Finance 307: Principles of Financial Risk Management

Fall 2010
Time: 9:30 - 10:45 a.m. T/Th, Room: Ross/Van Brunt 124

Instructor
Sue Vagts, FSA
Office: 244 CBA
Phone: 402-474-1430 (Home); 402-472-2329 (Office); 402-770-6171
E-mail: svagts@unlnotes.unl.edu
Office Hours: 1:00 2:30 T/Th, and by appointment, can call my home or cell anytime between
7 a.m. and 11 p.m.
Course Objectives
Course Objectives: The course objectives are that by the end of the semester, the
student should be able to:
1. Articulate equilibrium relationships between risk and return
for publicly traded corporations;
2. Identify in addition to measuring corporate risk exposure;
3. Decompose the overall firm risk metrics to determine the
individual sources of risk;
4. Demonstrate a working knowledge of the organization, regulation,
functioning, and price determination of financial
derivatives and of insurance contracts in insurance markets;
5. Design structured finance securities that combine capital
markets and insurance markets mechanisms including finite
risk, insurance securitizations, etc;
6. Implement both static and dynamic risk management strategies;
7. Calculate the marginal costs and benefits of implementing
various hedging strategies using derivatives or insurance
contracts;
8. Make recommendations regarding the hedging and/or
insurance strategy that would most likely lead to the greatest
increases in firm value.
This course emphasizes the process of problem analysis and
solution. That is, how well can you THINK?!! Creativity and
courage are highly valued.
Class Materials: A. Textbook.
Scott Harrington and Gregory Niehaus, Risk Management and
Insurance, 2nd Edition, Publisher: Irwin-McGraw Hill, New York,
NY, 2004. ( You will not need this for the first 2-3 weeks)
B. Rejda, George E., Principles of Risk Management and Insurance, 10th Edition, AddisonWesley educational Publishers, MA, 2008. (You will only need this for certain classes, I
have spare copies to share if you do not wish to purchase this textbook)
C. Wall Street Journal Subscription (discounted subscriptions to this are
available at the bookstore. A semester subscription for $20 - $30.)
D. Calculator.
A financial calculator is required. This class recommends that you

use the Texas Instruments BA II Plus Business Analyst

Calculator. Bring your calculator to class each day.
Notes
1) There are two hourly exams and a comprehensive final exam. Failure to take the final exam will result in a
grade of I or F. You do not have the option of missing any exam. The only exception is seniors graduating
this December you do not have to take the final exam unless you want to try and improve your grade. The
final exam will be open book.
2) If you cannot make it to class on the day of an exam, you need to clear it with me ahead of time and make
up the exam ahead of time. Make up exams ordinarily will not be given after the scheduled exam date. If
given, the make up exam will be more difficult.
3) You will be given the full class time for all exams.
4) All text chapters should be read before the scheduled class convenes. You should be prepared for class
before the class meets.
5) Class attendance is strongly encouraged. We will have a few speakers over the semester. Speakers will be
announced ahead of time, and class will be worth 10 points on those days. If you are in class the day we
have the speaker, you will get the points. If you are not in class, you will not get the points. The only
exceptions to this rule are if you have written evidence of: job interview, medical excuse, UNL conference,
or funeral. There will be between 30 and 50 points worth of speakers over the semester.
6) Office hours are as posted on the first page of this syllabus. If these hours are not convenient for you, please
call me at home and schedule an appointment. I will gladly make the time to come down and meet with you
as I want to help you do your best in this class.
7) Extra Credit: If you find an article in a newspaper or magazine relating to financial risk, you may bring it to
class and share it with the class. You will get 5 points for your article, one article per student per semester.
I will only allow up to 5 article presentations per day in class, so please don't procrastinate until the last
week or you may not get the opportunity to present.
8) Academic Honesty: Students are responsible for their own work and accomplishments. You are
encouraged to work with others but copying all or part of any graded work, or signing in a classmate for in
class work or speaker points, will result in a grade of 0 for all students involved. A second offense of
cheating will result in a failing grade for the course.
9) General Comments:
It is expected that you will need to spend at least six to nine hours per week outside of class time to succeed
in this course.
If there is any material about which you have questions, you are expected to ask questions during class,
during office hours or via e-mail. Do not hesitate to ask questions in class. I might not have the answer
immediately, but someone else might. If not, my goal will be to get an answer by the next class session.
Class participation may also be taken into consideration in determining the course grade.
This class schedule is tentative and may be adjusted based on the progress of the class.

Students with disabilities are encouraged to contact their instructor for a confidential discussion of their
individual needs for academic accommodation. It is the policy of the University of Nebraska-Lincoln to
provide flexible and individualized accommodation to students with documented disabilities that may affect
their ability to fully participate in course activities or to meet course requirements. To receive
accommodation services, students must be registered with the Services for Students with Disabilities (SSD)
office, 132 Canfield Administration, 402-472-3787 voice or TTY.
The course evaluation survey will be administered on December 8. A volunteer from the class will
administer the survey. The instructor will not be present during the survey. The results will be held by the
Program administrative assistant until all grades have been reported to the registrar.
Honor the rules of the classroom: no food or drink and PLEASE dispose of any waste items in the provided
receptacles.
Please treat each other and the instructor with courtesy and respect by being quiet and attentive during class.
In return, I will do my best to make the class enjoyable and fun!
Grading Scale
Percentage

Grade

Percentage

Grade

98 100%
92 97%
90 91%
88 89%
82 87%
80 81%

A+
A
AB+
B
B-

78 79%
72 77%
70 71%
68 69%
62 67%
60 61%
Below 60%

C+
C
CD+
D
DF

Course Outline:
Date
Aug. 24
Aug. 26, Aug. 31, Sept. 2
Sept. 7, 9, 14
Sept. 16
Sept. 21
Sept. 23, 28
Sept. 30
Oct. 5
Oct. 7
Oct. 12

Topic
Intro to Course
Risk and Its Management
Risk Identification
Risk Identification Practice
Risk Measurement I
Risk Measurement II (Value at Risk)
Business Risk Management
Individuals and Risk
Exam I
Investors and Risk Management

Assignment
Syllabus
Chapter 1
Class note/ Chapter 3
Class note/Chapter 3
Class note
Class note
Chapter 2
Class note/Chapter 9

Nov. 9

Class note
Chapter 20.1 & 20.2
Risk Management and Value Creation I
Class note
Chapter 20.3, 20A & 20B
(No Class Meet in Groups for Project/HW)
Risk Management and Value Creation I
Class note
Chapter 20.3, 20A & 20B
Risk Management and Value Creation II
Class note
Chapter 21
Insurability and Insurance Operations
Chapters 5 & 10
Rejda's Chapters 9 & 10*
Exam II

Nov. 11, 16

Commercial Insurance Contracts

Nov. 18

Linear and Non-linear Hedging Strategies

Chapter 23
Rejda's Chapters 25 & 26*
Class Note
Chapter 24

Oct. 14
Oct. 19
Oct. 21
Oct. 26 & Oct. 28
Nov. 2 & Nov. 4

Nov. 23
Nov. 25
Nov. 30
Dec. 2,7
Dec. 13

Other
Alternative Risk Transfer Strategies
Chapter 25
Alternative Risk Transfer Strategies (cont...)
Review
COMP FINAL EXAM (Monday 3:30pm 5:30pm)

*: Rejda, George E., Principles of Risk Management and Insurance, 10th Edition, AddisonWesley educational Publishers, MA, 2008.
Caveat: This syllabus provides a general plan for the course. Deviations may(will) be
necessary.