Environmental and risk management finance

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  • Risk and Risk Management in the Credit Card Industry*
  • Computational Finance and Risk Management
  • Risk Assessment and Risk Management

Risk Assessment and Risk Management

environmental and Risk Management Finance
Affiliated Faculty
Cary Coglianese (Law School)
Edward Emmett (Medical School)
Kenneth Foster (Bioengineering) Please note: Before scheduling classes, check with the Finance
Robert Giegengack (Earth and Environmental Sciences) Department to determine the availability of the courses you have
Ulku Oktem (Operations and Information Management) selected for the upcoming semester or visit the Finance Department
Peter Petraitis (Biology) website at: <>.
Frederick Scatena (Earth and Environmental Sciences)
Wen Shieh (Systems Engineering) The Finance major provides students with the analytic and
theoretical tools required to master practical issues in Finance,
with applications to financial management in business firms,
financial institutions, government, and not-for-profit entities.
While some attention is given to the descriptive, institutional,
and historical aspects of the field, primary emphasis is placed on
the analytical foundations of the discipline, emphasizing theory
and methods of analysis and making extensive use of relevant
techniques of economic analysis, mathematics, and statistics.
Graduates have begun their professional careers with posi-
tions in financial departments of non-financial firms, invest-
ment banks, broker-dealers, and management consulting firms,
as well as various departments of commercial banks and other
financial institutions, not-for-profit entities, central banks, and
international financial institutions.
Requirements for the Major
The Finance major requires FNCE 611 and FNCE 613 plus
four credit units of elective upper-level Finance courses. FNCE
612, an accelerated version of FNCE 611, earning .5 cu course
units, may be substituted for FNCE 611, so that if you take
FNCE 612 and FNCE 613, the major still requires only four
credit units of upper-level coursework in Finance. If you waive
one or both of FNCE 611 and FNCE 613, you will be re-
quired to take an additional upper-level Finance course for a
total of five upper-level Finance credit units.
Please note that if you decide to take one of the half-
semester introductory courses (FNCE 614 or 615), you
will be foregoing the option of becoming a Finance major,
unless you later take the full-semester version of the course.
These half-semester courses do not count in any way toward
meeting the requirements for a Finance major.
Please note that:
a)No more than one credit unit may be a specially-arranged
Advanced Study Project (ASP), FNCE 890, an Independent
Study Project (ISP), FNCE 899, OR a Finance
Department-approved Global Modular Course. You may
combine .5 credit units from any two of these three kinds
of courses, but the maximum from this group that can be
counted toward the major requirement must not exceed
one credit unit. Please note that ASPs or ISPs in Finance are
intended to give students the opportunity to study a partic-
ular topic in Finance in greater depth than is covered in the
curriculum. The application for an ASP or ISP should out-
line a plan of study that requires at least as much work as a
typical course in the Finance Department that meets twice a
30
finance
week, requires substantial reading, and may include exams, capital, dividend policy, and related issues. Additional topics
case studies, problem sets, and/or short papers. Applications will differ, according to individual instructors.
for FNCE 899 courses for 1 cu will not be accepted after Format: Primarily lecture, one or two midterm exams and
the end of the third week of the semester. final. Additional assignments at discretion of instructor; they
b)Courses offered in other departments cannot be counted
may include cases and homework problems.
towards the Finance major unless they have been cross-
Prerequisites: ACCT 611/612, MGEC 611/612 and STAT
listed with the Finance Department and have been assigned
613 prerequisite or concurrent.
