Advanced Corporate Finance Subject Area Finance Lecturer Brandon Julio, David Yermack, Brandon Julio Course Code E236 Term AUT08/SPR09/SUM09 Credit Value 1 Aims and Objectives This elective’s main aim is to enable you to apply the tools developed in basic Finance courses to real business Corporate Finance situations. You are already familiar with the material from prerequisite Finance courses (capital structure, valuation, CAPM, option pricing, etc.). Therefore, we will mainly focus on practical applications, discussing the usefulness as well as the limits of these concepts and tools. Topics covered Specific topics and case studies covered might vary across streams but will generally include the following.

• We will deal with a number of practical Valuation issues: o When and how to use different company and project valuation tools

(e.g. comparable companies, comparable transactions, multiples, DCF analysis, real options).

o Valuation in different business situations (e.g. start-ups, a merger situation, a takeover battle, etc.) and industries (e.g. oil, telco, movies, banking, etc.).

• We will also explore the practice of Financial Policy:

o How to choose a company’s capital structure. How to choose its debt structure (long vs. short-term, fixed vs. floating rate, currency).

o How to we integrate a company’s financing and risk management policies.

o How to decide a company’s dividend policy in practice? What about the different payout methods (e.g. regular vs. special dividend, cash vs. share repurchase, open market operations vs. self-tender offer, etc)?

o How to compensate managers? Remember that these are applied to real business cases, not new theories, and that therefore we will use whatever tools we find useful for the case at hand. Part of the challenge will be to decide which tools are useful and which are not in a specific situation. Who should attend? The course is suited for those interested in Applied Corporate Finance, particularly those pursuing careers in consulting, in financial institutions and investment banking, and for those working, or planning to work, in corporations, especially in the finance, planning, and treasury areas.

Format and Teaching Methods The course has three main strands: The course is centred on class discussion of real business case studies covering different business situations, deals, industries, etc. Lecture-type sessions provide information, financial tools and frameworks useful to discuss case studies. Finally, presentations by practitioners will focus on industry practices and current developments, as well as on specific case studies. Pre-requisites Successful completion of core Finance and Capital Markets and Financing This is a challenging course that demands a fair amount of work on a regular basis, and the teaching style requires active participation in class discussions; thus, the second prerequisite is that you make the commitment to be well prepared for class and to participate vigorously. Assignments and Assessments

• Class participation (10%) • Case write-ups (50%) • Final exam (40%)

Behavioural Finance Subject Area Finance Lecturer Samuli Knupfer - TBC Course Code E401 Term SPR09 / SUM09 Credit Value 1 Aims and Objectives Economists have traditionally tried to explain facts about financial markets using models in which everyone – individuals, institutions and firm managers – acts rationally. In other words, people are assumed to process new information sensibly when forming beliefs about the future, and given their beliefs, they are assumed to make rational decisions. Some economists have argued that many features of financial markets do not fit this paradigm very well, and have built up a new framework known as behavioural finance. This field explains financial phenomena as the result of less than fully rational behaviour on the part of certain market participants. In this course, we survey the important developments in this field, many of which have occurred in the past decade. Topics Covered We first discuss the two building blocks of behavioural finance: limits to arbitrage and psychology. Limits to arbitrage is a response to the classic critique of behavioural finance, which is that irrational traders cannot have a long-lived impact on financial markets, because rational traders will quickly reverse any dislocations they cause through a process known as arbitrage. Once we have seen that the arbitrage process need not work very well in practice, allowing irrational traders to affect prices of financial securities, we turn to psychology to understand the most common kinds of errors made by decision-makers. With these two building blocks in place, we look at a number of applications: Application A: Understanding the Pricing of Financial Assets We study a number of facts about the returns on national stock markets – their average level, their volatility and their predictability; facts about the average returns on well-known equity investment strategies, such as value and momentum; and facts about more specific securities, such as closed-end funds. In each case, we argue that the traditional, rational approach may not fully explain the facts, and we look at behavioural explanations. Application B: Understanding the Trading and Portfolio Decisions of Individual Investors We review facts about the kinds of portfolios individuals choose to hold and the way they trade over time. These include evidence of under-diversification, naïve diversification, excessive trading and holding losing investments for too long. Again, we argue that these facts cannot be easily understood under the traditional paradigm, and present some behavioural approaches. Application C: Understanding Managerial Behaviour

We look at evidence on how managers in corporations handle security issuance and investment decisions, how they manage their payout policy and the performance of the mergers they undertake. As before, we argue that many of these facts make more sense from the behavioural perspective than from the rational one. Who should attend? Insights from the course should have value for programme participants pursuing or planning to pursue careers in investment banks or other financial institutions—whether in trading, research, capital markets, corporate finance or asset management; as well as for students planning to work in the finance and treasury areas of corporations. Format and Teaching Methods The class will follow the standard lecture-based format. Much of the work in behavioural finance has been done very recently; the content of the course is therefore largely taken from research papers written in the last ten years. However, the material will be presented at a level understandable by Masters programme participants, and will have important practical implications. Reading Materials The textbook for the course is “Inefficient Markets: An Introduction to Behavioral Finance” by Andrei Shleifer, Oxford University Press. Beyond this text, we will also read a number of recent academic articles, chosen to be practically relevant and not excessively technical. Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing. Assignments and Assessment The grade for the course will be based on a final exam, testing understanding of the material covered in the lectures (50%); three “critical reports” discussing the strengths and weaknesses of recent research papers in the field (30%); a short (5-page) research proposal suggesting a specific topic for future research in the field (10%); and class participation (10%). The critical reports can be done in small groups. Class Make-up This course is taught through lectures, our own discussions, and perhaps a guest speaker if appropriate and convenient. I expect the class to a wide-ranging mix of MBA students, both full-time and evening, MiF students, and students from other degree programmes throughout the school; anyone with an interest in this topic is encouraged to attend.

