RISK MANAGEMENT
                                                        BFIN 203
                                         ...
Students are responsible for any extra assignment or announcement given in class and in the Blackboard. I may also
cover s...
After having the class discuss the problem, the group presents and explains, in a professional manner, its own solutions/
...
information. The students will also interview the presidents of 5 financial institutions and investigate the products and
...
SCHEDULE FOR CHAPTERS, QUIZZES, ASSIGMENTS, RESEARCH, AND PRESENTATIONS
               TH.29/August        T.3            ...
1. Introduction to Risk Niehaus (PP) (Chpts 1-2)and FIM Saunders (pp) (Chapter 7)
2. Review of Statistics and risk pooling...
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syllabus_RISK MANAGEMENT BFIN3203 Fall 2002.doc

  1. 1. RISK MANAGEMENT BFIN 203 Fall 2002 Instructor: Dr. Juan R. Castro Office: LH 102 Phone: (903) 233-3396 Office Hours: MW: 9:20 – 10:15. 11:20-12:15 or by appointment. E-mail: JuanCastro@letu.edu CHECK the Class BLACKBOARD: http://online.letu.edu for updated information about the class. Web Site: www.letu.edu/people/juancastro REQUIRED MATERIALS CREDIT RISK MEASUREMENT -New approaches to Value at Risk and other Paradigms, By Saunders and Allen Suggested Readings: Businessweek, Economist, Wall Street Journal, Financial Times, or any Money Section from newspapers. Reference books on reserve: Investments 5ed, Bodie, Kane, and Marcus, Investments, by Jacob and Pettit. Principles of Risk Management and Insurance, by Rejda Risk Management and Insurance, by Hoyt and others Options, Futures, and other Derivatives, by Hull. Financial Derivatives, by Kolb COURSE DESCRIPTION The course aims to provide a sound understanding of the basic principles of risk management. The primary emphasis will be on measuring and managing different kinds of risks that modern enterprises face through their financial operations. The course will cover various areas of management risk such as insurance, diversification, mutual funds, derivatives, value at risk, market risk, and credit risk. The course will use quantitative analysis to study new risk models. The course offers an integrated approach to financial risk management by combining concepts and tools from the insurance and financial risk management disciplines. Besides examining traditional hedging strategies, techniques such as leveraging, post-loss financing, new models in credit risk are also considered. OBJECTIVES • Introduce students to the nature and role of risk management. • Familiarize students with the corporate risk management process. • To acquire a clear and thorough understanding of how modern corporations hedge and insure the risks faced through their operations. • Apply recent techniques from the risk management theory to enhance the risk-return profile of large financial institutions. • Examine recent developments in the theory and practice of risk management. • To prepare students to analyze financial cases in personal risk management • To integrate risk management and Christian faith with eternal truth as a background. ATTENDANCE, EXTRA ANNOUNCEMENTS & PARTICIPATION I will be checking attendance either at the beginning or the end of the class. 1
  2. 2. Students are responsible for any extra assignment or announcement given in class and in the Blackboard. I may also cover some chapters faster than others to accommodate the student’s need. The exam dates and schedule presented are tentative. GRADING Date Exam-1 10% September 26, 2002 Exam-2 10% October 31, 2002 Exam-3 10% December 3, 2002 Financial Cases and presentations 15% Homework, Assignments, and Quizzes 10% Final Exam 20% Research paper and presentation 15% Simulation game and stock index creation 5% Attendance and professionalism 5% 100% NOTES ON GRADING Attendance: If you miss a class, 1 point will be deducted from your overall grade. Missing 5 classes will result in a total loss of your attendance grade points. In order to get the credit for attendance, student must be on time, not late, and stay for the entire duration of the class. If you come late or leave earlier, it will be counted as absent. Every time a student leaves the classroom while the class is in session, one point from attendance will be deducted. Professionalism: this is my evaluation of your class participation, plus your contribution to making the class a productive learning environment. For example, your regular class preparation, and your in-class conduct are all factors of professional conduct. Active participation and courtesy in class are important. Your questions, answers, relevant remarks, and other participative and supportive activities are welcome and should demonstrate your knowledge and encourage information and attitudinal exchange, as well as promote a creative atmosphere in the class conducive to learning Exams There will be three partial exams and a final exam during the course as scheduled on the syllabus. These exams will test your ability to apply your knowledge of the concepts covered during the course. There will be no make-up exams. If you miss the partial exam for any personal (health) reasons and after proper documentation are presented, the partial exam weight