Risk Management

1.5 units

Risk management is an increasingly important, but often misunderstood, aspect of corporate financial policy. This course will analyze the whys and hows of financial risk management. The first half of the course will answer the question: Why should firms manage risk? The analysis will draw upon the theory of corporate finance to show how taxes, bankruptcy costs, and the costs of external finance can make risk management a value enhancing activity, and to understand the integration of risk management and corporate financial policy more generally. This underlying theory will be applied to the analysis of risk management issues in a variety of different industries and firms. The second half of the course will answer the question: How should firms manage risk? Risk management strategies employing exchange traded and over-the-counter derivatives such as futures, forwards, options, and swaps on fixed income securities, commodities, foreign currencies, and equities will be analyzed. If time permits, additional topics may be covered, potentially including credit risk, operational risk, settlement risk, and systemic risk. The course will include a rigorous analysis of the relevant theory, but will also emphasize application of this theory through classroom examples, homework problems, and cases.