EXC 3673 Corporate and Financial Risk Management
EXC 3673 Corporate and Financial Risk Management
The objective of this course is to provide students with an understanding of corporate and financial risk management. For example, the course explores questions such as: why corporations should manage risks, how to measure financial risks, and what tools firms may use to do so, mainly derivative securities. The focus of the course is not on derivatives per se, but a basic understanding and intuition of derivatives markets, its instruments and participants is essential not only to students and specialists in finance, but also to general business practitioners. Therefore, the course will spend a significant time on the terms, valuation, and trading of derivative securities. The course has a theoretical background but will generally focus on applications.
During this course you will learn the principles behind risk management and how derivative instruments can be used to change the risk profile of a corporation or simply a financial position. The course begins by exploring why firms should manage risks. We will then cover the pricing/valuation and trading of derivatives instruments commonly used in risk management (futures/forwards, swaps, and options) as well as the markets in which they trade (exchanges and over-the-counter). The remainder of the course will focus on practical applications of these derivatives for hedging decisions, how to properly measure risk exposure, and the different types of risks firms face (e.g., market, interest, or credit risks). In addition, the course will introduce how firms measure and managing their financial risks through computer simulation tools. We will also discuss how recent crises and changing regulations affect firm risk management practices. The course will contain both theory and examples/cases of risk management applications.
The students will acquire a good understanding of the derivatives, risk measurement, and risk management. More specifically the students will develop their understanding with respect to the following topics:
- The value-adding principles behind risk-management and the ability to evaluate risk-management practices.
- The structure and specifics of the basic derivative securities, futures, forwards, options and swaps including their valuation and trading.
- The economic role of derivative securities and the way they are being and can be used in practice.
- How to identify the factors to which a firm or a financial position is exposed and the ways to measure risk.
During the acquisition of the above mentioned knowledge the students will acquire the following skills:
- Calculate various measures of the risks of a corporation or a financial position.
- Value forwards, swaps, and options using no-arbitrage based methods including cost of carry, binomial models, and Black and Scholes.
- Construct and evaluate various strategies using derivatives.
- Identify risk factors that firms face, implement hedging strategies using derivatives, and represent the resulting payoffs both diagrammatically and mathematically.
- Utilize modern computer tools to evaluate risk management strategies, value derivatives, and measure risk exposures.
- The acquired theoretical and practical knowledge provided by the course should enable the student to first understand and be able to apply the basic principles behind the pricing and hedging of derivative instruments especially from the point of view of risk management. Further the student should acquire the ability to appreciate the financial and economic opportunities that derivative instruments offer while also being able to critically assess their role and practical value in light of how these products are being used in practice.
- Why manage risk?
- Forwards and Futures: Pricing and hedging
- Swaps: Pricing and hedging
- Options: Pricing and hedging
- Derivative Markets
- Measuring risks and risk management with derivatives
- Financial Crises and Regulation
- Managing Credit, Counterparty, and Liquidity Risks
- Other Topics in Risk Management
The course will include a combination of lectures and plenary tutorials where solutions to exercises will be explained and practical examples will be presented. Several exercises and practice questions will be uploaded on the course website on itslearning in addition to practice exams.
Specific information regarding any aspect of the course or student evaluation will be provided in class. Please note that whilst attendance is not compulsory, it is the student’s responsibility to obtain any information provided in class that is not included on the course website on itslearning or in the textbook. The course website on itslearning is not designed for the purpose of students who choose not to attend class.
Spreadsheets (Excel) as well as example code (Python or R) will be used for certain practical applications and examples. It is recommended that students are familiar with their use.
Python or R would be helpful for understanding some aspects of the course.
This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information in the course description in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. Detailed information about the point system and the cut off points with reference to the letter grades will be given when course starts.
Higher Education Entrance Qualification
Disclaimer
Deviations in teaching and exams may occur if external conditions or unforeseen events call for this
EXC 3671 Corporate Finance, EXC 3612 Investment Analysis, EXC 3672 Analyses of Financial Data, EXC 3670 Financial Markets and Institutions, or equivalent.
| Assessments |
|---|
Exam category: Submission Form of assessment: Structured test Invigilation Weight: 25 Grouping: Individual Support materials:
Duration: 2 Hour(s) Comment: Mid-term exam Exam code: EXC36734 Grading scale: Point scale leading to ECTS letter grade Resit: All components must, as a main rule, be retaken during next scheduled course |
Exam category: Submission Form of assessment: Written submission Invigilation Weight: 75 Grouping: Individual Support materials:
Duration: 3 Hour(s) Exam code: EXC36734 Grading scale: Point scale leading to ECTS letter grade Resit: All components must, as a main rule, be retaken during next scheduled course |
| Activity | Duration | Comment |
|---|---|---|
Teaching | 36 Hour(s) | |
Feedback activities and counselling | 6 Hour(s) | Review of assignments in plenary |
Examination | 2 Hour(s) | |
Prepare for teaching | 73 Hour(s) | |
Group work / Assignments | 38 Hour(s) | Preparation of home assignments and mid-term exam. |
Student's own work with learning resources | 45 Hour(s) |
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.