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EXC 3673 Corporate and Financial Risk Management

EXC 3673 Corporate and Financial Risk Management

Course code: 
EXC 3673
Department: 
Finance
Credits: 
7.5
Course coordinator: 
Adam Walter Winegar
Product category: 
Bachelor
Portfolio: 
BBA - Specialisation in Finance
Semester: 
2021 Spring
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
Introduction

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. 

Learning outcomes - Knowledge

The students will acquire a good understanding of the derivatives, risk measurement, and risk maangement. 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.

 

Learning outcomes - Skills

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.
General Competence
  • 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..
Course content
  1. Why manage risk?
  2. Forwards and Futures: Pricing and hedging
  3. Swaps: Pricing and hedging
  4. Options: Pricing and hedging
  5. Derivative Markets
  6. Measuring risks and risk management with derivatives
  7. Financial Crises and Regulation
  8. Managing Credit, Counterparty, and Liquidity Risks
Teaching and learning activities

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 text book. 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 Matlab) will be used for certain practical applications and examples. It is recommended that students are familiar with their use.

Python or Matlab would be helpful for understanding some aspects of the course.

Software tools
Software defined under the section "Teaching and learning activities".
Matlab
Additional information

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. Setailed information about the point system and the cut off points with reference to the letter grades will be given when course starts. 

As of the academic year 2020/2021, the examination format has changed.

Re-sit examiniation in EXC 36732 and EXC 36733 counting respectively 20% and 80%, will be offered in autumn 2020 and last time spring 2021.

Qualifications

The specialisation requires two years of university education in Business Administration or equivalent.

Required prerequisite knowledge

EXC 3671 Corporate Finance, EXC 3612 Investment Analysis, EXC 3672 Analyses of Financial Data, EXC 3670 Financial Markets and Institutions, or equivalent.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Structured test
Exam code:
EXC36734
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
25Yes 2 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Individual Mid-term exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
EXC36734
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
75Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Individual
Exams:
Exam category:Submission
Form of assessment:Structured test
Weight:25
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Duration: 2 Hour(s)
Comment:Mid-term exam
Exam code:EXC36734
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:75
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Duration:3 Hour(s)
Comment:
Exam code:EXC36734
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Type of Assessment: 
Continuous assessment
Grading scale: 
ECTS
Total weight: 
100
Student workload
ActivityDurationComment
Teaching on Campus
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)
Sum workload: 
200

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.