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 course aims to provide students with the basic knowledge required to analyze the main financial transactions and understand the relationship between risk, price, and value for selected financial instruments.
In particular, the course aims to develop the ability to interpret financial market dynamics, assess transaction payoffs, and analyze the main hedging, arbitrage, and speculation strategies. Applied activities are designed to develop the ability to use theoretical concepts in simple case studies, also through the use of Excel for modeling and analyzing hedging strategies based on forward contracts.
The course is worth a total of 4 ECTS credits, corresponding to 30 hours of in-person teaching activities, divided into 23 hours of teacher-led instruction (DE) and 7 hours of interactive teaching (DI), the latter devoted to applied activities and Excel-based exercises.

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 information provided in the Syllabus concerning course content, teaching materials, teaching methods, and assessment applies both to attending and non-attending students.

DISABILITY AND SPECIFIC LEARNING DISORDERS
Students with disabilities, Specific Learning Disorders (SLD), or Special Educational Needs (SEN) may request dedicated services and specific support by contacting the University Staff for Student Careers and Services and consulting the dedicated University webpage: https://uniupo.it/it/servizi/servizi-studenti-disabili-e-dsa
After contacting the relevant University Staff, students with disabilities, SLD, or SEN may contact the course lecturer regarding the adaptation of examination arrangements and teaching-related aspects.

The examination consists of two partial oral examinations aimed at assessing knowledge and understanding of the course contents and the ability to apply the concepts studied. During the two examinations, students may also be required to solve exercises on paper and/or using Excel. For attending students, the second oral examination, concerning the part not involving Excel-based applications, may be replaced, subject to prior agreement with the instructors, by the discussion of a short paper/project.

The final grade is expressed on a 30-point scale and is calculated as the arithmetic mean of the grades obtained in the two partial examinations, or of the first examination and the paper/project when the latter replaces the second oral examination. Assessment is based on knowledge and understanding of the course contents, the ability to correctly apply the concepts and tools studied, autonomy in analysis, and clarity of exposition. As a general guideline: 18–21/30 sufficient; 22–24/30 satisfactory; 25–27/30 good; 28–30/30 very good or excellent. Honours may be awarded for particularly comprehensive, rigorous, and autonomous performance.

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.

Knowledge and understanding: by the end of the course, students will be able to understand the main concepts related to financial transactions, the relationship between risk, price, and value, and the main hedging, arbitrage, and speculation strategies.

Applying knowledge and understanding: students will be able to analyze simple financial transactions, assess their payoffs, and apply the concepts covered in the course to simple case studies, also using Excel to analyze hedging strategies based on forward contracts.

Making judgements: students will be able to critically interpret results and assess the appropriateness of the main financial strategies with respect to the problem considered.

Communication skills: students will be able to clearly describe and discuss the main concepts and results covered in the course, using appropriate technical language.

Learning skills: students will be able to use the knowledge acquired as a basis for independently exploring further topics related to financial markets and instruments.