a Finance Department course number. You may not count FNCE 612 (.5 cu)
any Finance course taken in a study abroad program toward Accelerated Corporate Finance
your requirements for the Finance major. Description: This course is intended for people with prior
c)When you choose to take a Finance course pass/fail, it can- knowledge of financial analysis or with strong analytical back-
not be counted toward the requirements for a Finance major. grounds. It assumes that students are completely familiar with
the material covered in the pre-term placement preparation
d)The Finance Department believes that in the dynamic course, FNCE 604. As a result, it is only available to those
environment in which you will be working, you will be students who successfully passed the FNCE 612 placement
best served by broad exposure to a wide range of courses exam at the end of Pre-Term. The course forms the foundation
in Finance. For this reason, the Finance Department will for subsequent courses in corporate finance, security analysis,
not offer tracks in Finance; we will reject proposals for investments, and speculative markets. Its purpose is to develop
Individualized Majors that suggest you have specialized in a framework for analyzing a firm's investment and financing
some particular field in Finance. This would rule out titles decisions and will provide an introduction to capital budget-
that include such terms such as "finance," "financing," "in- ing techniques under uncertainty, asset valuation, the opera-
vestment," "investing," "funding," "buy-outs," "mergers & tion and efficiency of capital markets, and the optimal capital
acquisitions," or "private equity," etc. The Department does structure of the firm. Furthermore, the course will exploit the
not want the official transcript to imply that we offer spe- students' prior knowledge and/or quantitative backgrounds
cializations in Finance. If you wish to signal to prospective (as demonstrated in the FNCE 612 placement exam), and will
employers the depth or intensity of your interest in some cover all the topics of a typical semester-long finance introduc-
subject within Finance, we suggest that you highlight on tion class in six weeks.
your resum? the key courses you have taken or, better still, Format: Lecture, midterm, final exam and regular homework
provide a brief narrative to show how the courses you have assignments.
selected give you special expertise. Prerequisites: FNCE 604 and successful completion of FNCE
612 placement exam. Since the emphasis is on the fundamen-
We regret that the Finance Department is not able to offer ev- tal concepts underlying modern finance, the approach will be
ery course listed below in every semester. Thus please check the analytical and rigorous, and requires some familiarity with ac-
Finance Department website to verify each semester's course counting, mathematical and statistical tools.
offerings as well as the professors who will teach those courses.
FNCE 613
MBA Advisor: Richard Herring (telephone: 215.898.5613; Macroeconomics and the Global
email: herring@wharton.upenn.edu). Economic Environment
Description: This course is required of all students except
those who pass the waiver examination or choose to take the
Course Descriptions half-semester course, FNCE 615. The purpose of FNCE 613
is to train the students to think systematically about the cur-
FNCE 611 rent state of the economy and macroeconomic policy, and to
Corporate Finance be able to evaluate the economic environment within which
Description: This course serves as an introduction to business business and financial decisions are made. The course empha-
finance (corporate financial management and investments) for sizes the use of economic theory to understand the workings of
both non-majors and majors preparing for upper-level course financial markets and the operation and impact of government
work. The primary objective is to provide a framework, con- policies. Specifically, the course studies the determinants of the
cepts, and tools for analyzing financial decisions based on fun- level of national income, employment, investment, interest
damental principles of modern financial theory. The approach rates, the supply of money, inflation, exchange rates, and the
is rigorous and analytical. Topics covered include discounted formulation and operation of stabilization policies.
cash flow techniques, corporate capital budgeting and valua- Format: Classroom lectures and discussion - one or two mid-
tion, investment decisions under uncertainty, capital asset pric- term exams and a final exam. Additional assignments at discre-
ing, options, and market efficiency. The course will also analyze tion of instructor.