Capital Markets and Financing Subject Area Finance Lecturers Vito Gala / Francisco Gomes Course Code E197 Term AUT08 / SPR09 Credit Value 1 Aims and Objectives Capital Markets and Financing (CMF) complements the Corporate Finance and Valuation (CFV) course, and forms the second part of a two-course sequence covering corporate finance. While the focus of CFV was on valuing projects and companies, CMF switches the emphasis to financing decisions. While not a core course as such, CMF covers key areas of finance with which all MBAs, EMBAs and Sloan Masters programme participants should be familiar. The course is thus a pre-requisite for virtually all finance electives. Topics Covered The aim of this course is to provide a broad conceptual and practical platform for analysing issues in corporate finance. CMF examines the financing activities of firms, how firms raise capital and the implications of various financial decisions. In particular, we will examine equity issues, dividend policy, corporate debt, and hybrid forms of financing such as convertibles and warrants. CMF provides an introduction to a key topic in finance, namely options. We will look at techniques for pricing options, which then will be applied to warrants and convertible bonds. We will also look at the real options approach to valuation of projects. Finally, we discuss how options and other derivatives such as forwards can be used in the context of hedging financial risks. Format and teaching methods The course will consist of lectures plus some case studies. There is not strict course textbook, but the closest reference is Brealey, Myers and Allen "Corporate Finance" (Latest Edition), and we will be concentrating on the second half of the book. Pre-requisites Corporate Finance and Valuation Assignments and Assessments Assessment will be based on coursework, including case write-ups and a final (sit-down) exam, the exact weightings will be determined by the individual lecturers and will vary by format i.e. the modular versions will be more heavily weighted on the final exam.

Credit Risk Subject Area Finance Lecturer Stephen Schaefer Course Code E450 Term SUM09 Credit Value 1 Aims and Objectives The evolution of the credit market in recent years has been dramatic. First, following the introduction of new derivative instruments such as the credit default swap, it experienced a period of phenomenal growth. Recently, the sub-prime crisis has led to a contraction in the market as well as significant re-pricing of credit risk. The course will provide an introduction as well as an in-depth understanding of issues in credit risk, its modelling and applications, that will be equally relevant in periods of expansion as well as crisis. The objective is to provide a balance between developing, on one hand, a conceptual framework and, on the other, market understanding and insight. Both are essential to the informed practitioner. Topics Covered The topics covered in the class will include: Historical default experience Structural models of credit risk (Merton, Leland, Collin-Dufresne et. al.) Applications of structural models of credit risk to default prediction and hedging; the KMV model Historical recovery experience Default-intensity models (Duffie-Singleton, Lando et. al.) Application of default intensity models to: Credit default swaps (single-name corporate and sovereign) Credit spread options Historical experience on correlated defaults Correlation modelling and applications CDO’s Institutional features and liquidity issues relevant to credit derivatives Format and Teaching Methods The classes will include discussions around empirical facts about credit, guest speakers on market developments, lectures on models and their applications, and also some cases. Reading Materials Duffie, Darrell and Kenneth Singleton, Credit Risk, Princeton: Princeton University Press, 2003. [DS] OR Lando, David, Credit Risk Modelling: Theory and Applications, Princeton: Princeton University Press, 2004. [Lando] Additional recommended reading materials

Dominic O’Kane and Lutz Schogl, Modelling Credit: Theory and Practice, Lehman Brothers International (Europe), 2001. [Lehman] Pre-requisites Corporate Finance and Valuation and Capital Markets and Financing. Options and Futures OR Fixed Income (but NOT Stephen Schaefer’s Fixed Income IMEP course which will cover some aspects of this Credit Risk elective). Some knowledge of basic calculus is essential. Assignments and Assessment There will be four assignments and three cases - 60% (one each during Week 3 through Week 9 of the course) and a final exam – 40% (in-class in Week 10 of the course). The assignments may require extensive numerical computations! Class Make-up We expect the class to be a mix of second-year MBA students and Masters in Finance students, both full-time as well as part-time, with also some participants from other degree programmes at the School. A Note on the Instructors Please visit www.london.edu/faculty/sschaefer to learn more about the instructors.

