Descriptif

TITLE: INTRODUCTION TO FINANCIAL MARKETS

Lecturer: Dorinel BASTIDE

Session split: 24 hours split into 6 session of 4 hours (including 4 hours test)

Objectives:

The first objective is to provide Students with an understanding of the underlying context of financial system usage through investments facilitation. This will require introducing main accounting principles, business activities development and economic rationale of funding needs. The financial network structure and various intermediaries will then be presented with an emphasis on underlying needed IT infrastructures.

These sessions will allow for the second objective to present Students with the various types of risk that can materialize through conducting activities within the financial markets. A specific focus will be brought on credit risk, how it materializes and how it can be managed through dedicated qualitative and quantitative assessments. Armed with this knowledge, specific focus will be made on climate change with economic and financial impacts and transition risk management. The various financial markets will be covered along with main basics for cashflows, standard and OTC derivatives contract valuation and hedging giving rise to numerous types of risks.

The third objective is to present Students with the various regulatory requirements touching on those for new developing risks including XVA costs, Cyber and Quantum Computing risks as well.

Knowledge outcome:

• Understanding the economic rationale of financial markets and their various actors
• Having basic knowledge of the numerous risks related to activities within financial markets
• Be able to approach cashflow and contract valuation
• Understanding the underlying infrastructure for conducting financial markets activities
• Understanding various types of financial data
• Be sensitized to the climate change, its impacts on economic and financial markets
• Understanding the development of sustainable finance and materialization of transition risks
• Having basic knowledge of the various regulatory requirements and implication for financial actors
• Be sensitized to XVA costs and how they can be cascaded through the financial network
• Be sensitized to new risk topic trends w.r.t. quantum computing with possible applications and Cyber risk

Skills outcomes:

• Mathematical formulation of financial cashflow and contract valuation
• Identify risk types given a simple financial portfolio
• Identify data types that can be required for financial analysis
• Have a system view of funding needs and how they can be supported by the financial markets

Teaching format:

Each of the 5 lecture sessions may start by making Students think about the topics that will be covered during the beginning of the session through dedicated questions. The first half of the session can be quite interactive, pushing Students to question the place taken by Finance in general in the World society and what the various means underlying the financial markets such us business development requiring investments, IT infrastructure implementation, service platform setup. Then the topics are formalized and practical applications will be designed so as to apply the presented topics. End of session will be dedicated to collect all feedbacks of the applications and wrap-up with main key take-always. To sum up:

• Questions and reflexion on session topics
• Lecture formalizing the session topics
• Applications
• Restitution and wrap-up

Resources:

Michel Crouhy, Dan Galai & Robert Mark, The Essentials of Risk Management, 2^nd Edition (2014)

Philippe Jorion, Financial Risk Manager Handbook (2005)

Jon Gregory, The XVA Challenge: Counterparty Risk, Funding, Collateral, Capital and Initial Margin (2020)

Jon Gregory, Central Counterparties: Mandatory Central Clearing and Initial Margin Requirements for OTC Derivatives (2014)

John Hull, Options, Futures, and Other Derivatives 9^th Edition (2018)

Tiziano Bellini, Stress Testing and Risk Integration in Banks: A Statistical Framework and Practical Software Guide (in Matlab and R) 1^st Edition (2016)

Short Biography

Dorinel Bastide is a 17-year Experienced Senior Quantitative Analyst at BNP Paribas with a demonstrated history of working in the banking industry, in particular risk modelling, with strong research professional skills in topics such as CCP, Counterparty, Market, Operational & Credit Risks and Stress Test modelling including extensive coding experience in Python, C#, C++ and VBA. He is the Coordinator for BNP Paribas of the Research Chair Stress Test, RISK Management & Financial Steering since its creation in 2018. He holds a master degree in applied mathematics from University Gustave Eiffel in France, is GARP FRM certified and is currently a PhD candidate at UEVE University Paris-Saclay in applied mathematics on stochastic modelling for financial networks dominated by clearing houses.