Ateneo - UPO

The course provides the basic knowledge for the design and use of financial contracts aimed at managing corporate risks. We will begin the learning path by introducing a qualitative model of the firm as an interconnected entity of informational flows (e.g., accounting), financial flows (e.g., funds), and operational flows (e.g., production processes), from which the risks to be managed emerge. We will then move on to presenting the notion of a financial derivative contract. The focus will be on the cash flows (payoffs) generated by such operations, the time dynamics of prices, and the measurement of market uncertainty that gives rise to insurable risks. We will analyze the main approaches to financial risk management, with reference to hedging, arbitrage, and speculation strategies. We will show how a derivative contract can provide a simple, flexible, and cost-effective tool to manage corporate market risks, as an alternative to costly operational tools (e.g., opening/closing plants, offshoring, reshoring). We will then proceed to develop stylized business cases in which we will use the forward contract to manage corporate financial risks. Finally, we will provide an introduction to the use of financial options. Throughout the course, we will provide numerous concrete examples of case study implementation in Excel, in order to translate theoretical concepts into practical and operational applications. In general, we will follow a conceptual and pragmatic approach, leaving mathematical-quantitative developments to other in-depth courses.

Mandatory: Lecture notes in PDF prepared by the instructors. Optional (supplementary): Hull, J. (2022). Options, Futures, and Other Derivatives (11th ed.), Pearson. Hull, J. (2022). Options, Futures, and Other Derivatives. Solutions Manual (11th ed.), Pearson.

The objective of the course is to provide students with the basic knowledge necessary to analyze financial transactions and to understand the relationship between risk, price, and the value of certain financial instruments. In particular, students will develop the fundamental skills to interpret market dynamics, evaluate the payoffs of transactions, and analyze the main strategies of hedging, arbitrage, and speculation. Another key goal of the course is to enable students to apply theoretical concepts to simple case studies, using Excel as an operational tool for modeling and analyzing hedging strategies through forward contracts.

None. Every concept or term will be defined during the course.

The course will be delivered through lectures, hands-on exercises, and group discussions

The language of instruction is Italian

Written and/or oral exam (to be defined).

Definition of financial transaction, fundamental elements and economic-financial logic – Payoff of a financial transaction – Time dynamics of prices, uncertainty and risk – A closed-loop model of the firm – Financial risks and operational risks – Financial risk management models – Hedging, arbitrage, and speculation functions – Replicating portfolio – Introduction to derivative instruments – Forward contracts – Forward price – Spot price – Value of a forward contract – Hedging through forwards – Call and put options – Derivative combinations – A case study on commodity price risk management – Tax implications and risk hedging.

By the end of the course, students will be able to: - Demonstrate knowledge of the basic concepts related to financial transactions and their associated payoffs - Interpret the relationship between risk, price, and the value of financial instruments - Explain financial market dynamics and price uncertainty - Distinguish and analyze basic strategies of hedging, arbitrage, and speculation - Understand the functioning, pricing, and economic value of forward contracts - Apply theoretical knowledge to simple case studies using Excel