Equity Investment Management Subject Area Finance Lecturers Mark Seasholes - TBC Course Code E212 Term SPR09 Credit Value 1 Aims and Objectives The objective of this course is to study the most important theoretical concepts in the field of investment management, to examine whether these theories are supported by empirical evidence, and to identify the practical implications for investment professionals. The field of investment has been characterised by a high rate of innovation in both the academic and practitioner communities. Often, innovations have been built on investment theory, which once understood, also makes good practical sense. The course will emphasise topics where research provides an important message for professional management of the investment function. The course is of particular relevance to those working in investment, or seeking to open up career opportunities in asset management. It will also appeal to anyone who is likely to have contact with investors, fund managers, investment consultants or investment organisations. Topics covered The course follows a building block approach from basic principles through to strategic and organisational issues. By the end of the course, you will have gained knowledge of modern portfolio theory and its applications in the investment process. The topics covered include tactical asset allocation, portfolio optimisation, risk measurement and management, factor models of returns, active-passive management, style management, performance attribution and persistence, managing investment implementation and stock market anomalies. The course will also examine recent investment opportunities such as hedge funds, and discuss implications of behavioural finance to investment management. You will use standard investment software, and apply the ideas discussed in the course with several case studies. Who should attend? Insights from the course should have value for programme participants pursuing or planning to pursue careers in asset management, investment banking, consulting, equity research, or other financial institutions—whether in trading, capital markets, or corporate finance; as well as for students planning to work in the finance and treasury areas of corporations. Format and Teaching Methods The participants will learn the principles of investment management and how to apply them in real life through case studies. Reading materials There is no single course textbook. We will use Bodie Kane and Marcus' Investments, 3rd edition, Fabozzi’s Investment Management, Sharpe, Alexander and Bailey’s Investments, 5th edition and Bernstein and Damodaran’s Investment Management.

Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing. Assignments and Assessments Assessment will be based on a stock-picking simulation game (13%); assignments consisting of three case write-ups (27%); class presentations and participation (10%); and a final examination (50%). Class Make-up This is an applied course, but not a case course. We will probably spend about 30-40% of our time on cases, about 40-50% on lectures, and about 10-15% on guest lectures. I expect the class to a mix of MBA students, both full-time and evening, MiF students, and students from other degree programmes throughout the school.

Financial Engineering and Risk Management Subject Area Finance Lecturer Suleyman Basak Course Code E310 Term SUM09 Credit Value 1 Aims and Objectives The objective of this course is to provide the participants with the necessary skills to value and hedge a wide variety of derivatives contracts; and to enable the participants to profitably design and structure such contracts. The course presents a systematic, unified approach to the pricing of derivatives and adopts cutting-edge methods throughout. Continuous-time mathematics is developed and employed as the main tool of analysis. The course is necessarily quantitative and symbolically oriented, although practical applications are emphasized. Basic ideas from statistics and calculus will be assumed. Some basic knowledge of stochastic processes would be helpful, but not essential: we will develop what we need in class. Topics Covered In developing the theory, the course will cover stochastic calculus, the valuation of securities via martingale methods and valuation via partial differential equations, as well as the necessary numerical methods. Applications will include exchange options, quantos, exotics (binaries, barrier options, asian options, lookbacks), interest rate derivatives and credit risk derivatives. We will also discuss the measurement and management of market risk and credit risk, and employ Value-at-Risk. Who should attend? This course is suitable for anyone with a relatively strong quantitative background who is seeking an understanding of the structuring, pricing, hedging and use of complex financial instruments. It will primarily be of interest to those students who are engaged in or looking to start careers in sales and trading, quantitative analysis, risk management or structuring, but is also relevant to those who expect to encounter these instruments in a corporate context. Format and Teaching methods Lectures

Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing; and either Fixed Income Securities or Options and Futures. Assignments and Assessments There will be 3-4 homework assignments (20%), a project (30%) and a final exam (50%). A Note on the Instructor http://faculty.london.edu/sbasak

Fixed Income Securities Subject Area Finance Lecturer Suleyman Basak Course Code E261 Term SPR09 Credit Value 1 Aims and Objectives The objective of this course is to undertake a rigorous study of fixed income securities. The course is quantitatively oriented and requires some background in calculus and statistics. The course will begin with pure discount, default-free, government bonds. As the term progresses, we will analyse coupon bonds, callable bonds, putable bonds, sinking fund provisions, and floating rate notes. We will also talk about some closely related financial instruments. These include forwards and futures on fixed income securities, bond options, options on bond futures, caps, floors, collars, swaps, swaptions, interest-rate exotics and defaultable bonds. Valuation of fixed income securities as well as interest risk management requires a deep understanding of these important financial claims. In addition to analysing specific types of fixed income securities, we will study some tools that are useful in bond portfolio management. These include construction of discount functions (or yield curves), horizon analysis, immunization and duration matching for hedging, optimisation techniques for constructing bond portfolios, and models for pricing a variety of fixed income securities. At the end of the term, my hope is that participants will be comfortable doing three things. First, how to manage interest rate risk. Second, how to value securities with cash flows that are sensitive to movements in interest rates. Third, how to determine the optimal exercise policy for a variety of embedded options in fixed income securities (e.g., when should a bond be called.). While the perspective of this course is from the viewpoint of a bond investor or a bond trader, individuals working in corporate finance need to understand similar material. Evaluating an investment in a fixed income security is the mirror image of the problem faced by a corporation in deciding whether or not to issue a bond. Topics Covered The course will begin with pure discount, default-free, government bonds. As the term progresses, we will analyse coupon bonds, callable bonds, putable bonds, sinking fund provisions, and floating rate notes. We will also talk about some closely related financial instruments. These include forwards and futures on fixed income securities, bond options, options on bond futures, caps, floors, collars, swaps, swaptions, interest-rate exotics and defaultable bonds. Valuation of fixed income securities as well as interest risk management requires a deep understanding of these important financial claims. In addition to analysing specific types of fixed income securities, we will study some tools that are useful in bond portfolio management. These include construction of discount functions (or yield curves), horizon analysis, immunization and duration matching for

