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 value of firm. The course highlights the management of financial risk with emphasis on recognition of financial price risk and tools of risk management from business firm's perspective. A relevant part of the course is devoted to the analysis of derivatives and their uses in risk management.

The course is divided into four parts:

I: Concepts and the economics of Risk Management

II: Understanding and measuring financial risk

III: Tools for Market Risk Management (financial derivatives)

IV: The practice of Risk Management

The first part of the course will address the general concepts of risk management, trying to give an answer to the question “why do firms (should) hedge?”. The second and the third part will be the most technical and it will cover the tools for measuring and hedging risks. During this part you will become familiar with concepts such as forward, futures, options and swaps (commonly known as financial derivatives). The last part will focus on the strategy of the risk management.

Readings/Bibliography

List of papers:

P1: Smith, C.W., 2008. Managing corporate risk. In Handbook of Corporate Finance: Empirical Corporate Finance. Elsevier/North-Holland, Vol 2, pp. 539–556.

P2: 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;

You also may find interesting reading this (optional readings):

Aswath Damodaran, 2008, Strategic risk taking: a framework for risk management, Prentice Hall (chapter 10). 

John Hull, "Options, futures and other derivatives", 8/e, 2011, Prentice Hall (chapters: 1, 2, 3, 5 and 9)

Corporate Risk Management: How to hedge financial risks for a non-financial company, 2022, (e-book)

 

Practice book:

Corporate Risk Management: Collection of case problems with solution

 

Teaching methods

The course will be divided into theoretical lectures and applied sessions dedicated to solving case-based problems. Throughout the course, extensive use will be made of real-data gathered from financial websites.

The course content will be presented using a combination of whiteboards and slides to ensure effective delivery.

Online practice sessions will primarily utilize Excel for practical exercises.

 

Assessment methods

A 60-minute exam will be conducted during the official sessions, serving as a comprehensive final exam that covers all four sections of this course. While the Risk Management exam will be administered alongside the other two modules of Corporate Finance I.C., you have the option to choose only to take the exam for this particular module, with the possibility of taking the other modules in any of the other exam sessions. The exam will consist of a practical case and a theoretical part.

The practical case aims to assess your ability to apply corporate hedging techniques in practice, while the theoretical part is designed to evaluate your understanding of the main rationales for hedging and the most commonly used techniques for achieving this objective.

The final grade will be determined as follows:

• Case Presentation and class participation: up to 3 points
• Written exam: up to 30 points
  • Practical case: up to 20 points
  • Open question: up to 10 points

The maximum achievable score is 30 cum laude, assuming all answers are correct, comprehensive, and presented in a formally rigorous manner.

The grading scale is as follows:

• <18: Failed
• 18-23: Sufficient
• 24-27: Good
• 28-30: Very good
• 30 e lode: Excellent

Teaching tools

Dedicated page on the VIRTUALE platform containing:

• News and updated information
• Lectures slides
• Excel files

Office hours

See the website of Emanuele Bajo