Syllabus

Click here for a PDF version.

BAYLOR UNIVERSITY
HANKAMER SCHOOL OF BUSINESS
Department of Finance, Insurance, and Real Estate

FINANCE 4335: BUSINESS RISK MANAGEMENT
Tuesday and Thursday, 2 – 3:15 p.m., Foster 314
Spring 2019
Instructor: Dr. James R. Garven
The Frank S. Groner Memorial Chair of Finance
Professor of Finance and Insurance
Email: James_Garven@baylor.edu
Home page: http://www.garven.com
Course website: http://fin4335.garven.com

Office Hours: 3:30-4:30 TR
Office: Foster 320.39
Phone: (254) 307-1317

1. Texts and Materials

2. Prerequisites

The only course prerequisite for Finance 4335 is Finance 3310. However, since Finance 4335 is rather quantitative in nature, you should also be “up to speed” in mathematics and statistics. The mathematics and statistics topics used in Finance 4335 are listed in the blog posting entitled “Calculus and Probability & Statistics recommendations“, where links to Khan Academy tutorials for each of these topics are provided. Section 1 of Professor Martin Osborne’s math tutorial is also a highly recommended resource for topics in mathematics which are applicable to Finance 4335.

3. Course Description

This course offers an integrated approach to risk management by combining concepts, tools, and techniques from finance and related disciplines such as economics and the decision sciences. The course focuses attention on the identification, evaluation, pricing, and management of risk from personal as well as corporate perspectives. Topics covered include how to characterize and measure risk attitudes, compare and price risk, evaluate the effects that risk has on stakeholder incentives and firm value, etc.

4. Learning Objectives

  • Understand the various measures of risk.
  • Be able to calculate various measures of risk for individual risk exposures and portfolios of risk exposures.
  • Understand the steps of the risk management process; i.e.,
    • Identify risks;
    • Measure risks;
    • Evaluate different methods for managing risk; and
    • Implement an appropriate risk management strategy.
  • Understand the methods that businesses use to allocate and manage risk; e.g., risk modeling, risk financing (insurance and hedging), choice of insurance and financial contract mechanisms (e.g., deductibles, coinsurance, compensation contract design, security design, organizational design, etc.).
  • Understand the factors (e.g., moral hazard, adverse selection, and transaction costs) which limit the extent to which risk can be diversified or traded from one counterparty to another.
  • Understand the types of insurance and derivative contracts and how they can be used to reduce the cost of risk.
  • Understand basic financial valuation models and how risk is incorporated in these models.
  • Understand the reasons why diversifiable risk can affect firm value.
  • Evaluate circumstances under which risk management will enhance firm value.

5. Grade Determination

The final course numeric grade is based upon the following equation:

Final Course Numeric Grade = .10(Class Attendance) + .10(Quizzes) + .20(Problem Sets) + Max{.20(Midterm Exam 1) + .20(Midterm Exam 2) + .20(Final Exam), .20(Midterm Exam 1) + .40(Final Exam), .20(Midterm Exam 2) + .40(Final Exam)}

Since the final exam is comprehensive, this grading scheme allows students to redeem themselves on the final should they perform poorly on either of the midterms.

There will be two midterm exams given in class. The date for the first midterm exam is February 21 (in class), and the date for the second midterm exam is April 16 (also in class). The dates for the two midterm exams are subject to change at the discretion of the instructor. However, the final exam is scheduled according to the official university schedule.

Final Course Letter Grade. The final course letter grade will be based upon the following schedule of final course numeric grades:

A 93-100% C 73-77%
A- 90-93% C- 70-73%
B+ 87-90% D+ 67-70%
B 83-87% D 63-67%
B- 80-83% D- 60-63%
C+ 77-80% F <60%

Since the final exam is comprehensive, this grading scheme allows students to redeem themselves on the final should they perform poorly on either of the midterms.

6. Office and Contact Information

My office is located at Foster 320.39 and my telephone number is (254) 307-1317. I can also be reached by email at the address James_Garven@baylor.edu and by text at 254-307-1317.

