding of how CAPM can be leveraged to assess risk and return in financial portfolios.

Lecture 5: Martingale Option Pricing

This session ventures into the Martingale pricing approach, extending participants' knowledge to general derivatives and advanced option pricing techniques. By examining the principles and applications of Martingale pricing, participants will acquire the ability to effectively analyse and value derivative instruments in financial markets. This advanced session is tailored to equip participants with sophisticated analytical tools for navigating the complexities of derivative pricing.

Lecture 6: Market Risk and Credit Risk – Diversification and Portfolio Management

The concluding session focuses on the critical aspects of managing market and credit risk, emphasising the role of diversification and portfolio management in mitigating these risks. Participants will explore various strategies to manage risk within portfolios, learning the significance of diversification in improving risk-adjusted returns and ensuring financial stability. This session aims to provide comprehensive insights into effective risk management practices, preparing participants to make informed decisions in portfolio construction and risk mitigation.

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