Finance

1.Understand the objectives of corporate finance.
2.Analyze and evaluate investment decisions.
3.Analyze and evaluate financing and capital structure decisions.
4.Analyze and evaluate the payout decisions.
5.Reflect on the objectives of corporate finance.

1. Objectives of corporate finance.
2. Analyses and appraisal of investment decisions.
3. Financing and capital structure decisions.
4. Payout decisions.
5. Reflection on corporate finance.

Periodic Evaluation:
- Group assignment (40%); Final Exam (60%).Minimum attendance: 2/3 classes.
Evaluation based on one semester exam:
- Final Exam (100%).
- Minimum passing grade in each test/exam is 7.5/20 points.
- Minimum passing grade in the Curricular Unit is 9.5/20 points.

At the end of the unit, students should be able:
- To identify and understand the derivative portfolio (excluding options);
- To explain the differences between organized and over-the-counter markets and the role of intermediation;
- To compute the price of each derivative and understanding the link to the spot markets associated with each derivative;
- To explain the relationship between pricing and arbitrage;
- To engage in a trading negotiation in the over-the-counter markets by taking the role of the financial institution and of the client;
- To use each derivative as a speculative and risk management tool;
- To identify the innovative vectors associated with each derivative and to apply them to risk management problems associated with financing and investment operations and other corporate operations.

1. Risk management and introduction to financial derivatives

2. Forward contracts: Foreign currency forwards and forward rate agreements (FRA)
2.1. Characterization: taxonomy and markets
2.2. Pricing and arbitrage
2.3. Risk management and speculation
2.4. Negotiating in the over-the-counter market

3. Interest rate swaps (IRS)
3.1. Characterization
3.2. Pricing
3.3. Rate management
3.4. Risk management and speculation
3.5. Negotiating in the over-the-counter market

4. Futures
4.1. Characterization, participants and market organization
4.2. Stock and commodity futures
4.2.1. Characterization and pricing
4.2.2. Risk management and speculation

5. Derivatives and financial innovation

The final grade is computed as follows:
- Individual and/or group resolution of problem sets and cases: 30%
- Final exam that requires a minimum grade of 8.5: 70%

This course aims to provide a comprehensive introduction to the pricing of financial assets. It will cover the main pillars of asset pricing, including choice theory, portfolio theory, equilibrium pricing, and arbitrage pricing.
Some empirical evidence will also be discussed and there will be exercises with real data. We will use Excel for the empirical problems, thus it is recommended for students to be at least basic users of Excel. Techniques that are used for the course will be introduced in the classes.
At the end of the course, students will be able to read a significant range of current research papers in asset pricing and understand the main issues being discussed.

1. Choice Theory, Utility Functions, and Risk Aversion
2. Bond Pricing in the Multi-Period Binomial Model
3. Portfolio Theory
4. Capital Asset Pricing Model
5. Arbitrage Pricing Theory and Factor Models
6. Pricing in Complete Markets

The continuous evaluation system includes:
(1) Quizzes, group work, and class participation;
(2) Mid-term exam;
(3) Final Exam.

At the end of this learning unit's term, the student must be able to:
1. Know and use the main concepts of statistics.
2. Recognize and apply the multiple linear regression in specific situations.
3. Recognize and apply Logit, Probit and Gompit models in specific situations.
4. Use the classical time series models.
5. Use the main data analysis packages (EXCEL, SPSS and EVIEWS):
All classes will be held at the computer classroom.

1. Statistical inference: a brief review
2. Correlation and simple linear regression
3. Multiple linear regression model (MLRM)
4. Specification and stability tests
5. Assumptions of the MLRM: normality and multicollinearity
6. Assumptions of the MLRM: heteroscedasticity
7. Assumptions of the MLRM: autocorrelation
8. Models with binary dependent variable: LOGIT and PROBIT
9. Introduction to time series models

The evaluation can be done through Periodic Assessment or Assessment by Exam. Evaluation in periodic assessment includes a team work (40%) and a test (60%) covering the entire topics - the score must be at least 7.5 points. In periodic assessment students must attend at least 66.67% of the classes. In the assessment by exam there is only a final exam representing 100%.
In the written assessment students can use a form and a calculator.