corporate financial policy, including capital structure, cost of
31
finance
Prerequisites: Introductory knowledge of economics is FNCE 717
strongly recommended, either through a college-level eco- Financial Derivatives
nomics course or private reading. The course materials, while Description: The purpose of this course is to provide the stu-
starting at a basic level, rapidly progress so that the bulk of dent with the necessary skills to value and to employ options,
the analysis is conducted at an intermediate to advanced level; futures, and related financial contracts. In order to provide
the range of topics covered is also quite extensive. Suggested a useful treatment of these topics in an environment that is
texts for private study: (1) Parkin, Economics, AddisonWesley, changing rather rapidly, it is necessary to stress the fundamen-
(2) Samuelson and Nordhaus, Economics, McGraw-Hill, (3) tals and to explore the topics at a technical level. The topics
Mankiw, Principles of Macroeconomics, Dryden. You should that will be covered include the valuation of futures contracts
emphasize the macroeconomic parts of these books, but the on stock indices, on commodities and Treasury instruments;
rudimentary parts of microeconomic concepts of supply and the valuation of options, empirical evidence, strategies with
demand, price determination, and market clearing, etc. should respect to these assets, dynamic asset allocation strategies, or
also be covered. which portfolio insurance is an example, swaps, and the use
(and misuse) of derivatives in the context of corporate ap-
FNCE 614 (.5 cu) plications. One-third of the course will be devoted to futures,
Corporate Finance a third to options, and a third to their applications. Many of
Description: This course serves as an introduction to corpo- the applications will be sprinkled along with the coverage of
rate investments for non-majors. The primary objective is to futures and options.
provide a framework, concepts, and tools for analyzing finan- Prerequisites: FNCE 611 or 612; STAT 613; FNCE 613 may
cial decisions based on fundamental principles of modern be taken concurrently.
financial theory. The approach is rigorous and analytical.
Topics covered include discounted cash flow techniques, cor- FNCE 719
porate capital budgeting and valuation, investment decisions International Financial Markets
under uncertainty, and capital asset pricing. This course will Description: FNCE 719 is a course on international finan-
not cover the following topics included in FNCE 611, the full- cial markets and exchange rates. Topics include pricing in the
semester Corporate Finance course: market efficiency, corpo- foreign currency and Eurocurrency markets, use of forward
rate financial policy (including capital structure, cost of capital, exchange for hedging, short-term returns and market efficiency
dividend policy, and related issues), and options. in the international money markets, foreign currency options,
Format: Primarily lecture. Grading based on problem sets, one international capital asset pricing, pricing of foreign currency
or two cases, and a final exam. Prerequisites: ACCT 611 or bonds, currency swaps, Eurocurrency syndicated loans, foreign
ACCT 612, MGEC 611/612 and STAT 613 prerequisite or currency financing and exposure management.
concurrent Prerequisites: FNCE 611 or 612; FNCE 613 may be taken
concurrently.
FNCE 615 (.5 cu)
Macroeconomics and the Global Economic FNCE 720
Environment Investment Management
Description: FNCE 615 is a half-semester overview of mac- Description: This course is designed to acquaint the student
roeconomics. It is intended strictly for non-Finance majors. with the concepts of portfolio analysis in the general area of
Any student who contemplates majoring in Finance should be institutional investment management. The course discusses
aware that this course does not count in any way toward the principles for managing financial assets. These principles ap-
Finance major. This course is new to the curriculum and is ply, for example, to managing corporate pension funds, bank-
still under design. It will likely begin with the national income administered trusts, and other institutional funds. Students
and products, which are the basic source of data on important will learn how to establish appropriate investment objectives,
macroeconomic data such as GDP, consumption, investment, develop optimal portfolio strategies, estimate risk-return trad-
exports and imports as well as prices. The course will also dis- eoffs, and evaluate investment performance. Many of the latest
cuss other major sources of macroeconomic data, such as the quantitative approaches are discussed.
monthly employment report and the consumer price index. Prerequisites: FNCE 611 or 612; FNCE 613; STAT 613.
