Course Details

Course Information Package

Course Unit CodeAFIN204
Course Unit Details
Number of ECTS credits allocated5
Learning Outcomes of the course unitBy the end of the course, the students should be able to:
  1. Explain sensible and dubious motives for mergers and acquisitions and apply valuation methods for mergers with different capital structures
  2. List the characteristics of forwards and futures, explain their use
  3. Explain the no arbitrage argument and the valuation of forwards and futures
  4. Explain risk-neutral valuation method for the pricing of options.
  5. Appraise different types of options using binomial trees and analytic methods
  6. Explain the importance of risk management and apply risk management tools based on option theory in practice
  7. Apply option pricing theory for the valuation of firms corporate assets and liabilities
Mode of DeliveryFace-to-face
Recommended optional program componentsNONE
Course Contents

Mergers and Acquisitions: economies of scale, economies of vertical integration and other efficiency gains arising from mergers and acquisitions, type of growth opportunities achieved through mergers and acquisitions, dubious reasons for mergers and acquisitions, valuation of merged businesses having different capital structures

Forwards and Futures: definitions, examples of using forwards and futures for hedging risk, valuation of forwards and futures on stocks or stock indices with/without dividends, forwards and futures on foreign currency, valuation of commodity futures, the cost-of-carry and convenience yield, differences between forward and future contracts

Option pricing theory: basic no arbitrage restrictions for options and put-call parity, dividends and optimal early exercise of American options, risk-neutral pricing and the derivation of binomial tree parameters for option pricing, binomial trees for pricing of options of various types

Risk management: risk management using options and futures, delta hedging and other Greeks, swaps and interest rate risk

Application of option pricing theory in the valuation of corporate assets and liabilities: Merton’s model for the valuation of equity and risky debt and credit spreads, sensitivity analysis on Merton’s model, extensions of Merton’s model with endogenous default
Recommended and/or required reading:
  • Brealey, R., Myers, S., and A. Marcus, Principles of Corporate Finance, McGraw Hill, 2010
  • J. Hull Options, Futures and Other Derivatives, Pearson-Prentice Hall, 2006
  • Copeland, T., F. Weston , K. Shastri Financial Theory and Corporate Policy, Addison-Wesley, 2004
  • M. Crouhy, D. Galai, and R. Mark, Risk Management, McGraw-Hill,
Planned learning activities and teaching methodsThe taught part course is delivered to the students by means of lecturers, conducted with the help of computer presentations and the use of the board. Lecture notes and other course material like spreadsheet examples are available to students through the web.
Assessment methods and criteria
Final Exam60%
Language of instructionEnglish
Work placement(s)NO

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