hedging, optimisation techniques for constructing bond portfolios, and models for pricing a variety of fixed income securities. Who should attend? This course is aimed at anyone who in their current or future careers will be exposed to the fixed income markets. This includes, but is not limited to, fixed income traders and sales personnel, fixed income portfolio managers and corporate treasurers. Format and Teaching methods Lectures. Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing. Assignments & Assessments There will be regular, 4-5 homework assignments (35%) and a final exam (65%). A Note on the Instructor http://faculty.london.edu/sbasak

Hedge Funds Subject Area Finance Lecturer Narayan Naik Course Code E416 Term SUM09 Credit Value 1 Aims and Objectives The objective of this course is to understand all aspects of hedge funds, considered as the epitome of active fund management. The hedge fund industry has grown rapidly over the last decade and is getting recognized as an “alternative” to the traditional mutual fund investment. University endowments and high net worth individuals have long invested in hedge funds. More recently, European pension funds have also started making significant investments in hedge funds, in spite of the relative lack of transparency, disclosure, liquidity, regulation, capacity etc. The regulatory authorities in Europe are opening up to hedge funds, and are considering harmonization of regulation. Attempts are being made to bring hedge funds to retail investors. In the light of these developments, the course will examine the raison d'être behind these developments, the modus operandi of hedge funds, their legal, organizational and operational structures, their risk-return characteristics, their model of aligning the interests of investors and managers, and the likelihood of their success in the future. The course is of particular relevance to those working in the field of investment, or seeking to open up career opportunities in asset management. It will also appeal to anyone who is likely to have contact with investors, fund managers, investment consultants or investment organizations. Topics covered The course will address key questions including how the investment models of hedge funds differ from those of mutual funds, how do we measure their alphas, what are the risks, is the hedge fund model sustainable? The course will start with the overview of the industry, how it has evolved over time and the recent trends. It will compare and contrast hedge funds with mutual funds, discuss data problems, index problems, and how it influences the inference process. The course will review cutting edge as well as published research in the area of hedge funds and provide a unified theoretical framework encompassing the different hedge fund strategies. It will examine the key risk exposures of hedge funds and investigate their implications to strategic asset allocation, portfolio construction and implementation, risk management and performance evaluation. It will also study the nature of contracts between the investors and managers, features such as high watermark and hurdle rates, the importance of co-investing by managers that are unique to the hedge fund industry. Pre-requisites Equity Portfolio Management or Equity Investment Management. This pre-requisite is waived for CFA charter holders or for participants with substantial relevant work experience in this area.

Who should attend? The course will be of particular interest to those who would like to start their own hedge fund, join a hedge fund/proprietary trading desk or a fund of hedge funds or family office or an investment/private bank. It will also be of interest to those who would like to become a risk manager or a quantitative hedge fund analyst. Finally, it will be appealing to those who would like to manage your own money or some one else’s money or would like to become a consultant advising pension funds/endowments/family offices/High Net Worth individuals. Format and Teaching Methods Theoretical material will be taught in the form of lectures, and its applications will be demonstrated through case studies and assignments. In addition, there will be several presentations by practitioners from different parts of the industry such as hedge fund managers, fund of fund managers, prime brokers, custodians, administrators etc. Reading Materials The course will use extracts from several books such as “How to Invest in Hedge Funds” by Matthew Ridley, “Absolute Returns” by Alexander Inneichen, “Hedge Funds” by Francois Serge L’Habitant. A large part of readings will consist of published research and working papers in the area of hedge funds. Pre-requisites Successful completion of Corporate Finance and Valuation and Capital Markets and Finance. In addition, Equity Investment Management should be taken as either a pre or co-requisite. Assignments and Assessments Assessment will be based on coursework (50%), which will involve assignments (project-type and/or case-study type work), and class participation; and on a final examination (50%).