1. Be familiar with the fundamental concepts related to financial options.
2. Use option contracts to hedge price risk and market risk and to speculate on the direction of the market and on its volatility.
3. Evaluate options using analytical models (binomial and Black-Scholes-Merton models).
4. Dynamically hedge and replicate options.
5. Create and value structured products.

1. Introduction to Options
(a) Types of options
(b) Options positions and payoffs
(c) Specification of options
(d) Moneyness; intrinsic and time value
(e) OTC vs. exchange-traded markets
2. Properties of Stock Options
3. Trading Strategies
4. Binomial Option Pricing Model
(a) One-period model: replicating portfolio and risk-neutral valuation
(b) Multi-period model
(c) Model for dividend-paying underlying assets
(d) Valuation of American options
5. Black-Scholes Option Pricing Model
6. Extensions to the Black-Scholes Model
7. Greeks and Option Hedging
8. Exotic Options
9. Structured Products

1st chance: periodic evaluation consisting of written mid-term exam (40%) and written final exam (60%), with passing conditioned to a minimum grade of 7,5 in either exam; or evaluation by exam, consisting in a single final exam (100%).

For everything else, the general regulations for the MSc Finance apply. This includes, but is not limited to, the criteria to access the continuous evaluation in the 1st chance, and the criteria to access the 2nd chance.

-Being able to analyze the the profitability and the financial situation of a company ;
-Knowing how to compute the value of an asset, business or company using the main concepts, methods and models of valuation;
-Being able to integrate the corporate valuation into mergers and acquisitions transactions.

1. Company analysis
1.1.Profitability analysis
1.2.Financial equilibrium analysis and role of working capital
2.Company valuation
2.1. Objectives and methods
2.2. Methods based on cash flows and revenues: dividends and future cash flows and on Economic Value Added
2.3. Methods based on market multiples
3. Merger and acquisition transactions: objectives,stages, processes and value drivers

Valuation Case analysis (groups up to 5 elements): 30%
Final exam: 70% .
Students with a final grade higher than 16 may be compelled to attend a special exam in order to defend their grade.

At the end of the course, students should be able:
1. To understand the interdependence between growth, financing and value creation;
2. To identify and understand the main long-run finance sources for a business;
3. To understand the differences between public and private markets of equity and debt;
4. To identify the most appropriate long-run finance sources for a business, given its life-cycle stage and its risk;
5. To understand the operation of public and private markets of debt and equity;
6. To understand the interaction between risk exposure and value creation.

1) Financing, Growth and Value Creation
a) Financing choices across the life cycle
b) Financing growth
c) Value enhancing growth and sustainable growth
d) Funding sources

2) Equity Markets
a) Private equity
i) Friends, Fools & Family
ii) Business Angels
iii) Venture Capital
b) Public Equity
i) The going public decision: procedures, costs and benefits
ii) Initial Public Offerings (IPO)
iii) IPO underpricing: causes and consequences
iv) Long-run IPO returns
v) Seasoned Offerings
c) Warrants and convertibles

3) Debt markets
a) The choice between private and public markets
b) Bonds
c) Bank debt
d) Leasing

4) Strategic Risk Management
a) Risk aversion, risk exposure, and value
b) Risk exposure management
c) Organizational aspects

The continuous evaluation system includes:
(1) A written report;
(2) Final Exam

1. Know and use the main commands and functions of Microsoft Excel for finance.
2. Know and use macro recording and user defined functions.
3. Know how to build financial models using Microsoft Excel.
4. Know how to build financial reports.