7. Attendance and Participation

This course will be conducted on an informal seminar basis. Students are expected to attend class regularly and punctually, as well as participate meaningfully. Furthermore, I abide by the Hankamer School of Business Attendance Policy, which calls for assigning a grade of “F” to any student who fails to attend at least 75 percent of all class sessions. It is the student’s responsibility to ensure that he or she is in compliance with this policy.

8. Other Course Policies

8. 1. Grade Appeals

Graded assignments and exams will be returned to students one week after the assignment deadline or the date of the exam. If you feel that a graded assignment or exam has not been fairly evaluated, then you may submit an appeal for the assignment or exam to be regraded. In order to be considered, your appeal must be submitted no later than two weeks after the date of the exam or due date for the assignment. Any appeals submitted beyond this deadline will not be considered.

If you decide to submit an appeal, email it to risk@garven.com with the following subject header: “Grade Appeal for Finance 4335”. Include a clearly scanned or photographed copy of the question(s) that is (are) to be regraded, a copy of your answer(s), and an explanation as to why you think the question(s) merit(s) re-grading. I will then take it upon myself to regrade the question(s). Keep in mind that re-grading implies three possible outcomes: a higher grade, the same grade, or a lower grade.

The appeal procedure described above constitutes the “Conference with Faculty Member” requirement set forth in Baylor’s Academic Appeals Policy and Procedure document.

8. 2. Electronics Policies

The following electronics policies will be strictly enforced:

  • Neither laptops nor tablets may be used in class without the express permission of the instructor;
  • No audio or visual recording of lectures without the express permission of the instructor; and
  • No cell phone use during class, which includes texting, talking, photography, and videography.

8. 3. Late Work

Assigned problem sets are due at the beginning of class. If you expect to absent on a day when a problem set is due, it must be turned in at or before this time; otherwise, you will not receive any credit for the problem set. Furthermore, if you miss class on a day when a required reading is assigned, there will be no make-ups for the quiz that you miss (note: these rules do not apply in cases involving medical or family emergencies).

9. Course Blog

A course blog has been established for Finance 4335. This provides a convenient and timely means for distributing important announcements outside of class. The address for the course blog is http://risk.garven.com, and it is linked from the “Course Blog” button on the home page of the course website.

I recommend that you regularly follow the course blog via any of the following methods:

10. Course Schedule

This course provides students with a “primer” on basic economic, statistical and financial principles, and applies these principles to the study of risk management decision-making by individuals and firms. The textbook material is supplemented throughout the course by various outside readings, all of which are available from readings section of the course website. Although the course schedule is subject to change, the lecture notes page on the course website effectively serves as a course calendar, since it lists by date the sequencing of course material for the entire semester.

11. Academic Honesty and Integrity

As members of the Baylor academic community, each of us is responsible for participating in research, learning, and discourse in a manner characterized by intellectual honesty and scholarly integrity. Honesty and integrity are expected not only in the classroom, but also in the broader context of relationships and interactions involving faculty, students, and staff. The reputation of Baylor University and the value of the contributions made by its faculty, students, and staff depend on the assurance that every member of the academic community adheres to the very highest standards of ethical behavior.

In the narrower context of this particular course, students are expected to act ethically and take responsibility for their own actions. You should review the Baylor University Honor Code, since this standard will be applied to all of your work in Finance 4335.

12. Baylor University Title IX

Sexual and Gender-Based Harassment and Interpersonal Violence Policy:

Baylor University does not discriminate on the basis of sex or gender in any of its education or employment programs and activities, and it does not tolerate discrimination or harassment on the basis of sex or gender. This policy prohibits sexual and gender-based harassment, sexual assault, sexual exploitation, stalking, intimate partner violence, and retaliation (collectively referred to as prohibited conduct).

For more information on how to report or to learn more about our policy and process, please visit http://www.baylor.edu/titleix. You may also contact the Title IX office directly by phone, (254) 710-8454, or email, TitleIX_Coordinator@baylor.edu.