Finance Summer School

Course Overview

This course will present the framework needed for pricing and hedging fixed-income securities. The course covers a range of conceptual frameworks and quantitative toolkits, including arbitrage pricing, duration, and convexity; multi-factor and empirical hedging; and term structure models. The course dives into the main instruments and markets, such as interest rate forwards and futures, interest rate swaps, caps, floors, and swaptions. The conceptual framework will be followed by practical examples and cases.

Prerequisites

Good Knowledge of bonds and derivatives.

Course Outline

1. Interest rate risk management
2. Forwards, futures and interest rate swaps
3. Arbitrage pricing with trees
4. Term structure models
5. Pricing caps, floors and swaptions

References

Main Reference

•  Veronesi, P., 2010. Fixed income securities: Valuation, risk, and risk management. John Wiley & Sons. 

Other Useful References

• Tuckman, B. and Serrat, A., 2022. Fixed income securities: tools for today's markets. John Wiley & Sons.
• Fabozzi, F.J. and Mann, S.V., 2012. The handbook of fixed income securities. McGraw-Hill Education.
• Simozar, S., 2015. The Advanced Fixed Income and Derivatives Management Guide. John Wiley & Sons.

About the instructor

Eulàlia Nualart is Associate Professor at UPF and a BSE Affiliated Professor. She is the Deputy Director of the BSE Master Program in Economics. Professor Nualart was previously an Associate Professor of Mathematics at Université Paris 13 and an invited professor at Universidad Pública de Navarra and the University of Utah (USA). Her research interests include stochastic analysis, Malliavin calculus and applications to finance; SDEs and SPDEs; Fractional Brownian motion; Lévy processes; and statistical inference for parametric models driven by SDEs. She has published in international journals such as Stochastic Processes and their Applications, The Annals of Probability, SPDEs: Analysis and Computations, or Journal of Functional Analysis, among others. She obtained a Marie Curie Career Integration grant in 2013.

Course Overview

This course presents the framework needed for pricing equity and commodity derivatives and hedging the corresponding underlying securities. The main goal of the course is to study the fundamentals of hedging techniques using derivatives as well as the techniques available for risk measurement in financial and non-financial corporations. The course reviews the set of derivatives available in financial markets, presenting an overview of their different potential applications for hedging, as well as strategies that firms can use to optimize hedging.

Applications of derivatives that are covered in the course include their use for speculation in markets and the design of arbitrage strategies. The course discusses theoretical concepts, quantitative techniques, and practical illustrations based on lectures and case studies, with a main emphasis on practical applications.

Prerequisites

Good prior knowledge of derivatives.

Course Outline

1. Trading, pricing, and valuation of derivatives
2. Measures of sensitivity and hedging
3. Hedging with forwards and futures
4. Hedging with options 1
5. Hedging with options 2

References

We will use several business cases as listed in the syllabus, as well as material from textbooks and academic papers.

Main references

Hull, J. (2017) “Options, Futures and other Derivatives”, Prentice Hall, 10th edition.

Black, F. and M. Scholes (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 81, 3, 637-654.

About the instructor

Manuel Moreno holds a PhD Degree in Economics from the Universidad Carlos III of Madrid and a B. Sc. Degree in Mathematics from the Universidad Complutense of Madrid. He is currently an Associate Professor of Finance and Vice-dean of Quality at Universidad Castilla-La Mancha (UCLM), Adjunct Professor at the Instituto de Empresa (IE) Business School, and Associate Editor of Studies in Economics and Finance. At UCLM, he is the coordinator of the Official Master in Banking and Quantitative Finance and of the Ph. D. Program in Quantitative Finance and Economics. His research interests focus on finance in continuous time with special emphasis on derivatives markets, financial engineering applications, pricing of derivatives, empirical analysis of different pricing models, portfolio management, and term structure models. His research has been published in a number of academic journals including the Australian Journal of Management, Economic Modelling, Energy Economics, European Journal of Operational Research, Journal of Banking and Finance, Journal of Computational Finance, Journal of Futures Markets, Physica A: Statistical Mechanics and its Applications, Quantitative Finance, and Review of Derivatives Research.

Course Overview

This course covers the theory and practice of advanced portfolio management. Students will learn to formulate and solve portfolio choice problems with a focus on the practical challenges of taking optimization theory to the data. In particular, they will learn how to incorporate downside risk in their portfolio decisions, how to deal with estimation error in the parameters, how to exploit return predictability for portfolio decisions combining big data with machine learning methods, how to use factor models in portfolio problems, and how to evaluate the performance of actively managed portfolios, with a focus on the mutual fund industry.

