Preliminary

BRANDEIS INTERNATIONAL BUSINESS SCHOOL

FIN 288: Corporat Financial Engineering (CFE)

SPRING 2016

Instructor: Daniel Bergstresser

Email:

Class Hours:Tuesday/ThursdayMonday63:30-95:2000pm

Office Hours: Monday 3:30-5:00pm, and by appointment

TA: Daniel Golynskiy

Course Description and Learning Goals and Outcomes:

The course focuses on how financial engineering is used in firms to reduce their costs of financing, to alter their fundamental risk exposures, and in a handful of cases, to provide them with new ways to compete. A premise behind the FMI course is that financial engineering can be used by corporations to increase shareholder value, or misused to destroy it. Therefore, the course seeks to help corporate managers understand how to use financial engineering to advance the goals and strategies of their firms. To accomplish this goal, the course (1) documents how financial engineering has been used by firms to accomplish various goals; (2) provides students with frameworks to determine when and how firms can apply financial engineering in managing their businesses; and (3) provides students with basic technical skills in financial engineering.

CFEis primarily intended for students who plan to serve in corporate roles (Treasurer, CFO, CEO) that will involve significant interaction with financial markets and institutions. The course is also suitable for students who plan to pursue careers working inside of financial institutions, for example students who anticipate working as investment bankers or investment managers.

The course will develop and apply a coherent framework for guiding decisions along dimensions that include raising capital and risk management. Students will develop an understanding of the various types of financial markets, institutions, and instruments that exist. Cases will allow students to explore these financial institutions and markets function smoothly and also how they can break down. Overall, students will develop an understanding of how the CFO uses the different tools at their disposal to support the operation of the firm.

Prerequisite: Fin 201a or equivalent is required. Previous or concurrent enrollment in Fin 202a is required. Fin 270a or equivalent is suggested but not required. The course will rely heavily on the LATTE/Moodle platform. The web site will include downloadable files with the class handouts, copies of problem sets and suggested answers. You will need your UNet username and password to log on to the system at You should check this site, and your e-mail regularly for the course announcements.

Textbook:John Hull, Fundamentals of Futures and Options Markets, 7th edition. Pearson/Prentiss Hall 2010.

Examinations and grading: Grades will be based on the following:

Final project: 50%

Homework:25%

Participation: 25%

Class participation will carry a relatively high weight in the grading for the course. Class sessions will be interactive and preparation before class will be essential. Students will need to come to class prepared to discuss in detail each week’s reading assignment, and will need to turn in (before class) a copy of their case preparation which will be graded as homework. Students will deliver a final project which is based on material covered in the course. The final project will give students an opportunity to explore a real-world example of financial engineering. Some examples of potential projects might include a project investigating corporate valuation of auction-rate securities; a project investigating municipalities’ use of derivative-based hedging instruments; and a project investigating financial institutions’ issuance of hybrid securities. The deliverable for the project should be something similar to a ‘case study,’ of the sort used during class discussions.

Planned schedule (subject to change):

Topic #Topic and readingAssignment

1Introduction to financial engineeringpre-class case prep

Student Educational Loan Fund (HBS case 296046)

2Option valuation and pricingpre-class prep

Hull textbook, Chapter 10

3Option valuation and pricing, continuedpre-class prep

Hull textbook, Chapter 12, Chapter 18

4Issuing a hybrid securitypre-class case prep

Times Mirror Company PEPS Proposal (HBS case 296089)

5Issuing a hybrid security, continuedpre-class case prep

Times Mirror Company PEPS Proposal (HBS case 296089)

6Privatizing a companypre-class case prep

The Privatization of Rhone-Poulenc (HBS case 295049)

7Financial engineeringpre-class prep

Unbundled Stock Unit Prospectus Excerpts

Supplemental exhibits

8Financial engineering, continuedpre-class prep

Unbundled Stock Unit Prospectus Excerpts

Supplemental exhibits

9Risk managementpre-class case prep

Cephalon, Inc (HBS case 9-298-116)

10Financing an acquisitionpre-class case prep

AXA/MONY (HBS case 208062)

11Interest rate derivativespre-class prep

Hull textbook, Chapters 4 and 5

12Interest rate derivatives, continuedpre-class prep

Hull textbook, Chapter 7

13Interest rate derivatives in practicepre-class case prep

Fixed Income Arbitrage in a Financial Crisis (A) (HBS case 211-049)

14Liability managementpre-class case prep

Liability management at General Motors (HBS case 293123)

15Interest rate risk managementpre-class case prep

Banc One Corporation: Asset and Liability Management (HBS case 294-079)

16BARCLAYS CAPITALpre-class case prep

17JEFFERSON COUNTYpre-class case prep

18Power and Energy marketspre-class case prep

Contractual Innovation in the UK Energy Markets: Enron Europe, the Eastern Group, and the Sutton Bridge Project (HBS case 200051)

19Longevity risk managementpre-class prep

Case forthcoming (Prudential/General Motors)

20Liquidity 1pre-class case prep

UBS and Auction Rate Securities (HBS case 209119)

21Liquidity 2, Credit marketspre-class case prep

Primus, 2007 (HBS case 208099)

22Summary case: Hybrid securitiespre-class case prep

Cox Communications, Inc., 1999 (HBS case 201003)

23Paper discussion/presentationspaper

Disabilities:

If you are student with a documented disability on record at Brandeis University and wish to have a reasonable accommodation made for you in this class, please see me immediately.

Academic integrity:

You are expected to be familiar with and to follow the University’s policies on academic integrity (see Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspension from the University.

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