FINANCIAL RISK MANAGEMENT
The aim of the course is to analyze the financial dynamics of non financial companies, especially with a view to the management of their main risks, through the use of derivative instruments. At the end of the course, the student will have acquired an in-depth knowledge of the main investment and debt instruments (bonds and shares) of non financial firms and of the their main types of risks, with particular emphasis on the issue of sustainability and, therefore, of ESG factors. Specifically, the student will be able to define, measure (using the VaR technique) and manage the following types of risk through the use of appropriate hedging techniques based on the use of derivative instruments: interest rate risk , price risk, climate risk , exchange rate risk and commodity risk.
Formally none; the knowledge of the basic principles of corporate finance and of the main types of financial risks of companies facilitate the understanding of the topics. If students do not have this basic knowledge, the teacher will provide appropriate bibliographic references.
I block (10 hours): Main investment and debt instruments: bonds and equities; duration of bonds and floaters; convexity; the CAPM and the beta; classroom exercises
II block (6 hours): Risk measurement
Definition of the main types of risk; to measure the risk through the Value at Risk (VaR); classroom exercises
III block (12 + 12 hours): hedging policies through derivatives
Options: main features; long call payoff, short call, long put and short put; evaluation of European and American options through the CRR binomial model; evaluation of European options with the B&S model, classrooms exercises.
Interest rate swaps
IV block (8 hours): Focus on sustainability: ESG factors, their risks and implications for companies
The course first analyzes the main financing and investment tools of non financial firms: then it focuses on the measurement and management of their financial risks through plain vanilla derivatives (options, irs and forward). As part of the course, relevance will be given to the topic of sustainability and, with reference to this topic, the ESG factors, their related risks and their implications for companies will be analyzed. In detail, the types of risk that will be explored are interest rate risk, price risk, climate risk, exchange rate risk and commodity risk
Classroom lessons; classroom exercises; extra learning material and supports are available on the teacher’s home page.
- Bajo E. (2016) “Rischi finanziari delle imprese. Politiche di copertura, modelli ed evidenze empiriche”, Franco Angeli;
- Hull J. (2018) “Opzioni, futures e altri derivati”, Pearson;
- slides and additional material will be provided by the teacher during the course;
The assessment is based on a written examination which is composed (circa 80%) of three numerical exercises and one open question (circa 20%) on the program’s topics.
In their answers students should be able to show the fundamental concepts acquired during their studies. In order to assess the student’s knowledge of the analysed topics, some mathematical discussion and/or exposition of models and theories discussed at lesson can be required. The written examination is made up of four questions; to each of them a maximum of 7.5 mark-points is allocated up to grand total of 30. The laude can be assigned if the student shows a particular ability to deepen the required topics. The duration of the written examination is 1 hour and 45 minutes. During the examination, the use of notes, books and informatics devices (smartphone, tablet, pc, ecc.) is not allowed.
An oral examination can also be held, in case the teacher judges it useful to better ascertain the student’s knowledge. The vote of the oral examination is expressed in scale from 0 to 30, and it is averaged with the vote of written examination (equal weighting) in order to determine the final vote.
Expected learning outcomes
Knowledge and understanding: the student should be able to understand and manage in an integrated way the main types of risk of non-financial companies.
Applying knowledge and understanding: the student should be able to apply the specific knowledge acquired in assessing the trade-off between the company's risk tolerance and its adequate level of profitability. To this end, the theoretical and analytical framework for the study and evaluation of risk management policies will be presented in classroom lectures, with the help of examples and real applications. These applications and themes can also be discussed during the student tutoring phase.
At the end of the course the student must have acquired the ability to critically evaluate, measure and adequately manage the main risks of the companies. The evaluative autonomy of the student will be developed during the course, through lectures and seminar meetings, aimed at a constant interaction between teacher and student.
Communication: the student should be able to answer the written test questions with clear and technical language. In particular, it should express itself through a technical language, which allows it to communicate with risk managers and other professional figures involved in the risk management process of companies.
Lifelong learning skills: the student should be able to show a good learning ability, for example by expanding his / her knowledge with the use of relevant bibliographic references and normative texts that refer to the topics investigated.