Syllabus of Advanced Financial Management

Lectures: 1 session / week, 3 hours / session

Recitations: 1 session / week, 1 hour / session

Course Objective

There are many types of risk management going on in different parts of a company at the same time. The most familiar loci of risk management are trading operations and the treasury office. But many other parts of the firm are involved in risk management. The marketing department designs types of contracts for customers that share risk. Business unit managers evaluate projects with different risk characteristics, and decide on ways to alter projects so as to minimize risk without sacrificing return. The tax, legal, and accounting departments are concerned with risk, with hedging, and with the corporate governance issues. At the highest level of the company key questions about the firm's strategy and its ability to fund its operations must be answered with an eye on the risks of each alternative and strategic decisions that can secure the greatest value for shareholders.

Each of these different risk management activities focuses on different aspects of risk management. The problem before a commodity trader is not the same problem that is before the business unit manager and not the same problem that is before the CFO. The problems facing each actor within the firm demand a focus on different risk related issues.

Prerequisites

From the corporate finance side, this course builds on material developed in 15.434, Advanced Corporate Finance. From the risk management side, this course builds on the tools and techniques developed in 15.437, Options and Futures Markets.

Course Format

The course will be taught with a mixture of lectures presenting specific tools and outline of corporate problems and case discussions in which students attempt to apply the tools and concepts. Class participation is obviously critical. Outside of class students will have the opportunity to focus on key analytic tools and problem sets. The TA will set up 5 recitation sessions to offer students a chance to discuss the 4 problem sets. Students should read the relevant materials before the class covering those topics.

Grading

The course is offered only on a Pass/Fail basis. A passing grade is earned by (1) attendance, (2) general class participation, especially in the case analysis, and (3) obvious effort and accomplishment in mastering the basic tools, including the problem sets. Engagement is the key. The learning is a collective process accomplished with involvement on the part of all.

Additional References

Good textbooks to utilize as backup references are:

Brealey, Richard, Stewart Myers, and Franklin Allen. Principles of Corporate Finance. 9th ed. New York, NY: McGraw Hill Higher Education, 2007. ISBN: 758.