97980 - RISK MANAGEMENT

Learning outcomes

At the end of the course, the students can collate the risk management techniques by corporations and financial institutions. They can also identify a company's risk exposure and select the most appropriate financial derivative instrument to hedge against it.

Course contents

This course focuses on finance-related risk management techniques designed to maximize the value of the firm. The course highlights the management of financial risk with emphasis on recognition of financial price risk and tools of risk management from a business firm's perspective. A relevant part of the course is devoted to the analysis of derivatives and their uses in risk management.

 

Structure of the course:

1. Course presentation; Introduction to corporate risk management; introduction to financial risks

2. Forward and futures

3. Forward and futures (cont)

4. Yield curve and interest rate risk

5. Interest and currency swap

6. Review/practice session

7. Financial options

8. Financial options (cont)

9. Review/practice session

10. Case study presentation

Readings/Bibliography

Required Readings:

BMA: Brealey R., Myers S. and F. Allen, "Principles of Corporate Finance”, (the latest available version or any other in the last 10 years), McGraw-Hill (chapters: 20,21,26 and 27)

List of papers:

Smith, C.W., 2008. Managing corporate risk. In Handbook of Corporate Finance: Empirical Corporate Finance. Elsevier/North-Holland, Vol 2, pp. 539–556.

Renè M. Stulz, 1996. Rethinking Risk Management. Journal of Applied Corporate Finance, 9(3), 8-25.

Case study:

Merton electronics, Case studies in Finance, by Robert F. Brunner, 4th Edition, McGraw Hill, 2003, pp 463-473;

Supplementary Readings (Optional):

E. Bajo (2022), Corporate Risk Management: How to hedge financial risks for a non-financial company

John Hull, "Options, futures and other derivatives", 8/e, 2011, Prentice Hall

(chapters: 1, 2, 3, 5 and 9)

Practice book:

E. Bajo (2022), Corporate Risk Management: Collection of case problems with Solution

Teaching methods

The main instructional approaches used in the course are:

- Lectures

- Case Studies

- Problem-Based Learning

- Group work

Assessment methods

Though not compulsory, class attendance and participation in team-work assignments is strongly encouraged.

Course evaluation will be different depending on the attendance.

Attending Students:

Component Weight (%)

Final Exam 100

Class Participation + up to 3 points

Non attending Students:

Component Weight (%)

Final Exam 100

- Exam and group project structure:

The exam will include one practical case and a theoretical part. The practical case (20 out of 30 marks) is aimed to assess your ability to put in practice corporate hedging techniques; the theoretical part (10 out of 30 marks) is intended to evaluate your level of understanding of the main rationales for hedging and the most common techniques used for such a goal. The evaluation of the answers of the exam depends on the correctness, completeness and rigor of the answers.

The exam will last 60 minutes. The theoretical maximum score, including class participation, is 33 points. For non-attending students, the maximum achievable grade is 30.

The final session (Session #10) will be dedicated to group presentations. While the presentations are not graded per se, they do contribute, though not exclusively, to the class participation grade. The class will be divided into six groups, each assigned to present a specific part of the Merton Electronics case. Both group composition and presentation order will be randomly determined.

The case study involves not only discussing the overall risk management framework but also designing an effective hedging strategy using various financial derivative instruments. The analysis will be split into six distinct components, with each group responsible for presenting the assigned section to the class. Each group must prepare a detailed PowerPoint presentation that explains the context, outlines potential hedging strategies, discusses the pros and cons of each option, and concludes with final recommendations or open questions. The presentation must be submitted no later than 7:00 AM on the day of Session #10.

- Exam Policy:

Exam registration policy for the whole integrated exam of Corporate Finance: The final grade for the integrated course in Corporate Finance will be calculated as a credit-weighted average of the three modules: Corporate Governance (6 credits), Risk Management (6 credits), and Financial Laboratory (4 credits). However, a minimum score of 16/30 must be achieved in each module for the integrated grade to be considered valid.

All passing grades for the integrated exam (provided that each individual module score is at least 16/30) will be automatically recorded within two weeks of publication, unless students explicitly request otherwise.

For the January–February re-take sessions, all integrated exam grades equal to or above 23/30 will be automatically registered and cannot be refused.

Grading scale:

< 18: failed

18-23: sufficient

24-27: good

28-30: very good

30 e lode: outstanding

Erasmus: at most 8 not CLAMDA students (Erasmus, Overseas and UADE students), selected in chronological order, will be admitted to the course and the exam.

Students with disability or specific learning disabilities (DSA) are required to make their condition known to find the best possibile accommodation to their needs.

Teaching tools

Tools, platforms, or resources used during the course:

- Learning platform: Virtuale (virtuale.unibo.it) contains the slides and the team-work assignments

- Presentation software: PowerPoint or other chosen by students

- Communication tools: Email; Teams; Forum on Virtuale

- Other digital software: MS Excel

Office hours

See the website of Emanuele Bajo