International Finance Subject Area Finance Lecturer Raman Uppal / Visitor - TBC Course Code E207 Term AUT08 / SPR09 / SUM09 Credit Value 1 Aims and Objectives

The aim of this elective is to provide an integrated view of international financial markets and the management of multinational firms. Our focus will be on the markets for spot exchange, currency forwards, options, swaps, international bonds, and international equities. For each of these markets, we will study the valuation of instruments traded in these markets and, through cases, the application of these instruments to the following corporate decisions: (i) managing exposure to exchange rates and country risk, (ii) financing in international capital markets, and (iii) cross-border valuation in the presence of multiple currencies, international tax regulations, and sovereign risk. The course will not cover topics in international macroeconomics, international trade and international business. Topics Covered The course material can be divided into five parts. A: Currency markets and the behaviour of the exchange rate The focus of the first part is on understanding the working of spot and forward currency markets, and the implications of the empirical behaviour of exchange rates for corporate decisions. In this section of the course, we will see that the exchange rate is not closely related to any of the fundamental macroeconomic variables in the economy, such as interest rates, inflation, money supply etc., and hence, it is difficult to forecast the future value of the exchange rate. This part motivates the rest of the course. B: Markets for exchange-rate derivatives and the hedging decision This section of the course examines how hedging exposure to exchange rates, using derivatives such as currency options and futures, can increase the value of a firm. The theory is then applied to the hedging problems of firms such as Jaguar, General Motors, and American Barrick. We also study how to structure instruments such as break-forwards and other exotic options in order to take advantage of accounting and tax regulations. C: International bond and equity markets and the financing decision In this section of the course, we study how to use international bond markets and swap markets to make cross-border financing decisions. In the course of this discussion, we examine the first ever swap between IBM and the World Bank, Disney’s use of swaps in order to hedge yen-denominated bonds, and RJR’s evaluation of the relative cost of financing in dollars, Eurodollars, or Yen. We will also examine how swaps can be used to

take advantage of international differences in tax regulations. Finally, we consider a firm’s decision to issue stock in its domestic market or to list on a foreign stock exchange. D: Cross-border valuation and the investment decision This section of the course extends the single-country CAPM to an international setting in order to understand the cost of capital for cross-border investments, including investments in emerging countries. We also develop a systematic method for valuing projects exposed to currency and sovereign risk. This theory is then applied to evaluate capital budgeting projects in different countries when the investments are accompanied by an offer for subsidized financing by the vendor. E: International taxes and the structuring of financing and investment decisions The course concludes by analyzing how one can structure investment and financing decisions in order to take advantage of differences in taxes across countries. Who should attend? The course is ideally suited for those pursuing careers in consulting; in financial institutions and investment banking, whether in trading, research, capital markets, corporate finance, asset management, or emerging markets; and for those working, or planning to work, in corporations, especially in the finance, planning, and treasury areas. Format and Teaching Methods For each topic, we will start with a brief review of the theory already developed in the earlier finance courses, extend this analysis to an international setting, and conclude by applying the theory to a case. During the term, 9 cases will be discussed in detail. In addition to these 9 cases, a number of other cases will be used to motivate our discussion of the theory. Reading Materials

• Slides prepared by the instructor and cases distributed in the course package. • These slides will be supplemented by other readings designed to emphasize

certain issues and present different points of view. These are distributed electronically in a PDF file.

• It is strongly recommended that you read The Financial Times, The Wall Street Journal, and The Economist on a regular basis; events reported in the business press will be integrated in our discussion of the course material.

Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing. Also, because this course demands a fair amount of work on a regular basis, and the teaching style requires you to participate in discussions actively, you need to make a commitment to be well prepared for class and to participate vigorously.

Assignments and Assessments Your grade for the course will be based on class participation (10%), case write-ups (40%), and a final exam (50%). The exam is similar to the cases covered in class. The final exam is an in-class exam (not take home) that is closed book. Class Make-up The class consists mostly of MBA and MiF students, with some executive MBA students.

Mergers, MBOS and other Corporate Reorganisations Subject Area Finance Lecturer Paolo Volpin / Julian Franks / Visitor - TBC Course Code E123 Term AUT08 / SPR09 / SUM09 Credit Value 1 Aims and Objectives

This elective will examine various types of corporate reorganizations: mergers and acquisitions, leveraged buyouts, private equity transactions, and divestitures, as well as reorganizations in financial distress situations through private workouts and bankruptcy. Particular emphasis will be put on linking valuation with transactions, and with different institutional environments. Topics covered

• M&A valuation techniques • Friendly mergers, mergers of equals, hostile takeovers. • LBO valuation techniques • Private equity transactions • LBO and private equity deal structuring and execution • Valuing distressed companies • Reorganisation of companies in financial and business distress • Private workouts and bankruptcy

Who should attend? The course is intended for individuals with a strong interest in studying the financial, strategic, and business issues surrounding corporate restructuring. It will be useful for programme participants who are working, or planning to work, in areas such as investment banking, private equity consulting, security analysis, turn-around management, and investment management. Format and Teaching Methods A review of articles, case studies and lectures from practitioners who will focus on deals and transactions. The course has three main strands: The course is centred on class discussion of real business case studies covering different transactions in different countries. Lecture-type sessions provide information, financial tools and frameworks useful to discuss case studies. Finally, presentations by practitioners will focus on industry practices and current developments, as well as on specific transactions. Reading Materials A mixture of lecture notes, practitioner documents and academic articles.

Pre-requisites Successful completion of Corporate Finance and Valuation; and Capital Markets and Financing. Assignments and Assessments The assessment structure for this course will be as follows: 10% class participation 30% assignments 60% final exam Note: please ensure that you know the date of the final exam before you sign up as you will not be able to take it outside the set time.

