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Introduces forward contracts and derives graphically through basic arbitrage principles the spot-forward parity. Introduces swap contracts as simply a portfolio of forward contracts. Also covers briefly the mathematics behind swaps as an extension of spot-forward parity calculations.

Spreadsheet Supplement for case 205122

Spreadsheet Supplement for case 205118

Spreadsheet Supplement for case 205111

Provides the basic underlying model for credit risk analysis, as well as covers basic credit risk derivatives, such as asset swaps, credit default swaps, total return of rate swaps, and credit spread options.

Ticonderoga is a small hedge fund that trades in mortgage-backed securities--securities created from pooled mortgage loans. They often appear as straightforward so-called "pass-throughs," but can also be pooled again to create collateral for a mortgage security known as a collateralized mortgage obligation (CMO). CMOs allow cash flows from the underlying pass-throughs to be directed, allowing the creation of different classes of securities--tranches--with different maturities, coupons, and risk profiles. In April 2005, the general managers of Ticonderoga are looking at the market data, trying to construct a trade given their view on the prepayment speed of mortgages vs. the implied prepayment speed they derive from CMOs in the market.

Spreadsheet Supplement for case 205121

A client asks Luc Giraud, CEO of the structured finance solutions provider Nexgen Financial Solutions, to put together a solution that allows the client to add AAA-rated bonds to its portfolio. The client cannot find suitably priced top-rated bonds in the market and wonders whether Nexgen can use lower grade bonds to create AAA-equivalent instruments. The process of securitization packages together securities to create new securities with different risk and return profiles.

Spreadsheet Supplement for case 205101

In 2005, the University of Chicago Investment office was deciding how much capital to allocate toward timber investing. Explores the challenges associated with optimal portfolio construction when one of the invested assets is illiquid with limited historical price transaction data.

Options are contracts that give the right, but not the obligation, to either buy or sell a specific underlying security for a specified price on or before a specific date. Explains the basis of options, covering fundamentals such as option terminology, the payoff schemes of options, parameters that influence their value, the put-call parity, and the upper and lower bounds of options prices. Presents problems for students to solve.

For every option, a fair price has to be established. But how do you actually price an option? Assuming a basic knowledge of options, this note covers two pricing methods: the binominal tree and the Black-Scholes/Merton formula.

Spreadsheet Supplement for case 205105

Supplements the (A) case.

Supplements the (A) case.

In 2001, a Nigerian holding company was deciding how much to pay for a major Nigerian oil marketing firm. Explores the challenges facing a fast-growing, leveraged buyout firm operating in a global economy but constrained by imperfect local financial and legal institutions.

In 2003, a Namibian entrepreneur was deciding how to finance and manage the risks of an ecotourism, nature reserve, venture project. Explores the challenges facing an entrepreneur operating in an emerging market with imperfect local financial and legal institutions.

Laurie Marker, head of the Cheetah Conservation Fund, is trying to form a for-profit institution, the Bush Project, to control the bush encroachment problem in Namibia. Bush encroachment not only destroys the general ecosystem, but it also has a harmful impact on the Cheetah population. Although USAID has provided some initial funding for the project, it will survive in the long run only if it is financially successful. Marker must determine whether the Bush Project is financially viable. This case introduces the reader to the tension between business and the environment in an emerging market.

Spreadsheet Supplement for case 205059

Spreadsheet Supplement for case 205040