will be added to the final comprehensive. Since you are provided with the exam dates, there is no excuse for you to allocate personal issues at the same time. OFFICE HOURS I will be in my office hours listed on the first page most of the time. If these hours are not convenient with you, I will be happy to schedule an appointment at a mutually convenient time. I encourage you to come by whenever you have a question about the course material or any other questions that I may be able to help you with. I am here to help you in anyway possible. Please don’t hesitate to come by my office with any questions or concerns you may have. GRADING SCALE • 90 - 100 = A • 80 - 89 = B • 70 - 79 = C • 60 - 69 = D • Below 59 = F GROUP CASES, ASSIGNMENTS, INTERNET EXERCISES AND PRESENTATIONS, The goal of group cases, internet exercises, assignments, and group presentations are to develop your skills in analyzing personal financial issues, finding relevant information, suggesting solutions, and communicating them, in a professional manner, to the class. Groups of up to 2 students will be created and selected by the students. Cases will be provided in advance to the groups according to the syllabus. The presenting group analyzes the case, prepares solutions/recommendations, and plans and runs a class discussion of this case. Time allocation: 10 minutes. 2
  3. 3. After having the class discuss the problem, the group presents and explains, in a professional manner, its own solutions/ recommendations. Do not complicate your analysis with irrelevant information. When possible it is strongly recommended that you use visual aids such as internet, power points, and transparencies for your presentations. Attire: casual. Provide a copy (by e-mail) of your group case to the instructor with at least 10 hours in advance before the presentation date. Any late case, (within 10 hour), will be penalized by lowering its grade accordingly. DUE TO THE NATURE OF CASE STUDIES, CASE PAPERS AFTER THE PRESENTATION DUE DATE WILL NOT BE ACCEPTED, EARNING NO POINTS. ONLY STUDENTS PRESENTING WILL BE GIVEN THEIR RESPECTIVE POINTS Evaluation criteria:   Quality of the case analysis, conclusions and recommendations.   Quality of presentation.   Completeness, additional sources, and relevant information used.   Peer evaluation of team members Note: Questions from the cases may appear in the exams. It is recommended that every student create a folder with all the cases, handouts, and assignments to be prepared for the exams. APPLICATIONS: MINICASES, CASES, ASSIGNMENTS, AND PRESENTATIONS Reports: The analysis should not simply restate the facts in the case, but instead should take our understanding of what is happening in the case to a higher level. Demonstration of a high level of understanding requires application of the various concepts and models to that bring greater clarity to the situation in the case. It also requires that you research other sources to get a better perspective of the problem. Format for case analyses : Written case analyses must be between 1 and 3 pages (double-spaced, 12 point times new roman font, 1.0 inch right and left margins and 1 inch top and bottom margins). The cover page should include the name of the case study, the date, the course name, the section, the group name, and the names of all students in the group. Presentation The presentations should illustrate an understanding of the case and demonstrate your ability to apply concepts, theories, and models from your readings and previous courses. I am looking for evidence that you have learned the concepts and have begun to learn how to apply them. I recommend using the Internet and visual aids for your presentations. EXPECTATIONS FOR WRITTEN ASSIGNMENTS and PRESENTATIONS Substance: You should substantiate what you are trying to convey with facts and data. The decision-maker will not make the decision because you think is a good concept. Rather, you will need to convince the reader by providing hard facts and data with appropriate citations. Your rationale and reasoning should be explained logically and clearly. Style: The style of your case reports should be clear, concise, and to the point. The executive reading the report does not want to be entertained. He or she wants the information necessary to make a decision. Avoid flowery language with lots of adjectives and adverbs. Be specific and concise in your conclusions. Financial Planner: you should assume that you are a financial planner or financial analyst consultant when providing your analysis and recommendations to the class. RESEARCH The objective of the research analysis is to provide applied educational experiences to students by investigating how to analyze financially a company and find the market demand for consultants in the Longview area. Students are expected to gain foundations in understanding how financial institutions work and what is the demand of financial consultants in the market. The students are expected to fully analyze the company to find out what is the financial condition of the company. If possible, the students will have to obtain relevant information of the company such as financial statements (balance sheet, income statement, and cash flows), historical stock prices, debt, liquidity, and any other relevant 3