Options and Futures Subject Area Finance Lecturer Visitor - TBC Course Code E203 Term AUT08 / SPR09 Credit Value 1 Aims and Objectives Derivative instruments such as futures, swaps and options are now an indispensable part of the toolkit of all financial practitioners, from investment managers to corporate financiers. Like all powerful tools, though, they are as easy to misuse as to use - as the dramatic examples of Orange County, Barings and LTCM have shown. The purpose of this course is to provide the necessary skills to enable you to be an informed user of derivatives. You will acquire a robust conceptual knowledge of the fundamental issues that determine the valuation and behaviour of these instruments. This means a thorough grounding in both the real-world details of the products, and in the models used to analyse them. Mathematical models are central to both the existence and functioning of modern derivatives markets. A major theme of the course is to understand when and how they do and do not work. The course is thus necessarily quantitative. You should be comfortable with basic properties of functions and random variables, and be prepared to perform extensive numerical exercises (some of which can be done efficiently by writing Excel macros or programming in a scientific computing package such as Matlab). Some knowledge of calculus is helpful.

Topics covered The products and concepts you will be introduced to include:

• Futures, forwards and swaps. Valuation and hedging of these instruments, and their use in risk management and speculation.

• Options: the canonical models, including Black-Scholes and binomial. Their assumptions and robustness. How to use option pricing models; how not to use them.

• The role of volatility in option pricing, violations of Black-Scholes model (“Smile” and “Skew”), predictability of volatility, and how to deal with uncertain volatility.

• Exotic options: Monte-Carlo simulation techniques to value and use complex derivatives such as Barrier, Asian and Look-back options.

• Introduction to concepts such as Value-at-Risk relevant in modern-day risk management at financial institutions.

• NOTE: Corporate debt and credit derivatives are now covered in a separate elective on CREDIT RISK taught by Stephen Schaefer.

Who should attend? Students interested in learning about derivative products, and how to price and hedge them should attend this course. This course serves as the foundation for other quantitative electives like Fixed Income and Financial Engineering. The course is not suitable students who are interested only in an overview of options and futures markets (and not in models used to price and hedge these products).

Format and Teaching Methods The pedagogy is a combination of lectures and discussions. The course is intensive and requires weekly homework. Homework will be often PC-oriented and once in a while programming-oriented. The overall orientation of the course is the practical application of options and futures concepts in addition to a rigorous (at times analytical) discussion of options and futures theory. Class notes and copies of overhead transparencies presented in the class sessions will form the core material required for the course. Course packs would be available a week before the course starts (details to be announced on class mailing lists). Reading Materials While the course will rely on notes distributes in the class, good textbook references are

• J. C. Hull, Options, Futures, and Other Derivative Securities, Sixth Edition, Prentice Hall, 2006

• Robert L. McDonald, Derivatives Markets, First Edition, Adison Wesley, 2002 The following light-read books are highly recommended before the course starts:

• Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It, John Wiley, 2001

• Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management, Random House, 2000

• Philippe Jorion, Big Bets Gone Bad: The Largest Municipal Failure in U.S. History, Academic Press, 1995

Pre-requisites Corporate Finance and Valuation; Capital Markets and Financing. NOTE: If your quantitative skills are rusty, please open your old math books and refresh your memory. If you are not prepared to make that investment, then this course is perhaps not suitable for you. If you don't have any old math books, there are several ones in the bookstore and library with titles like Mathematics for Business and Finance or Schaum's Series for Calculus - please get one such book and review it. One recommendation is Mathematics for Economists, by Malcolm Pemberton and Nicholas Rau (Manchester University Press).

Assignments and Assessments Assessment will be by means of a combination of graded assignments (one per week except last week) worth 40% and a final exam worth 60%.

PhD Seminar in Financial Economics I/II/III Subject Area Finance Lecturer Francisco Gomes; Vikrant Vig; Mikhail Chernov Course Code E163 / E164 / E165 Term AUT08 = I / SPR09 = III / SUM09 = II Credit Value 1 Aims and Objectives This three-term sequence of courses is required of all finance PhD students and which provides a thorough, doctoral-level grounding in the basic theoretical and empirical methods of finance. While the courses are not designed primarily for MiFs or MBAs, a few participants each year may find that they provide an effective way to learn the rigorous foundations that underlie the finance taught elsewhere on the MiF or MBA. Each course in the sequence counts as one elective credit. These courses are very demanding: they take up the bulk of the time of the finance PhD students in their first year. They are especially relevant to those with a strong technical background who are interested in research in finance. Topics covered Financial Economics I The purpose of the autumn term course is to introduce you to the modern theory of asset pricing including (This is 10 sessions):

• Dynamic programming and portfolio theory • Mean-variance analysis • Factor pricing models • Consumption-based security pricing • Complete and incomplete security markets • Multi-date security markets

Financial Economics II The spring term course covers both theory and empirical work on a wide range of topics in Corporate Finance, likely to include (This is 12 sessions):

• Financial Policy • Dividend Policy • Corporate Investment Policy • Financial Distress, Bankruptcy and Reorganisation • Banking • Corporate Finance and Competitive Strategy • Corporate Control and Takeovers • Corporate Risk Management

Financial Economics III The summer term course covers the major issues and techniques in empirical finance. The topics covered are likely to include (This is 10 sessions):

• Asset-pricing test methodologies • The cross-sectional properties of asset returns • The time-series properties of asset returns • Econometrics: Overfitting and underidentifying • Volatility: Empirical facts and modeling techniques • Event and Matching Studies • Fixed Income: The empirical facts • Term Structure Modeling

Format and Teaching Methods Much of the teaching will be based on articles and readings, which you are required to study in depth. You will be expected to participate fully.