These data descriptions will provide students with a basic level
of macroeconomic literacy and will serve as the basis for ana- FNCE 721/REAL 721
lyzing specific topics and issues in macroeconomics. At of this Real Estate Investment: Analysis and Financing
writing, the set of topics and issues is still to be determined, Description: This course provides an introduction to real es-
but students should be aware that the half-semester format of tate with a focus on investment and financing issues. Project
the course will limit the breadth and depth of topics. evaluation, financing strategies, investment decision making
and real estate capital markets are covered. No prior knowledge
of the industry is required, but students are expected to rapidly
32
finance
acquire a working knowledge of real estate markets. Classes FNCE 730/BEPP 773/REAL 730
are conducted in a standard lecture format with discussion Urban Fiscal Policy
required. The course contains cases that help students evalu- Description: The purpose of this course is to examine the
ate the impact of more complex financing and capital markets financing of governments in the urban economy. Topics to
tools used in real estate. There are case studies and two mid- be covered include the causes and consequences of the urban
terms, (depending on instructor). fiscal crisis, the design of optimal tax and spending policies
Format: Lecture with discussion required for local governments, funding of public infrastructures and
Prerequisites: FNCE 611 or FNCE 612. the workings of the municipal bond market, privatization of
government services, and public financial systems for emerging
FNCE 725 economies. Applications include analyses of recent fiscal crises,
Fixed Income Securities local services and taxes as important determinants of real estate
Description: FNCE 725 is a rigorous study of fixed income prices, the infrastructure crisis, financing and the provision of
securities, including default-free bonds, floating rate notes, and public education, and fiscal constitutions for new democracies
corporate bonds. Closely related financial instruments such as using South Africa as an example.
forwards and futures on fixed income securities, bond options, Prerequisites: MGEC 611 and 612, FNCE 611 or 612.
and interest rate swaps are also examined. In addition to ana-
lyzing specific types of fixed income securities, there will be an FNCE 731
examination of the tools used in bond portfolio management. International Corporate Finance
Prerequisites: FNCE 611 or FNCE 612; FNCE 613; Description: This course analyzes financial problems corpora-
STAT 613. tions face that result from operating in an international envi-
ronment. Major topics covered are corporate strategy and the
FNCE 726 decision to invest abroad, forecasting exchange rates, interna-
Advanced Corporate Finance tional portfolio diversification, managing exchange risk, taxa-
Description: The objective of this course is to study the major tion issues, cost of capital and financial structure in the multi-
decision-making areas of managerial finance and some selected national firm, and sources of financing.
topics in financial theory. The course reviews the theory and Prerequisites: FNCE 611 or 612.
empirical evidence related to the investment and financing poli-
cies of the firm and attempts to develop decision-making ability FNCE 732
in these areas. This course serves as an extension of FNCE 611. International Banking
Some areas of financial management not covered in FNCE 611 Description: This course focuses on international financial in-
are covered in FNCE 726. These may include leasing, mergers stitutions and international banking activities. We will examine
and acquisitions, corporate reorganizations, financial planning, how current and historical events are reshaping the industry.
and working capital management, and some other selected top- We will focus on the basic analytics of managing a bank's expo-
ics. Other areas that are covered in FNCE 611 are covered more sure to liquidity, credit, market and country risk. In addition,
in depth and more rigorously in FNCE 726. These include we will consider how to evaluate and compare the risk expo-
investment decision making under uncertainty, cost of capital, sures and performance of individual banks. Throughout the
capital structure, pricing of selected financial instruments and semester we will discuss public policy issues such as interna-
corporate liabilities, and dividend policy. tional debt crises and regulation.
Prerequisites: FNCE 611 or 612; FNCE 613. Prerequisites: FNCE 611 or 612; FNCE 613. One, but not
both, can be taken concurrently.
FNCE 728
Corporate Valuation FNCE 738
Description: The focus of this course is on the valuation of Capital Markets
companies. Topics discussed include discounted cash flow Description: This course examines the available corporate
techniques and valuation using alternative valuation techniques securities that firms can use to finance investment. The course
such as price multiples. Emphasis is on developing the required will focus on: (1) the design of these securities (Why do bonds
information for valuation from financial statements and other have embedded options? What is the role of preferred stock?);
information sources. (2) the issuing process for these securities (What do investment
Prerequisites: Minimum of normal first-year courses in ac- banks do? Is the underwriting process important for the cost
counting, economics, statistics, and FNCE 611 or 612; FNCE of capital?); (3) the pricing of these securities (How are credit
613 (further coursework in financial accounting such as ACCT risk in bonds and loans priced?) The securities covered include
742 is very useful). corporate and junk bonds, bank loans, common and preferred
equity, commercial paper, securitization, as well as some recent
innovations. Other topics include the role of embedded op-
tions in corporate bonds; the role of bank and loan covenants;
the function of bond rating agencies; exchange offers; prepack-
33
Finance
aged bankruptcies; bankruptcy Chapter 11; workouts; debtor- Prerequisites: FNCE 611 or 612; FNCE 613. FNCE 726
in-possession financing; and pricing credit risk. The course is may be taken concurrently.