  4. 4. information. The students will also interview the presidents of 5 financial institutions and investigate the products and financial conditions of the companies. Students who are assigned to find out the market demand for consultants will have to do some statistical analyzes and will be required to make forecasting for the market. Students will create groups of up to 3 students to work in the research paper. Topics for Research 1. Banks and Consumers Make a thorough analysis of the function of a typical bank and survey the number of banks in the Longview area (at least 5 banks) the type of services they provide, the capitalization, loan risk management, and how they attract consumers. Find the financial condition by using financial statements and ratios. 2. What is the market demand for financial consultants in the Longview area. Research the percentage of the population, income levels, level of financial education, retirement concerns, responsiveness to services, willingness to pay (how much), age brackets, etc. Do a survey and complete analysis. 3. Brokerage Companies, Investment institutions, and financial services provided in the area Make a thorough analysis of the function of investments and financial services in the Longview area (at least 5 of them) the type of services they provide, the capitalization, loan risk management, and how they attract consumers. Find the financial condition by using financial statements and ratios. INVESTMENT SIMULATION GAME and STOCK INDEX CREATION We will be playing an investment simulation game, called STOCK-TRAK, for the entire semester. More than 40,000 students and 700 finance professors use this simulation game every year. Every student is going to manage an account using several stocks. The initial investment amount will be of $500,000 which can be invested. Each student will play at least once a week by investing in different chosen stocks. The trading period will begin on September 14, 2001 and end on December 01, 2001. I will provide more details in class. Each student will create the third day of class (September 03) a stock index with 10 stocks of his/her preference. Indexes are passive strategies used to eliminate the risk of active stock trading. The student will compare his/her index in the midterm (October 15) with the performance of the S&P 500 and will change the stock allocations accordingly to improve the performance of his/her index. BONUSES: 2 extra final points for the winner of the simulation game and indexes 1 extra final point for the second place of the simulation game indexes 4
  5. 5. SCHEDULE FOR CHAPTERS, QUIZZES, ASSIGMENTS, RESEARCH, AND PRESENTATIONS TH.29/August T.3 TH.5 T.10 TH.12 SEPTEMBER Introduction to Risk Introduction to Risk Review of Statistics Review of Statistics: Utility and Risk Problems: Problems: Problems: Problems: Problems: Quiz1: Definitions Cases: Case: Case: 3. Mortgage Cases: Cases: 1. Home Equity 2. Early Retirement 4. Mortgage 5. Avoiding Taxes 7. Mutual Fund Exp Loan 6. Index or Man 8. Passive Investing fund T.17 TH.19 T.24 TH.26 T.1/October SEPTEMBER Utility and Risk Insurance: Insurance: EXAM 1 Mutual Funds: Problems: Problems: Problems: Problems: Cases: Cases: Cases: Cases: 9. Refinance 11. Power of Attorn. 13. Technology Stoc 15. Social Security 1. Teachers’ Inc 12. Financial Plan 14. Refinancing 16. Unemployed TH. 3 T.8 TH.10 T.15 TH. 17 fma Mutual Funds: Mutual Funds: Beta and Security Introduction to Research Plan OCTOBER Problems: Problems: Risk Options Due: Problems: 1. Abstract Research Class 2. Introduction Cases: Cases: Cases: Discussion 3. Literature 17. WTC Attacks 19. Inlation-2 21. Life Insurance Review 18. Inflation 20. Health care cost 22. Mutual Funds 4. How data will be collected T.22 TH.24 T.29 TH.31 T.5 /November MID-SEMESTER BREAK Options and Greeks Options and Hedging EXAM 2 VAR OCTOBER NO-CLASSES Problems: Problems: Paper: Problems: Cases: Cases: 25. Mortgage Rates Cases: 23. Down payment 26. Future Investm 27. Social security 24. Interest Comp 28. Investing Mon TH.7 T.12 TH.14 T.19 TH.21 NOVEMBER Individual Loan Risk CREDIT RISK: CREDIT RISK CREDIT RISK CREDIT RISK Problems: Problems: Problems: Research Cases: Class discussion about 29. Mutual Funds Cases: data analysis, results, Cases: Cases: 30. Pension Funds 31. Changing Mutua and conclusions. 33. 401K and 403b 35. Retirement 32. Early Retirement 34. Inheritance 36. Capital Gains T.26 Th.28 T.3/December TH.5/December T.10 (Thanksgiving) FINAL EXAMS NOVEMBER CREDIT RISK: EXAM 3 Papers due and (12/9 – 12/12) Problems: PAPER PRESENATIONS Cases: 37. Stocks for gran 38. Credit Card D TOPICS TO COVER 5
  6. 6. 1. Introduction to Risk Niehaus (PP) (Chpts 1-2)and FIM Saunders (pp) (Chapter 7) 2. Review of Statistics and risk pooling ( Niehaus = chapter 3) 3. Utility and Risk (Risk aversion, etc) Niehaus = Chapter 7) (Dohorty = Chapter 2) 4. Insurance ( Niehaus = Chapter 4 and 6) 5. Mutual Funds (Ponzen = 1-2), (Bodie 7-8) 6. Beta and Security Risk (Bodie = 9) 7. Options, Hedging, and Greeks ( Hull and Strong) 8. VAR (Jorion) 9. Credit Risk a. Individual Loan Risk ( FMI Saunders=11) b. New Models to measure Credit Risk (CREDIT RISK MEASUREMENT Textbook) 6

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