Publications

April 2008
Teaching Note

Leveraged Loans 2007 (TN)

By: Andre F. Perold and Erik Stafford

Teaching Note for 208-145. View Details

Keywords: Banking Industry; Financial Services Industry

March 2008
Course Overview Note

Dynamic Markets

The Dynamic Markets course at Harvard Business School is organized around the hands-on application of financial decision making in a wide variety of capital market settings. The course relies heavily on in-class simulations of a range of market settings where students... View Details

Keywords: Value Creation; Decision Making; Capital Markets; Competitive Strategy; Profit; Applications and Software; Information; Strategy; Price; Outcome or Result; Curriculum and Courses; Theory

March 2008
Teaching Note

2006 Hurricane Risk (TN)

By: André Perold and Erik Stafford

Teaching Note for [207075]. View Details

Keywords: Decision Choices and Conditions; Loss; Investment; Insurance; Natural Disasters; California

January 2008
Background Note

Convertible Arbitrage

The goal of this simulation is to understand how convertible bonds can be viewed as a portfolio of simpler securities and to introduce an over-the-counter market. The convertible bonds that are available during the simulation are at-the-money and in-the-money so that... View Details

Keywords: Bonds; Investment Portfolio; Price; Risk Management; Mathematical Methods

January 2008
Background Note

Equity Derivatives

The goal of these simulations is to understand the dynamic replication technique behind the Black-Scholes/Merton options model. The simulations focus on a single stock and a risk-free discount bond, which are used to replicate a contingent payoff. The underlying stock... View Details

Keywords: Equity; Bonds; Stocks; Price; Risk Management

January 2008
Background Note

Equity Options

The goal of this simulation is to understand the reliance of option values on volatility. When an investor trades an option, they are essentially trading volatility. Therefore, much of the focus in this lesson is on forecasting volatility. Students are able to use two... View Details

Keywords: Volatility; Forecasting and Prediction; Stock Options; Investment Return; Price; Market Transactions; Mathematical Methods; Value

January 2008
Background Note

Index Options

The goal of this simulation is to understand the patterns in index option prices that are not predicted by the Black-Scholes model. In particular, the simulation focuses on two properties of options prices. First, at-the-money implied volatilities from index options... View Details

Keywords: Volatility; Stock Options; Investment; Price; Profit; Risk Management; Mathematical Methods

January 2008
Teaching Note

Options (TN)

Teaching Note for [208116], [208117], [208118], and [208119]. View Details

Keywords: Stock Options

January 2008
Background Note

Collateralized Debt Obligations (CDOs)

This lesson integrated Merton's (1974) contingent claims model of debt and equity claims with the CAPM, which allows us to examine the risks and pricing of credit portfolios and the derivative claims issued against them. In particular, this model is used to make... View Details

Keywords: Decision Choices and Conditions; Borrowing and Debt; Credit Derivatives and Swaps; Investment Portfolio; Risk Management

January 2008
Teaching Note

Credit Risk: Valuing Risky Debt & CDOs (TN)

Teaching Note for [208111] and [208113]. View Details

Keywords: Price; Credit; Risk Management; Investment; Bonds; Borrowing and Debt; Decisions

January 2008
Background Note

Valuing Risky Debt

This lesson develops the classical structural approach to pricing and hedging credit risk: Merton's (1974) contingent claims model of debt and equity claims. This model is used to make investment and risk management decisions in an over-the-counter (OTC) market for... View Details

Keywords: Borrowing and Debt; Credit; Investment; Price; Risk Management; Mathematical Methods; Valuation

November 2007
Background Note

Asset Allocation I

By: Joshua D. Coval, Erik Stafford, Rodrigo Osmo, John Jernigan, Zack Page and Paulo Passoni

The goal of these simulations is to understand the mathematics of mean-variance optimization and the equilibrium pricing of risk if all investors use this rule with common information sets. Simulation A focuses on five to 10 years of monthly sector returns that are... View Details

Keywords: Asset Pricing; Capital; Investment Return; Risk Management; Mathematical Methods

November 2007
Teaching Note

Asset Allocation I, II & III (TN)

Keywords: Resource Allocation; Assets

November 2007
Supplement

Asset Allocation III

Keywords: Resource Allocation; Assets

November 2007
Background Note

Event Arbitrage

The event arbitrage module includes two simulation sessions. The first simulation focuses on analyzing and evaluating individual merger transactions, while the second simulation emphasizes managing a portfolio of individual positions and the limitations of arbitrage... View Details

Keywords: Mergers and Acquisitions; Capital Markets; Financial Management; Investment Portfolio; Risk Management

November 2007 (Revised March 2008)
Teaching Note

Event Arbitrage (TN)

Keywords: Finance; Markets