Prerequisites

Basic knowledge of statistics and calculus. Familiarity with portfolio theory and asset pricing is recommended but not necessary.

Course Outline

• Portfolio optimization techniques
• Downside risk and parameter estimation risk
• Portfolio optimization with multi-factor models
• Exploiting big data and machine learning for portfolio decisions
• Active mutual funds and portfolio performance evaluation

References

F. Fabozzi, P. Kolm, D. Pachamanova, S. Focardi. Robust portfolio optimization and management. Wiley (2007)

S. Giglio, B. Kelly, D. Xiu. Factor Models, Machine Learning, and Asset Pricing. Annual Review of Financial Economics 2022 14:1, 337-368

About the Instructor

Javier Gil-Bazo is an Associate Professor of Finance at Universitat Pompeu Fabra and an Affiliated Professor of the BSE. His research deals with the study of institutional investors and asset pricing modeling. His work has been published in academic journals such as the Journal of Finance, Review of Financial Studies, Journal of Banking and Finance, Journal of Financial Markets, Quantitative Finance, Journal of Financial Econometrics, Journal of Economic Behavior and Organization, Journal of Business Finance and Accounting, International Review of Financial Analysis, and Economics Letters. His research on mutual funds has been cited in regulatory proposals by the US Department of Labor and has been featured in the international media, including Forbes, FOX Business, Reuters, and Money Week. Javier Gil-Bazo was the President of the Spanish Finance Association in 2018-19.

Course Overview

This is a highly interactive course that covers more advanced concepts in corporate finance, relating to the dynamics of capital structure, payout and cash policy in the presence of frictions, short-term liquidity management, and the application of multiple techniques for firm valuation. 

We will explore how firms change their liability structure to finance new investments, and how financial frictions limit the ability of firms to optimize their financing. We will investigate the drivers of dividend policy, why firms accumulate large amounts of cash, and the tax implications of such choices. We will examine how firms raise equity and debt from capital markets. We will examine different approaches to forecasting revenue growth, assessing which forecasting method is best suited for each type of firm. We will study how to estimate discount rates and CAPM betas. We will estimate the value of a corporation and of the associated equity claims, using different valuation methods, and show how to reconcile the results obtained from different valuation methods.

The course relies on lectures and case studies and is focused mainly on applications rather than theory. The course is aimed at practitioners that seek a deeper understanding of how to resolve real-life corporate finance problems. The course includes a series of practical sessions that will take place in the afternoon.

Course Outline

1. Capital structure optimization, leverage policies, and leverage dynamics
2. Payout policy and liquidity management 
3. Raising external capital in the presence of financial constraints
4. Valuation techniques 1/2: reconciling DCF methods and multiples valuation
5. Valuation techniques 2/2: real options and venture capital method

References

The course relies on business cases such as (the list is subject to change):

• Blaine Kitchenware, Inc.: Capital structure optimization in the context of a leveraged recapitalization
• Financial Policy at Apple: Optimal cash and payout policy
• OutReach Networks - First Venture Round: Valuation with the venture capital method
• MW Petroleum Corp. (A): Valuation of a firm with real options
• MW Petroleum Corp. (B): Raising finance for an acquisition
• Teuer Furniture: reconciling discounted cash flows and multiples with a focus on estimating growth
• Ferrari’s 2015 Initial Public Offering: valuation in the context of an IPO

Useful background reference textbooks:

• Jonathan Berk and Peter DeMarzo, Corporate Finance, Fourth Edition, 2016, Pearson Prentice Hall.
•  Aswath Damodaran, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset
•  Richard A. Brealey, Stewart C. Myers, Franklin Allen: Principles of Corporate Finance
•  Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Corporate Finance
•  Aswath Damodaran, Applied Corporate Finance

About the Instructor

Filippo Ippolito is an Associate Professor of Financial Management at Universitat Pompeu Fabra and a Research Affiliate at the Centre for Economic Policy Research (CEPR), London, and Director of the Master in Finance at the Barcelona School of Economics. Professor Ippolito holds a PhD in finance from Said Business School, Oxford, and an MPhil in Russian and Eastern European Studies from the University of Oxford. He has work experience in the financial and consulting sectors. His research focuses on corporate debt, capital structure, corporate liquidity management and private equity. Professor Ippolito has published in the Journal of Finance, Journal of Financial Economics, Journal of Financial Intermediation, Journal of Monetary Economics, Journal of Money, Credit and Banking, and Journal of Corporate Finance.