Didier Sornette: Catalogue data in Autumn Semester 2016

Name Prof. Dr. Didier Sornette
FieldEntrepreneurial Risks
Address
Professur f. Entrepreneurial Risks
ETH Zürich, SEC F 7
Scheuchzerstrasse 7
8092 Zürich
SWITZERLAND
Telephone+41 44 632 89 17
Fax+41 44 632 19 14
E-maildsornette@ethz.ch
URLhttp://www.er.ethz.ch/
DepartmentManagement, Technology, and Economics
RelationshipFull Professor

NumberTitleECTSHoursLecturers
363-0561-00LFinancial Market Risks3 credits2GD. Sornette
AbstractI aim to introduce students to the concepts and tools of modern finance and to make them understand the limits of these tools, and the many problems met by the theory in practice. I will put this course in the context of the on-going financial crises in the US, Europe, Japan and China, which provide fantastic opportunities to make the students question the status quo and develop novel solutions.
ObjectiveThe course explains the key concepts and mechanisms of financial economics, their depth and then stresses how and why the theories and models fail and how this is impacting investment strategies and even a global view of citizenship, given the present developing crises in the US since 2007 and in Europe since 2010.

-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)

-Strong emphasis on challenging assumptions and developing a systemic understanding of financial markets and their many dimensional risks
Content1- The Financial Crises: what is really happening? Historical perspective and what can be expected in the next decade(s). Bubbles and crashes. The illusion of he perpetual money machine.

2- Risks in financial markets
-What is risk?
-Measuring risks of financial assets
-Introduction to three different concepts of probability
-History of financial markets, diversification, market risks

3- 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 and beyond

4- Financial markets: role and efficiency
-What is an efficient market?
-Financial markets as valuation engines: exogeneity versus endogeneity (reflexivity)
-Deviations from efficiency, puzzles and anomalies in the financial markets
-Financial bubbles, crashes, systemic instabilities

5- An introduction to Options and derivatives
-Calls, Puts and Shares and other derivatives
-Financial alchemy with options (options are building blocs of any possible cash flow)
-Determination of option value; concept of risk hedging

6-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?

7- Real options
-The value of follow-on investment opportunities
-The timing option
-The abandonment option
-Flexible production
-conceptual aspects and extensions

8- 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

9- 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
Lecture notesLecture slides will be available on the site of the lecture
LiteratureCorporate finance
Brealey / Myers / Allen
Eight edition
McGraw-Hill International Edition (2006)

+ additional paper reading provided during the lectures
Prerequisites / Noticenone
364-1058-00LRisk Center Seminar Series Restricted registration - show details
Number of participants limited to 50.
0 credits2SH. Gersbach, D. Basin, A. Bommier, L.‑E. Cederman, H. R. Heinimann, H. J. Herrmann, W. Mimra, G. Sansavini, F. Schweitzer, D. Sornette, B. Stojadinovic, B. Sudret, S. Wiemer
AbstractThis course is a mixture between a seminar primarily for PhD and postdoc students and a colloquium involving invited speakers. It consists of presentations and subsequent discussions in the area of modeling complex socio-economic systems and crises. Students and other guests are welcome.
ObjectiveParticipants should learn to get an overview of the state of the art in the field, to present it in a well understandable way to an interdisciplinary scientific audience, to develop novel mathematical models for open problems, to analyze them with computers, and to defend their results in response to critical questions. In essence, participants should improve their scientific skills and learn to work scientifically on an internationally competitive level.
ContentThis course is a mixture between a seminar primarily for PhD and postdoc students and a colloquium involving invited speakers. It consists of presentations and subsequent discussions in the area of modeling complex socio-economic systems and crises. For details of the program see the webpage of the colloquium. Students and other guests are welcome.
Lecture notesThere is no script, but a short protocol of the sessions will be sent to all participants who have participated in a particular session. Transparencies of the presentations may be put on the course webpage.
LiteratureLiterature will be provided by the speakers in their respective presentations.
Prerequisites / NoticeParticipants should have relatively good mathematical skills and some experience of how scientific work is performed.