Pre-requisites Degree participants wishing to take one or more of these courses must obtain the prior approval of the relevant lecturer. In addition, a strong mathematical background and prior exposure to intermediate microeconomics, macroeconomics, and econometrics would be extremely useful.

Assignments and Assessments The assessment structure for each of the three courses will differ but will generally be by means of some combination of problem sets, student presentations, a midterm exam, and a final exam.

Class Make-Up PhD students, MBA students and MiF Students

Project Finance Subject Area Finance Lecturer Sreeni Kamma Course Code E176 Term SUM09 Aims & Objectives Over the last two decades, project finance, a new contracting technology for allocating the risks and rewards of large-scale projects has become a highly visible force in the field of finance. Worldwide private sector investment in project finance deals now exceeds $100 billion p.a., and is expected to continue to grow. To the public, the use of such finance is indelibly linked with such successes as the Teeside Power Project in the U.K., the Ras Laffan LNG project in Qatar, the Hopewell Partners Guangzhou Highway in China as well as with such spectacular failures (initially, at least) as Eurotunnel, EuroDisney, and the Dhabhol power project in India. More recently, governments around the world have begun to switch to financing capital investment off balance-sheet instead of issuing government securities. An important part of this trend is PPP (Public Private Partnerships) and PFI (the UK government’s Private Finance Initiative), pioneered in the UK and becoming widespread around the globe. Why is project financing being increasingly relied on to fund investments? What advantages does it have over traditional corporate finance? Why did some structures fail whereas others succeed? How do the governance mechanisms in such structures work? What are the valuation challenges posed by such structures? What financing innovations have they generated and how are these valued? If such projects encounter financial distress, how should they optimally be restructured? These are the questions we will address in this course. We will use the principles of corporate finance and the lens of market imperfections to examine how project finance can add value. Topics Covered The course will use the tools of corporate finance to examine why firms use project finance and how they structure, value and finance such projects. The organization of this course reflects these broad issues. There are three related topics covered in the course:

• Project vs. Corporate finance: why do firms use project finance? • Analyzing and structuring project risks: how to assess and allocate risks and

rewards. • Financing, valuing and restructuring projects: what makes valuing highly-

leveraged projects (especially those in emerging markets) so difficult-and what can we do about it? What are the financing innovations and choices? How can projects in distress be optimally restructured?

We will use a series of cases to examine these issues. These cases provide an opportunity to apply corporate finance principles and valuation methods to real-life projects. They cover a variety of industries and illustrate the financial tools and structures used by corporate sponsors as well as government and private sector

agencies. The discussion will encompass sovereign finance, corporate finance, and structured finance on how issuers/sponsors use these avenues to meet various balance-sheet, tax, accounting, rating and risk-management benefits. Format & Teaching Methods The course will be mostly case study based, with some lectures and a number of visiting speakers. Each week we will generally spend half the time on a case and the rest on a lecture. The cases chosen for the course illustrate the creative application of sound financial theory to challenging business problems. The lecture will develop further the topic of the week and will, on occasion, be presented by a visiting speaker with expertise and field experience in the week’s topic. Pre-Requisites & Input Required Corporate Finance and Valuation; Capital Markets and Financing As in any case-based class, the method of analysis and the questions posed are far more important than the final answers. Consequently, the lessons and insights drawn from these cases are largely a function of the effort and care students invest in their analysis. Students are expected to come to each class having prepared the case and are expected to contribute to the session with well-reasoned comments, questions, and analysis. Posing questions, raising alternative viewpoints, and providing well-reasoned challenges to expressed views are all very valuable forms of contribution. Assignments & Assessment All case assignments will be turned in by groups of four students each. In addition to preparing for each class, groups will be responsible for the following: Three case memos (including one oral presentation). One bid submission. The final examination will be an individual exercise. The exam may be satisfied in one of two ways: completing a take-home case analysis during the last week of the class or by writing an original case and a case analysis illustrating an interesting project finance transaction. Grades will be based on the following criteria:

Case memoranda 30% Bid submission 10% Class participation 20% Final exam 40%

Class Make-up Visiting speakers from the front-lines of project finance will sometimes be invited to speak on the topic being addressed in class. On such occassions, their presentation will take the place of the formal lecture and usually follow the case discussion. Previous speakers have spoken on legal issues in project finance, project ratings, political risk insurance, PFI, loan syndication, financial models, etc. There will be approximately five or six speakers during the course.

