Preliminary
BRANDEIS INTERNATIONAL BUSINESS SCHOOL
FIN 288: Corporat Financial Engineering (CFE)
SPRING 2015
Instructor: Daniel Bergstresser
Email: dberg@brandeis.edu
Class Hours: Tuesday/Thursday 3:30-5:00pm
Office Hours: Monday 3:30-5:00pm, and by appointment
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.
FMI is 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 http://latte.brandeis.edu. You should check
this site, and your e-mail regularly for the course announcements.
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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 reading
Assignment
1
Introduction to financial engineering
pre-class case prep
Student Educational Loan Fund (HBS case 296046)
2
Option valuation and pricing
pre-class prep
Hull textbook, Chapter 10
3
Option valuation and pricing, continued
pre-class prep
Hull textbook, Chapter 12, Chapter 18
4
Issuing a hybrid security
pre-class case prep
Times Mirror Company PEPS Proposal (HBS case 296089)
5
Issuing a hybrid security, continued
pre-class case prep
Times Mirror Company PEPS Proposal (HBS case 296089)
6
Privatizing a company
pre-class case prep
The Privatization of Rhone-Poulenc (HBS case 295049)
7
Financial engineering
pre-class prep
Unbundled Stock Unit Prospectus Excerpts
Supplemental exhibits
8
Financial engineering , continued
pre-class prep
Unbundled Stock Unit Prospectus Excerpts
Supplemental exhibits
9
Risk management
pre-class case prep
Cephalon, Inc (HBS case 9-298-116)
10
Financing an acquisition
pre-class case prep
AXA/MONY (HBS case 208062)
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Preliminary
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12
13
14
15
16
17
18
19
20
21
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Interest rate derivatives
pre-class prep
Hull textbook, Chapters 4 and 5
Interest rate derivatives, continued
pre-class prep
Hull textbook, Chapter 7
Interest rate derivatives in practice
pre-class case prep
Fixed Income Arbitrage in a Financial Crisis (A) (HBS case 211-049)
Liability management
pre-class case prep
Liability management at General Motors (HBS case 293123)
Interest rate risk management
pre-class case prep
Banc One Corporation: Asset and Liability Management (HBS case 294-079)
BARCLAYS CAPITAL
pre-class case prep
JEFFERSON COUNTY
pre-class case prep
Power and Energy markets
pre-class case prep
Contractual Innovation in the UK Energy Markets: Enron Europe, the Eastern
Group, and the Sutton Bridge Project (HBS case 200051)
Longevity risk management
pre-class prep
Case forthcoming (Prudential/General Motors)
Liquidity 1
pre-class case prep
UBS and Auction Rate Securities (HBS case 209119)
Liquidity 2 , Credit markets
pre-class case prep
Primus, 2007 (HBS case 208099)
Summary case : Hybrid securities
pre-class case prep
Cox Communications, Inc., 1999 (HBS case 201003)
Paper discussion/presentations
paper
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 http://www.brandeis.edu/studentlife/sdc/ai/). 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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