designed to be complementary to Advanced Corporate Finance
and Fixed Income Securities. FNCE 891
Prerequisites: FNCE 611 or FNCE 612; FNCE 613. Advanced Study Project-Corporate Restructuring
Description: The objective of this course is to familiarize
FNCE 739 students with financial, legal and strategic issues associated
Behavioral Finance with the corporate restructuring process. The main focus of the
Description: There is an abundance of evidence suggesting course will be on the restructuring of financially distressed
that the standard economic paradigm--rational agents in an firms. We'll begin by reviewing the financial instruments
efficient market--does not adequately describe behavior in commonly used by risky firms (leveraged loans and high-yield
financial markets. In this course, we will survey the evidence bonds) and learn to interpret the contracts that govern them.
and use psychology to guide alternative theories of financial We'll then survey a variety of restructuring methods (out-of-
markets. Along the way, we will address the standard argument court workouts, exchange offers, prepackaged and pre-negoti-
that smart, profit-seeing agents can correct any distortions ated bankruptcies, Chapter 11 reorganizations, international
caused by irrational investors. Further, we will examine more insolvency practices) available to troubled firms and study the
closely the preferences and trading decisions of individual in- dynamics of the restructuring process through a number of
vestors. We will argue that their systematic biases can aggregate historical and current case studies. Finally, we'll consider dis-
into observed market inefficiencies. The second half of the tressed debt as an asset class and develop techniques for invest-
course extends the analysis to corporate decision making. ing in distressed securities. The course will provide students
We then explore the evidence for both views in the context of with tools to value distressed companies, understand the legal
capital structure, investment, dividend, and merger decisions. framework governing bankruptcy and reorganization, and nav-
Prerequisites: FNCE 611 or 612; FNCE 613. igate the key strategic issues facing managers and investors in
Recommended: FNCE 720 and FNCE 726 distressed companies. It will also provide students with a spe-
cialized vocabulary and important facts about the restructuring
FNCE 750 industry, distress investing, and leveraged financial markets.
Venture Capital and the Finance of Innovation Format: The course's content will be presented using a mixture
Description: This course covers the finance of technological of lectures, case studies, and guest speakers. The speakers will
innovation, with a focus on the valuation tools useful in the be Wharton alumni with leadership roles in the restructuring
venture capital industry. These tools include the "venture capi- industry as managers, advisors, and investors.
tal method," comparables analysis, discounted cash flow analy- Prerequisites: FNCE 611 or 612; FNCE 613; FNCE 726
sis, Monte Carlo simulation, contingent-claims analysis, deci- and FNCE 728 or permission of the professor.
sion trees, and real options. The primary audience for this
course is finance majors interested in careers in venture capital FNCE 892
or in R&D-intensive companies in health care or information Financial Engineering
technology. Description: This class offers an advanced analysis of complex
Prerequisites: FNCE 611 or 612; FNCE 613. FNCE 613 derivative pricing models. It aims to build an integrated frame-
may be taken concurrently. work allowing students to: 1) decide what factors (e.g., stochas-
tic volatility, jumps, stochastic interest rates, credit risk) should
FNCE 751 be incorporated in a reasonable pricing model for the given
The Finance of Buyouts and Acquisitions derivative; 2) formulate a consistent model incorporating the
Description: The focus of this course is on buying (or acquir- chosen factors; 3) calibrate the model using market data; and
ing controlling stakes in) firms. The main topics to be covered 4) price the derivative and identify a hedging strategy. To al-
are mergers and friendly acquisitions, hostile takeovers and low for sufficient flexibility, the class will not place any special
buyouts. Using case studies, the course surveys the drivers of emphasis on models leading to closed-form valuation formulas
success in the transactions. While issues regarding motive and (such as the Black-Scholes model), relying instead on the gen-
strategy will be discussed, financial theory would be the main erality afforded by the martingale approach and Monte-Carlo
lens used to view these control acquiring transactions. This will simulation. Students will be asked to implement the models
allow students to (1) evaluate transactions through valuation introduced in the class using VBA and Crystal Ball (an Excel
approaches and (2) structure deals employing financial innova- Add-In specifically designed for Monte-Carlo simulation).