Topics in Asset Management Subject Area Finance Lecturer Bob Jenkins / Elroy Dimson Course Code E415 Term TBC Credit Value 1 Aims & Objectives What jobs do asset managers and their advisers do? What are the challenges as new ideas are adapted to meet the needs of customers and clients? We take a tour of the world of investment management. After this course, you’ll know more about asset management in practice and be better prepared for a career in investment. You will have studied the real jobs of analysts, quantitative specialists, strategists, fund managers, distributors, consultants, alternative investors, and professional advisors. This elective is designed for individuals who are interested in investment. It is especially appropriate if you plan to work on the buy- or sell-side, in management, trading, marketing or consulting; in private equity, real estate or hedge funds; or in organisations where your role will require an applied insight into asset management. You’ll acquire practical exposure to the implications of research in finance and investment, and will network with guests from leading investment organisations. Topics in Asset Management has a conceptual and managerial flavour. TAM is more case oriented than lecture based, and is not particularly quantitative. In 2006, TAM was awarded the Innovation in Learning Award for the most innovative course at London Business School. Topics Covered The course covers a variety of perspectives on the investment business. Throughout, we emphasise implementation—bridging from investment principles to practical (and often challenging) managerial situations. Each session has a theme that is illustrated through a live case study, exercise or simulation. The syllabus evolves each year, depending on what issues are compelling, which stories are documented in recent case studies, and guest who are available. As a guide, this is a recent list of key topics: • The investment industry (discussion: Leaders from the profession) • Long-term asset class returns (discussion: Triumph of the Optimists) • Plan sponsors (case: National Instrument and a veteran investor) • Sovereign wealth funds (case: Norwegian Government Pension Fund) • Charitable funds management (case: The Henry Smith Charity) • College endowment management (case: the Oxford and Cambridge endowments) • Manager selection (simulation: The LBS Beauty Parade) • Foundation asset management (case: The Wellcome Trust) • Asset management conference (in conjunction with the Investment Management

Club)

Format & Teaching Methods Sessions typically comprise two or three elements, covering a case, readings, and guest speakers. A few cases are conventional written documents; others are live situations. Speakers will currently be confronting a major issue in their own organisation, and guest contributors will comment on the live cases. For the beauty parade, we invite teams from several asset-management firms to pitch to us for business. Most cases and exercises are ‘live’ and the attendees are individuals who are central to the case. Previous guests included: • Editors from the BBC, Economist, Evening Standard and the FT • Heads of CFA Institute, Investment Management Association and Securities

Institute • Directors from BGI, Capital, F&C, Fidelity, Goldman, Orbis, UBS and Wellington • Principals from DFA, Frontier, GAM, LNG, OTPP, PIMCO and Renaissance • CIOs from Atlantic Philanthropies, Norges Bank, UnLtd and Wellcome Trust • Consultants from Frank Russell, Hewitt, Mercer, Watson Wyatt and John Woods. You will be invited by the Chairman of a leading investment firm to dinner with his co-directors, at which a topical issue will be discussed with board members. There will be additional opportunities to interact with course guests. Pre-Requisites & Input Required TAM is open to LBS and Exchange Programme participants who have completed core courses in finance. This is an experiential course and does not “teach” investment. You should therefore have prior knowledge through professional study or experience, participation in Investment Management Club activities, or LBS coursework. To review the subject, read Shanta Acharya’s Asset Management: Equities Demystified (Wiley, 2002). There is a high level of student involvement in this elective, and missing a session is disruptive. Since this is not a lecture course, it simply is not possible to ‘get by’ if you arrive unprepared. You should expect to attend every session, and to arrive prepared. The major assignment provides an opportunity for you to spend some time at the workplace of an investment professional, learning about his or her job. You should reserve quality time for this activity. If your schedule precludes joining guest speakers for after-class drinks and dinner, you will miss out on the benefits from TAM. You should therefore reserve all evenings during this elective. Assignments & Assessment There is no final exam. The course grade is based on the following: • 50%: Interview an investment professional at his or her workplace, describe the job

and its context, and report how the interviewee responds to its challenges (1500 words)

• 30%: Brief case write-ups • 20%: Class participation. Class Make-up All sessions will have some guests from the asset management industry. Some of them welcome the opportunity to ‘dress down’ for students, but others will expect to see you

looking smart. We will tell you, beforehand, the classes for which business attire is required. The Instructors Robert Jenkins is Chairman of the Investment Management Association and of F&C Asset Management. Prior to seven years as F&C’s CEO, Bob was CIO at Credit Suisse and COO of Credit Suisse Asset Management. He worked for Citibank for 16 years in the Middle East, Switzerland, the US and Japan. Bob studied in the US, France and Italy, and holds a Masters in International Economics and European Studies from the Johns Hopkins University. He is Executive Fellow at London Business School. Elroy Dimson is BGI Professor of Investment Management, and was formerly Chair of the Finance and of the Accounting areas, and Dean of MBA Programmes. His investment positions include the Norwegian Government Pension Fund, Guy’s and St Thomas’ Charity, UnLtd, and the University of London. Elroy has been President of the European Finance Association, Executive Committee Member of the Financial Economists Roundtable, and Associate Editor of the Journal of Finance and Review of Finance. Co-author of Triumph of the Optimists and of the Global Investment Returns Yearbook 2008 (with Paul Marsh and Mike Staunton) and of Endowment Asset Management (with Shanta Acharya). An Honorary Fellow of the UK Society of Investment Professionals and of the Institute of Actuaries, his PhD is from London Business School.