COURSE NUMBER: MBA237.1
This course is cross-listed with the EWMBA Program
COURSE TITLE: Corporate Risk Management and Valuation using
Derivatives
UNITS OF CREDIT: 2.0
INSTRUCTOR: Nicolae Garleanu
E-MAIL ADDRESS: garleanu@haas.berkeley.edu
CLASS WEB PAGE LOCATION: http://bspace.berkeley.edu
MEETING DAY(S)/TIME: Tuesdays, 6:00PM – 9:30PM (10 weeks,
September 2-November 4)
PREREQUISITE(S): MBA203
CLASS FORMAT: Lectures and short cases
REQUIRED READINGS: Lecture notes, additional material posted on
line; textbook readings recommended
BASIS FOR FINAL GRADE: Midterm and final examinations, class
participation, problem sets (homework)
ABSTRACT OF COURSE'S CONTENT AND OBJECTIVES: The derivative class
is the largest asset class worldwide, comprising securities worth more than $35
trillion and laying claim to assets worth almost $600 trillion. (In contrast,
the total value of all publicly traded companies in the world is around $50
trillion.) The extraordinary size and growth of this class owe to the
usefulness of derivatives as instruments for taking tailored risk positions.
For example, a gold miner can (pay a price to) eliminate the risk it has to
sell gold below $800/oz; an investor bullish on Microsoft can take a position
that pays off when the price of Microsoft climbs to a value between $30 and
$35, but not otherwise; a European exporter can shield itself against revenues
dropping due to the rise of the Euro above $1.60; a bond investor can pass the
default risk in its bond portfolio to another, perhaps more risk tolerant,
investor; etc. In addition, the main features of derivatives characterize all
common corporate securities and numerous other financial contracts – for
instance, the contracts used by the US government to inject cash in various
firms in 2008-2009.
The main goals of the course are that students learn: (i) what
derivatives are, (ii) how to use derivatives, and (iii) how to price
derivatives.
The course is going to introduce a large number of derivatives,
starting with the standard ones – futures, forwards, swaps, and plain-vanilla
options – and continuing with more “exotic” ones – exotic options, credit
default swaps (CDS), asset-backed securities (e.g., MBS, CDO), etc. A very
important aspect of the course is the fair pricing of derivatives; based on the
notion of “no arbitrage”, the course will derive the correct price for the
derivatives studied, which will involve building models of the statistical
behavior of underlying-asset (e.g., equity, currency, or commodity) prices.
These models also allow precise statements concerning the correct derivative
position to take in order to achieve a particular risk exposure, whether
motivated by speculative or hedging reasons. The course will introduce precise
metrics for the evaluation of a portfolio's risk, ranging from the classical
ones, such as variance or beta, to ones developed more recently, such as value
at risk (VaR).
BIOGRAPHICAL SKETCH: After obtaining his PhD in Finance from the
Stanford GSB, Professor Garleanu taught at INSEAD and Wharton before moving to
Haas in 2007. At Haas, he has taught the core finance course in the day MBA
program and modules on derivatives and on risk management in the IMCA executive
program.
Professor Garleanu's research studies theoretically the
determinants of asset prices. Thus, his papers investigate the average
equity-market return in excess of bond returns, the difference in returns
between growth and value stocks, apparent systematic anomalies in the prices of
options, the effect of liquidity in over-the-counter markets, the impact of
trader funding constraints, and others. His papers have been published in top
scholarly journals including Econometrica, the Review of Financial
Studies, the Journal of Financial Economics, and the Journal of Economic
Theory.