tion as a response to legal framework and economic frictions. Prerequisites: FNCE 717 and FNCE 725, with a grade of
This course should be of interest to students interested in pur- A- or higher in each of these two classes. Students who do not
suing careers as private equity investors, advisors in investment satisfy this prerequisite should obtain the instructors permis-
banking and corporate managers that deal with these issues. sion to enroll.
This course will be demanding and assumes familiarity with
valuation analysis.
34
finance
FNCE 893 Prerequisites: FNCE 726 and FNCE 751 or permission from
Global Monetary and Financial Institutions: the professor
Theory and Practice
Description: Goal: Provide the future global manager and FNCE 899
economist the knowledge on the inter-workings of financial Independent Study Project in Finance
markets and policies set by central banks, regulators and gov- Description: Independent Study Projects require extensive
ernments. The core of the course will connect between the independent work and a considerable amount of writing. A
micro-structure of financial markets, their institutional frame- student wishing to do an individualized project in a particu-
works and the macroeconomy in the US, the EU and other lar area may do so with permission of a Finance Department
countries. The course will heavily use the data and events of standing faculty member.
the 2007-2010 financial crisis. Applications for an ISP must include a one page prospec-
Requirements: Final and midterm examinations and a term tus about the subject to be studied, the methodology to be
paper that provides a description and analysis of one or more employed, the data that will be used and the form of the final
of the main topics for a certain country. output. The application must be signed by the member of
References: Use one or more textbooks as well as additional the standing faculty who has agreed to supervise the project
books, reports and analysis that were recently published on and then submitted to the Finance Department Academic
each of the topics Coordinator, 2411 SH-DH to obtain approval from the
Prerequisites: FNCE 611 or 612; FNCE 613; STAT 613. Finance Department's MBA Advisor's approval.
FNCE 894
Managing Fixed Income Portfolios
Description: The goal of this course is to teach you how to
manage a real portfolio of Treasury, corporate and mortgage
bonds. We begin by learning how to infer market forecasts
from current bond prices. We use analytical models to find
the market forecasts and the prices the market is offering for
bearing the different types of risks. To implement the concepts
learned in class, students will form teams to manage a paper
portfolio using Barclays Point (formerly Lehman Point) a state-
of-the-art portfolio management system. Your team will trade a
$100 million portfolio of bonds for which your goal will be to
outperform the Barclays Aggregate Index.
Prerequisites: FNCE 725
FNCE 895 (.5 cu)
Private Equity
Description: The course will be a survey of the private equity
asset class. Its objective is to provide an understanding of the
concepts, agents, and institutions involved in the late stage cor-
porate private equity market in the U.S. and around the globe.
It will examine the buyout market and the activities of buyout
funds from the differing perspectives of private equity inves-
tors, private equity fund sponsors, and managers of the portfo-
lio companies. The course will be taught almost entirely with
cases. Distinguished Wharton alumni in the private equity in-
dustry will be our guest speakers for many of the cases based
on transactions they concluded. While this course is primarily
intended for graduate students, admission may be granted to a
limited number of interested undergraduate students.
Please Note: This course may be recorded for live or subse-
quent distribution, display, broadcast, or commercialization
in any media, including video, audio, or electronic media. For
additional information, see the course syllabus or contact the
department.
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