1. Presentation of the main functionalities and commands of Microsoft Excel for finance.
2. Presentation of the main functions of Microsoft Excel for financial modelling.
3. Introduction to macro recording and user defined functions.
4. Financial modelling - objectives, advantages and limitations.
5. Building financial models for Corporate finance.
6. Building financial reports and dashboards.

To accomplish the learning goals, the following learning-teaching methodologies (LTM) will be used: 1. Expositional, to the presentation of the theoretical reference frames 2. Participative, with analysis and resolution of application exercises 3. Self-study, related with autonomous work by the student, as is contemplated in the Class Planning.

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Periodic evaluation with a group assignment with individual discussion (50% of the grade), participation in class and individual assignments provided throughout the semester (20% of the grade) and a test (30% of the grade). The test has a minimum grade of 8.50 points. Alternatively, the evaluation can be performed by exam, with a single final exam worth 100% of the grade.

At the end of the course, a successful student should be able to:
1.Analyze capital budgeting decisions using the traditional approach;
2.Perform a sensitivity analysis to the main risk factors in an investment decision;
3.Analyse and determine the value of real options in investment decisions.

1. A recap of the traditional capital budgeting approach
1.1. The traditional approach
1.2. The probabilistic approach
1.3. Limitations

2. Real options theory
2.1. Basic concepts
2.2. Valuing managerial flexibility
2.3. Analytical models and numerical methods
2.4. Hitting times
2.5. Investment and divestment decisions
2.6. Compound option of investment with the subsequent option to exit
2.7. Costly and costless reversible cases and economic hysteresis
2.8. Investment decisions with random investment costs
2.9. Optimal incentive policies for investment: subsidies and taxes
2.10. Alternatives to the GBM assumption: ABM, mean-reversion, non-constant volatility and jumps

3. Real options applications
3.1. Decision to invest in a project with no operating costs
3.2. Decision to invest in a project with temporary suspension
3.3. Combined entry and exit decisions
3.4. Caps, floors and collars
3.5. Real options, auctions and games
3.6. Applications in energy projects

1st chance: Periodic evaluation consisting of assignments (40%) and final exam (60% and minimum grade of 7.5) or only final exam (100%).

2nd chance: Final exam (100%).

The general regulations for the MSc Finance apply.

At the end of the course, a successful student should be able to:
1. Use derivative pricing models able to accommodate the observed empirical regularities.
2. Use numerical methods and analytical approximations for pricing financial options.
3. Price and hedge exotic options.
4. Decompose and hedge structured products.

1Alternatives to the BSM model
1.1Option pricing under the BSM world
1.2Empirical stylized facts
1.3CEV model
1.4Stochastic volatility models: Heston model and SABR model
1.5Models with jumps
1.6Hybrid credit-equity models
2Numerical methods in option pricing
2.1American-style options
2.2Analytical approximations
2.3Integral representation method
2.4OSA approach
2.5SHP approach
2.6Binomial, trinomial and finite difference methods
2.7Monte Carlo simulation
2.8Numerical integration and transform techniques
2.9Machine learning algorithms
3Exotic options and structured products
3.1Basic concepts: packages, decomposition and static hedging
3.2Equity-linked structured and leverage products
3.3Binary options
3.4Forward start options
3.5Compound options
3.6As you like it options
3.7Exchange options
3.8Pay-later options
3.9Quanto options
3.10Basket options
3.11Bermudan options
3.12Barrier options
3.13Lookback options
3.14Turbo warrants
3.15Asian options
3.16Volatility derivatives

To contribute to the acquisition and/or development of skills, according with the established outcomes, it will be used the following learning methodologies (LM):
1. Expositional, to the presentation of the theoretical reference frames;
2. Participative, with analysis and resolution of application exercises;
3. Active, with the realization of individual and group works;
4. Self-study, related with autonomous work by the student, as is contemplated in the Class Planning.

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1st chance: Continuous evaluation consisting of assignments and in class participation (40%) and final exam (60%), or only final exam (100%).
2nd chance: Final exam (100%).
The general regulations for the MSc Finance apply.

