MGT 339 Financial Derivatives

Objective and Overview

In this course, students develop an understanding of financial derivative instruments and their applications to corporate strategy and risk management. Throughout the course, we distinguish between using derivatives to appropriately manage risk and using them for speculation. We emphasize the perspective that derivative instruments are problem-solving tools that, when used correctly, can create value for financial and non-financial corporations. We develop the basic mathematical tools necessary for analysis, design, pricing, and implementation of derivatives in a managerial context. We cover foward, future, option, and swap contracts, hedging, arbitrage, and derivatives-pricing models. In addition, we introduce securitization, real options, and risk management. Through case preparation and discussion, students learn to model and evaluate derivative instruments and risk exposure.

Prerequisites

MGT 335 Corporate Finance or permission of instructor.

Who should take the course?

This is an introductory course designed for MBA students who are interested in finance. For MSFE students, this course is intended to complement the Mathematical Finance course. Accordingly, in this course, we de-emphasize (as much as possible) mathematical sophistication and formal modeling and emphasize corporate management related to the use of financial derivatives.

The textbook for the course is "Derivatives Markets", by Robert L. McDonald (most current edition). In addition, we discuss a series of HBS cases that are contained in the MGT 339 Case Binder. Additional readings may be distributed during the class. Because of the nature of the course, each student is required to have access to a computer and Excel software. "Principles of Corporate Finance", by Brealey and Myers, (any edition) is recommended as a reference.

Basis for Evaluation

20% Participation in class and case discussion (weekly)
20% Group case presentations (probably 3 of 5)
20% Graded homework
20% Midterm exam
20% Final individual case submission
Note: Grading weights are subject to change.

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