1. Value and formulate a trading decision for a bond and compute the rate of return of an investment in the bond market.
2. Implement immunization strategies.
3. Estimate and interpret a yield curve.
4. Define hedging strategies through the bond futures market.
5. Determine the fair value of an interest rate option contract.

1.The bond market: Concepts and characteristics.
2.Spot rates, forward rates, and discount factors.
3.Fair value and trading rules: Fixed versus floating rate bonds.
4.Rates of return: Yield to maturity and realized rate of return.
5.Rating and credit risk.
6.Volatility, duration and convexity.
7.Immunization:
-Single period immunization;
-Multi-period immunization;
-ALM.
8.Estimation of the yield curve:
-Bootstrap in the Money-Market;
-Nelson-Siegel.
9.Futures on bonds
-Definitions
-Conversion factors
-Cheapest-to-deliver
-Pricing
-Hedging
10.Traded options on short-term interest rates
-Description
-Pricing under stock-style margining
-Pricing under Futures-Style margining
-Hedging of interest rate risk
11.Over-the-counter options on interest rates
-Market model
-Caps, floors e collars
-Swaptions

Regular grading system:
a) One group work (maximum of 3 elements) with a weight of 20%;
b) One final exam (1st chance) covering all syllabus with a weight of 80% in the final grade. It requires a minimum grade of 8.5.

Alternatively, and on the same date, all students outside of the regular grading system will do a written exam (with a weight of 100%).

Students who fail approval, can apply to the 2nd chance final exam with a weight of 100% in the final grade.

In the end of this learning unit student should:
1. Distinguish organizational aspects of markets2.
2. Define an efficient capital market
3. Markowitz model; describe the efficient frontier and explain the concept of an optimal portfolio,
4. Understand and use the capital asset pricing model, including the security market line (SML) and beta;
5. Understand passive portfolio management
6. Understand active portfolio management
7. Performance Analysis: to identify measures and methodologies on performance analysis
8. Explain the reasoning for international diversification

Part 1- Basic Concepts
1.1.Organisation of Securities Markets
1.2 Market indexes
1.3 Efficient Markets Hypothesis
1.4 Portfolio Theory

Part 2- Portfolio Management Fundaments
2.1 Passive Portfolio Management
2.2. Active Portfolio Management
The Treynor-Black Model
2.3 Traditional Measures of performance
Measures of performance: Sharpe ratio, M2, Treynor Ratio, Jensen Alpha and Appraisal Ratio
2.4. Performance Analysis
- Measures of performance in practice
- Performance attribution
3. International Diversification

Students should acquire and develop cognitive, analysis and synthesis, research, critical, communication and relationship competences, in the scope of this learning unit and in compliance with the objectives, defined above.

For the acquisition of these competences will be used, in the contact hours of this learning unit, a range of teaching methods that, in an articulated manner, allow the mastering of the above competences.

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The continuous evaluation system includes:
(1) Midterm Exam (50%);
(2) Final Exam (50%)
Students that opt for not following continuous evaluation make a final exam.
Resitting exams obey the rules of assessment of the IBS masters.

1. Learn how to use different analytic tools to analyze the market and credit risk of a portfolio of financial instruments.
2. Demonstrate critical judgement to choose the most adequate analytic tools to tackle the problem at hand.
3. Design, implement and validate a Value at Risk system to assess the market risks of a portfolio of financial assets.

1. Introduction to Value at Risk (VaR)
2. Parametric Linear VaR models
3. Historical Simulation
4. Monte Carlo VaR
5. Quantile Regression VaR estimation
6. Risk model risk
7. Scenario analysis and stress testing
8. Capital allocation

1st chance: periodic evaluation consisting of an individual assignment (50%) and final exam (50%), or only final exam (100%)

2nd chance: final exam (100%)

The general regulations for the MSc Finance apply.

Towards the end of this curricular unit students should be able to:
- Be able to gather financial data and financial literature by their own.
- Demonstrate writing and analysis skills to be able to write a research paper.
- Demonstrate to have communication skills, team work skills and argument support skills.
- Demonstrate to have critical thinking in the analysis of financial topics.

Overview of Final Project Process
- Formalities
- Planning
- Supervision
- Differences in finance projects
- Data Collection
- Citations/references
- Articles Sources
- Presentation and oral defense of the candidate

Discussion of research topics
The role of the Literature Review
Formulation of research questions and hypothesis
Managing Financial Data
Writing the Finance Project
- Defining goals, Assessment criteria, Structuring the Finance Project, Methodology, Results and discussion, the role of the Introduction and conclusion.
- Style, editing and presentation issues
Presentation and discussion of the Finance Project Proposal

The assemenst of this course is done with the writing and presentation of a research proposal.
There is no exams on this course.

The objective of this curricular unit is to allow students the development of empirical research to test scientific hypotheses in the finance field. The conduction of empirical research is crucial both for the development of scientific knowledge and for the analysis of more specific contextual problems, such as the results of an intervention. The elaboration and writing of a dissertation will allow students to be active participants in the scientific community. At last, this curricular unit will enable students the development of critical skills concerning theoretical and empirical research.
Students who successfully complete this curricular unit shall be able to:
- Formulate a research problem
- Elaborate a literature revision and put theories and empirical evidence to practice so as to formulate testable hypotheses
- Develop methods and materials for the hypotheses empirical testing
- Analyse results and reject/validate hypotheses
- Produce a scientific paper

In the beginning of this curricular unit, students will be prompted to choose a personal interest topic, which is relevant for the state of the art, as well as a supervisor. With the supervisor, students will:
- Formulate the starting question
- Identify the relevant literature and elaborate a theoretical and empirical revision
- Formulate the research problem and the hypotheses
- Design a study to test the hypotheses
- Create a procedure and the materials
- Carry out the study
- Analyse and interpret the results
- Elaborate the dissertation plan
- Write the dissertation
Throughout this process students will receive important information for the theme of their dissertations and for the conduction of the process itself, as, for example, literature that is relevant for their topic and indications on the design they should use.

The dissertation will be assessed by a panel of judges in public tests, after the supervisor's approval of its
conclusion and quality to be presented in public tests. Assessment will be based on the scientific merit of the study and on its theoretical and methodological adequacy

The main objective of this curricular unit is to prepare students for the development of an applied project. Students shall transform to practice the theoretical and methodological knowledge acquired throughout the master. The preparation, carrying out and writing of a project will enable students to critically assess a real and concrete context in the finance domain, identifying relevant themes or problems.
Students who successfully complete this curricular unit shall be able to
- Convert a finance domain problem into a research problem;
- Elaborate a literature revision and put theories and empirical evidence to practice in order to formulate hypotheses;
- Select the adequate analysis methodologies concerning the problem;
- Analyse intervention results ;
- Produce a scientific a report systematising the results and which can be easily interpreted

In the beginning of this curricular unit, students will be prompted to choose a personal interest topic, which is relevant for the state of the art, as well as a supervisor. With the supervisor, students will:
- Identify/select a problem in the finance domain in need of intervention
- Formulate the research problem based on the chosen problem
- Identify the relevant literature and elaborate a theoretical/empirical revision
- Formulate hypotheses
- Design an intervention
- Prepare materials
- Carry out the programme
- Analyse and interpret the results
- Assess the programme's efficiency
- Write a report
Throughout this process students will receive important information for the content of their projects, as, for example, relevant literature for their topic and indications on the design they should use and on how to present the final report.

The project report will be assessed by a panel of judges in public tests, after the supervisor's approval of its conclusion and quality to be presented in public tests. Assessment will be based on the scientific merit of the study and on its theoretical/methodological adequacy for finance intervention.